A muted package of Budget announcements has been hailed as a boon for financial planners, but deteriorating forecasts have cast a shadow over the UK economy as a whole.
In a marked contrast with the series of overhauls announced over the past five years, the 22 November Budget was notable for the absence of any material changes to pensions and savings policy.
Fears of an overhaul to the pension tax relief system again proved wide of the mark, and both the lifetime allowance and annual allowance were also left untouched. Old Mutual Wealth retirement policy head Jon Greer described the Budget as “dull and boring” for pensions.
“This will give savers some certainty while the country faces the uncertainty of Brexit. Alongside the lack of any change to mainstream individual taxation in income, capital gains or inheritance tax, it gives consumers some stability in their planning after many years of tinkering,” Royal London said.
The economic uncertainty was more apparent in a sharp scaling back of economic growth and productivity forecasts. The Office for Budget Responsibility (OBR) said 2017 growth would now stand at 1.5 per cent, down from a previous prediction of 2 per cent, and similar cuts were also made to future year forecasts.
After dipping in 2018-19, GDP growth had previously been forecast to rebound to 1.9 per cent by 2019 and 2 per cent by 2020. But latest estimates suggest annual growth will not pass the 1.5 per cent mark at any point during the next five years.
Lower productivity estimates, if accurate, could prove particularly damaging to the UK economy. They mean a £26bn hit to the 2020/21 public purse – a year in which the government was only intending to borrow £20bn in the first place.
Columbia Threadneedle global co-head of multi-asset Toby Nangle said: “Productivity growth has serially underdelivered on expectations over the past decade, and this under-delivery is largely responsible for the stagnation in real incomes. It appears today that expectations for the long-sought-for rebound were tempered.”
The chancellor aimed to mask this downbeat assessment with an olive branch to first-time buyers (see page 10) and measures to boost innovation and growth in the wider economy – including changes to Enterprise Investment Schemes and Venture Capital Trusts (see page 8).
A focus on long-term investment even brought the prospect of an increase to the LTA and the annual allowance. The government’s Patient Capital Review suggested that both allowances could be increased for those who invest in a mooted development fund for early-stage UK companies.
Meanwhile, the personal allowance will grow from £11,500 to £11,850 next April, while the higher-rate threshold will increase from £45,000 to £46,350. The government also committed to launching a new asset management strategy, setting out its priorities for the sector, though at the time of writing (22 November) it had yet to provide further details.