MRM PRE-BUDGET BULLETIN

Please find below expert comment from a selection of our clients’ key spokespeople, including  IFAs and fund managers, on what they would like to see in the upcoming budget.

If you would like any further comment from the below people or companies just let us know.

Stephen Young, Chief Operating Officer, Sesame Bankhall:

“The stark reality is that Britain needs to save more yet the FSA is set on a course which will reduce the very profession which encourages consumers to make long-term savings and to provide for their own futures. So I would like to see announced a new statutory objective for the FSA to encourage a savings culture within the UK. This would at least indicate that the government had woken up to the fact that a cultural change away from State to private provision of benefits will, unless accompanied by compulsion, require a large and healthy advice profession. Additionally as the previous government threatened the long-term viability of pension schemes and created a “tax trap” for earnings between £100-£150k, by removing pension tax relief for higher earners, I’d like to see these changes replaced by a simple annual cap on contributions to pension schemes.”

Ryan Hughes, Senior Fund Manager, Skandia Investment Group:

“I would like to see the Chancellor outline a credible plan for dealing with the debt crisis that is sufficient to reassure markets and investors (both home and abroad) that the UK will retain its AAA status. If they succeed in this then this will be a boost for equity and bond markets. I also think the Government should remove the burden of Stamp Duty Reserve Tax from UK assets with collective investments. Currently this tax is onerous to administer, adds additional charges for investors, but more importantly puts these funds at a disadvantage to offshore funds that do not have to pay it. And finally, the Government needs to put in place a sensible Capital Gains Tax plan.  If there were to be an alignment of CGT rates with income tax rates then it is important for provisions to be made to prevent gains incurred over a long period of time all being taxed at the rate applicable in a single year.”

*IFA* Sheriar Bradbury, Managing Director, Bradbury Hamilton:

“The Chancellor needs to find the right balance of tax on both income and capital as this will ensure that as few people as possible dodge tax and that entrepreneurs are still able to prosper in Britain. It would be sensible for the government to increase Capital Gains Tax but for savers this move understandably seems unfair especially as they have gone from a 18% tax regime to having to pay up to 50%. However, if they don’t increase CGT people will no doubt do the obvious side shimmy and convert their income into capital. Raising this tax will cut the ways people can dodge the tax bullet. On the theme of income, raising the tax threshold to £10,000 is a good idea economically and socially, taking a step forward in eradicating the poverty trap. Also, to encourage steady investment in Britain I would hope to see a globally competitive rate of Corporation Tax, our county more attractive to multi nationals, who would no doubt increase the level of overall tax revenue for the Treasury.”

Alastair Conway, Sales and Marketing Director, Cofunds:

“If the new government is to be successful in encouraging long-term saving and reduce people’s dependency on the State, then its first Budget must act to convince savers that future planning will indeed be long-term to allow them to make decisions with confidence. Key to achieving this would be not to tinker with the current tax relief on pension contributions and aggressively increasingly the allowable contributions to ISAs. And for goodness sake, don’t change the name! I’d also like to see George Osborne take a sensible approach to CGT, which clearly supports those looking to save.”

*IFA* Bruce Wilson, Head of Wealth Management, Helm Godfrey:

“The most important thing the government can do is take steps to introduce a sense of fairness in the taxation system. This needs to become clear and transparent. I would suggest lower maximum tax rates and removal of tax reliefs to do this. Loopholes which mean a wealthy non-dom can end up paying less tax than their cleaner have to be removed. The pensions system also needs attention  to achieve a level playing field with the same level of tax relief for all contributions say 30% I would like to see a straightforward, clear system introduced that is fair for everyone which would mean the end of unfunded advantageous final salary schemes for public services . And finally, perhaps more controversially, I think the compulsory retirement age should be pushed back to 70, recognising people are living longer, and give people time to increase their pension pots and to recognise that for many people work gives increased meaning to their lives.”

Stuart Thompson, Chief Economist, Ignis Asset Management:

“Consumers are likely to be hit by two separate tax hikes. The air passenger tax is likely to be increased, raising an additional £3bn, while the Chancellor is likely to announce an increase in VAT to 20% – likely to be delayed until January 1st to minimise the inflationary and welfare consequences of the move.  We expect the budget to reduce the deficit forecast to £145bn, which will lower it below the psychologically important 10% GDP level to 9.9%. We believe that this will be crucial in determining the response of the rating agencies with both Fitch and S&P expected to give their opinion within days of the budget presentation.  We believe that both will maintain the UK’s triple AAA sovereign credit rating, causing total gilt issuance to drop to £168bn in the current fiscal year, allowing the gilt market to continue its outperformance against other riskier European sovereign credits, including France. Sterling should also benefit from this rating retention. In a world where triple AAA assets are in short supply, reserve managers are likely to increase their weightings in Sterling, allowing it to appreciate further against the euro.”

*IFA* Arthur Childs, Managing Director, Arch Financial Planning:

“Firstly we need to encourage small businesses as these are the life blood of our economy.  Therefore, just as we are likely to see no income tax on the first £10,000 a year of personal income,  I would also like to see no Corporation Tax on, say, the first £40,000 of profit for smaller companies for the next two years. Secondly, we need to encourage a savings culture and I would therefore like to see pension schemes, ISAs and VCTs being able, once again, to recover the tax deducted on dividends.  The removal of this right was one of the most punitive stealth taxes that the Labour Government imposed on us and which has decimated so many people’s pensions.  Thirdly, we need to encourage families to build wealth.  I would therefore like to see some fresh initiatives to stop people having to use up the equity in their homes to fund nursing home fees, which could be 100% ‘tax’ on the whole estate and far worse for the average family than inheritance tax which is only 40% tax above £650,000.”

Steve Bee, Head of Pensions at Paradigm Pensions and founding partner of Jargonfreepensions.co.uk:

“Double taxation of higher-earners saving in pensions to be ended. I don’t mind how that’s achieved, but if double taxation isn’t stopped then we will have set a very worrying precedent. The introduction of a higher triviality commutation limit at retirement, to something like 4% of the Lifetime Allowance rather than the current 1%, to ensure that no auto-enrolled pension savers lose out through their pension savings’ interaction with means-tested entitlements when they are older. This is absolutely crucial if the current set of reforms is to have any real chance of success. Apart from the above two points I would like to see a firm commitment to the pension legislation we have being left unchanged for the whole of the current Parliament. The real enemy of our pension system is constant change. The formation of an independent body to impose longer-term changes only after careful consideration and consultation would be a welcome step forward too.”