What advisers could see in next week's summer statement

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What advisers could see in next week's summer statement
Rishi Sunak, chancellor of the exchequer

The first official fiscal statement since the March budget is to be delivered next week as the chancellor attempts to keep businesses and households afloat in the wake of the coronavirus pandemic.

The virus’ economic impact has resulted in the UK’s debt-to-GDP ratio breaking the 100 per cent mark for the first time since 1963 and the economy shrank a record 20 per cent in April.

Rishi Sunak — who has pledged the announcement will be a ‘fiscal plan’ rather than an ‘emergency budget’ — will present his roadmap for the UK economy next Wednesday (July 8). Here’s what could be on the agenda:

Wealth tax

There has been growing speculation that the chancellor could implement a levy on personal wealth to boost the UK’s finances and buffer the economy against the impact of the pandemic.

According to law firm Charles Russell Speechlys, HM Treasury has approached certain private banks and wealth managers to discuss the concept of a wealth tax.

Just yesterday (July 2) Gus O’Donnell, who served as cabinet secretary under David Cameron, Gordon Brown and Tony Blair, added his voice to calls to start taxing personal wealth, saying the Covid crisis had provided the basis for such measures.

Racheal Griffin, tax and financial planning expert at Quilter, said a one-off or ongoing levy on personal wealth could be put in place to “rebalance the wealth distribution and provide a significant boost to government revenue”.

But she warned: “A tax levied on the value of someone’s wealth is a worrying prospect given the practical and political difficulties associated with such a broad levy. 

“What happens to those with considerable illiquid assets but few liquid assets? What happens to older generations who will need their wealth to pay for future social care costs?”

Cuts to VAT

It is possible the chancellor will look to encourage consumer spending by slashing the rate of VAT, commentators have predicted.

Last month Alistair Darling, who was chancellor at the height of the financial crisis of 2007 and 2008, called for an emergency VAT cut.

Jon Hickman, corporate tax partner at BDO, said cutting VAT would be the “simplest move” to boost spending, adding the tactic was used by Lord Darling in 2008 and had already been taken in other EU countries to help their economies post-lockdown.

Tom Selby, senior analyst at AJ Bell, agreed the chancellor could go “in the other direction” of the manifesto promise not to raise VAT and instead “cut VAT rates to stimulate spending”.

But Ms Griffin, said there were “two big question marks” around the effectiveness of a VAT cut.

She said: “The post-2008 reduction in VAT had a minimal impact on demand at a substantial cost to the exchequer. VAT is normally the government’s second biggest source of revenue...the Chancellor [might be] reluctant to put further strain on the public finances.”

Ms Griffin added the dynamics of the crisis also differed to 2008 as this time consumers had built up their savings and now faced a “psychological barrier” rather than a financial one, meaning there could be “pent-up” demand.

Scrapping the triple lock

Whether the pensions triple lock will survive, or even be practically viable, in the aftermath of the virus crisis has also been a hot topic over the past few months.

But the policy has proven resilient in the past, given there have been calls to scrap it for years.

Treasury documents, seen by the Daily Telegraph, show Mr Sunak had been advised to scrap the lock to recoup some of the billions spend on Covid-19 support, while think tank the Resolution Foundation has said the lock would have to be scrapped next year to avoid increasing payouts by nearly a fifth when earnings jump.

Mr Selby said: “Although the government has so far been tight-lipped, the triple lock looks in an increasingly perilous position.”

This puts the government in a tight spot, however, as the triple lock pledge was central to the party’s manifesto in the December 2019 election.

Pensions tax

A review of pensions tax relief has been touted as a possible move in the lead up to most recent fiscal events but it is yet to make it into reality.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “Usually [pension tax change] is met with resistance and never sees the light of day, but this time could be different. 

“There’s a broad recognition that the response to the crisis has required monumental levels of spending, so paying for it will require extraordinary measures.”

Ms Coles said it was “essential” this was not another piece of “pensions tinkering” and was instead a “root and branch review”.

Alistair McQueen, head of savings and retirement at Aviva, agreed. He said a review of pension tax relief could come into “sharp focus” as the economic decline could “finally cause the government to act”.

Good for advice

Any review of public finances, tax reforms and policy shake ups can cause a level of uncertainty among consumers and encourage them to turn towards advice, some experts have argued.

Steven Cameron, pensions director at Aegon, said: “While detailed or fundamental changes may be deferred until the Autumn Budget, there could be short term stimulus measures or possibly the launch of consultations [launched next week]. 

“From a financial services perspective, changes to income tax, National Insurance, wealth taxes or pensions tax relief could lead to a huge surge in the need for advice.”

imogen.tew@ft.com

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