OpinionOct 26 2022

The chancellor’s next steps need to be carefully planned and costed

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The chancellor’s next steps need to be carefully planned and costed
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Nearly all tax-cutting measures – hailed to be the answer to the cost of living crisis – have been revoked and the UK has now been left in a holding pen, awaiting what will happen next.

We must now hope that Rishi Sunak, our new prime minister, will not throw things yet further into disarray.  

Ironically, measures brought in to ease the burden on businesses and individuals, as well as the stated aim of simplifying the tax code, have caused more confusion and complexity than ever at a time when the country is calling out for stability and reassurance.

We are facing the highest tax burden in more than 40 years, yet tax cuts are no longer on the agenda.

What happens now is anyone’s guess, but knee-jerk reactions to reverse poorly thought-out measures are clearly not the answer, and the chancellor’s next steps in his fiscal statement on October 31 (assuming it still happens) need to be carefully planned and costed to restore some kind of order.

Confusion does not breed confidence  

It is unsurprising that businesses and individuals will be feeling blindsided, in the wake of multiple Budget U-turns with little warning. Such drastic tax changes (and their reversals) have no doubt made it difficult to plan ahead.

Many businesses and individuals, who may have had plans foiled amid the U-turns, have likely lost confidence in planning for the future – especially over the next few weeks ahead of another big announcement.

Not only this, but financial advisers are no doubt struggling to give tax advice in the absence of any clarity – for example, we have given the same client different advice three times this month alone.

A proof point on the damage from uncertainty has been in the markets, with lack of confidence from investors in the UK and the pound creating further chaos.

And with a lack of any Office for Budget Responsibility forecasts until this point, it is no wonder investors, markets, clients and businesses are increasingly uncertain on what the future will hold.

While markets and the pound are admittedly rallying, not all can be fixed by going back on bad decisions, and clients will likely be impacted for some time.

What damage has been done?

Leaving the damage to political credibility aside, the cost of borrowing has increased, and those paying mortgages or thinking about getting on the property ladder may have had to delay their plans as a result.

And it is not only younger people who are affected; those with private pensions may now be revisiting plans to retire, given the real-terms cuts to their value.  

The impact on those with public pensions remains to be seen, but if a decision is taken to remove the pensions triple lock it will impact individuals by an estimated £400 a year – not a decision that should be taken lightly.

Not just this, but across the board, people and businesses are likely to be worse off than previously.

While soaring inflation paired with stealth tax freezes left people marginally better off than they would have been, a reversion to the new tax code and the highest interest rate for 30 years now unfortunately means the majority will be worse off, for now. But all is not lost.

What’s next?

There is clearly a bigger hole in the public finances than previously, and as a result cuts are inevitable.

As with any fiscal statement, experts are already speculating about what measures are to come on October 31, whether it be changes to the pensions triple lock, freezing benefits or raising taxes – it is ultimately a political decision, and one that Jeremy Hunt and Sunak will both have their own views on.   

If the past month has shown us anything, it is that we cannot predict the government’s next steps when it comes to its fiscal measures.

Even so, going back on clear mistakes to regain market confidence is a good starting point.

As the pound continues to build and businesses and individuals adapt in the face of the cost of living, it is now up to the government to move with caution and devise a transparent roadmap, and stick to it.

We are facing the highest tax burden in more than 40 years, yet tax cuts are no longer on the agenda.

Clearly, the priority now is not to rock the boat, and ahead of inevitable further shake-ups on October 31, the chancellor must ensure plans are carefully thought out, backed by OBR analysis and that businesses and individuals are given enough time to plan for their introduction, if we have any chance of regaining stability.

Katharine Arthur is head of private client at haysmacintyre