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Investment view

Next week sees the Chancellor make his Budget statement. By then, the new tax year will have started. Budgets that take place after the beginning of the tax year are becoming commonplace. We already know what tax increases are in store for us for this coming tax year, though. National Insurance is set to rise. But this may not be the end of the story for the poor taxpayer.

Not so very long ago, the International Monetary Fund was rapping the knuckles of the Chancellor, pointing out that his projections over what would be available to pay for his public spending programme would not be met. The UK economy is slowing and tax revenues are coming in at levels below expectations. The only funding alternative is more borrowing. Certainly, there is an appetite for bond issuance, given the state of the stockmarket and of pension and life company funds. But push up the public debt too much and you will have the monetary police on your back.

What alternatives does the Chancellor have? Aside from the amount of public spending that needs to be financed, there is the cost of the Iraq war. A dozen or so years ago, our participation in that earlier conflict came out at £2.5bn. Just adjusting for inflation would push that up by £1bn or so and this time there are fewer countries with which to share the cost burden. Moreover, this is not just a fight and leave campaign. There will be the cost of rebuilding Iraq to meet after the gunfire has ceased.

So it seems unlikely that we will be getting anything in the way of good news from our Chancellor next week. The best we can hope for is that there is not too much bad news. There are those worried that the war will be used as an excuse to justify tax increases. If he does, I fear he will lose credibility with business and with the electorate. Even if this conflict adds £5bn to his cash outflow, it pales into insignificance compared with what is committed to the NHS.

We must also hope that he leaves our industry alone. By and large, whenever this particular Chancellor has tinkered with the savings system, it has added to the woes of a financial community already beset with the problems of a prolonged bear market. There are plenty of items in the wish lists of those involved in endeavouring to distribute financial products to savers who are generally unwilling to commit themselves. I, for one, will be holding my breath next week.

Nigel Lawson used to boast that, on the occasion of each Budget, he would eliminate a tax. Certainly, the complexity of the tax system is a worry, even if it is also an opportunity for accountants and financial planners. Successive Governments have built a labyrinthine system that allows the wealthy with access to the best advice to minimise their tax bills but leaves the great majority with little option but to deal with forms that are hard to understand, lengthy to complete and may result in missing out on a tax-saving opportunity. Even the tax-friendly products that have been issued are not immune to market forces. Oh, for a Chancellor who could make life simpler and persuade shares to rise at the same time.

In the end, saving is all about conviction that you need to save and confidence that the method you choose will deliver returns that will meet your objectives. Neither seems present at this moment in time. Although consumers, weighed down by the debt they have assumed, seem more inclined to save, they are uncertain as to where to put their money.

The financial services industry, in the meantime, labours under the burden of declining revenues from its core equity products and the bad publicity generated by the collapse of sophisticated financial structures. The next in line to cause concern seems likely to be the so-called precipice bonds. Like others before them, they were designed with the best of intentions but undermined by a bear market of such intensity and severity that the best laid plans were laid waste.

I have my fingers firmly crossed that the Chancellor does nothing to add to the woes of our industry next week.

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