View more on these topics

What&#39s for lunch?

The Budget has been delayed again this year. Concern over the effects

of war in Iraq and growing gloom over economic recession mean the

Chancellor needs all the time he can to get his house in order.

This Budget is unusual for a number of reasons. It is rare to have an

April Budget and it will be the first to be held at lunchtime for

over a century. Moreover, it is the first Budget where Gordon Brown

looks like he might have to deal with some serious macroeconomic

problems.

March did not begin well, with a report from the International

Monetary Fund warning that Brown&#39s assumptions for economic growth are

too optimistic and tax revenues will be lower than expected. It wants

Brown to boost revenues, broaden his tax base, simplify the system

and curb expenditure.

It is unlikely that this supremely confident Chancellor will take too

much heed of the IMF. Brown can take comfort in the fact that

interest rates remain low and employment is relatively high. He is

messianic about issues such as increased public expenditure and the

creation of tax credits. Nevertheless, he will be aware that almost

no one seriously agrees with his predictions for growth next year.

What can the retail financial services industry expect in the near

future? It is too early to predict what will emerge from the

Treasury&#39s review of Sandler, with consultation on stakeholder suites

continuing until May. However, the Government would do well to

consider the growing body of evidence that shows if product charges

are too low, it is the less well-off trying to save who are

disadvantaged.

The ABI has called on the Chancellor not to bring qualifying policies

– regular savings policies of 10 years or longer – into the tax net.

It has raised concerns that the 5 per cent rule, which allows savers

to take out 5 per cent of the total premium each year net of tax,

will be abolished. It would seem out of step if the Government

decided to abolish this rule at the same time as introducing child

trust funds, as qualifying policies are used by many consumers to

save for their children.

Another issue which the industry has raised involves Isas. The

Chancellor is due to abolish the 10 per cent dividend tax credit for

Peps and Isas, which was promised when Isas were first created. The

industry&#39s argument is that, in a climate which is hostile to

savings, such a move would put further pressure on it.

My hunch is that Brown may ignore these calls. The issues are

complicated and technical. Dealing with them appeals to two strands

in the Chancellor&#39s psyche. He likes to deal with knotty technical

problems and get them out of the way, producing neat solutions and

removing what he sees as anomalies. He also likes to raise money.

As hinted already, one other aspect the Chancellor is expected to

tackle is child trust funds. Now is the time to deal with them as

most of the issues have been ironed out. There are still several

areas that remain open to debate, namely, the amount the Government

will give to each new-born, the management charge for the funds and

the investment options.

The real difficulty faced by the Chancellor is the fact that child

trust funds represent a spending commitment at a time when spending

should be reined in. It remains a fact, even with a Government that

has pursued a more open consultation process, that big Budget

decisions often remain open until the last minute. I have no doubt

that a fully-costed child trust fund proposal is ready in the garage

to roll out in 2004. It may just be that the Chancellor decides at

the last minute not to turn the key in the ignition.

Elsewhere, there is speculation that the Chancellor will use the

Budget to raise taxes. He can do this by allying the upper earnings

level for National Insurance contributions with that of higher-rate

tax, as well as refusing to raise income tax thresholds. He may also

look at a package of measures designed to increase employment by

reforming unemployment benefit and training measures.

Finally, of course, the spectre of the euro hangs over this Budget.

Will the Chancellor tease us and flirt with the idea that he will

imminently announce his response to the five tests he set himself all

those years ago? Frankly, this debate has become so opaque that your

guess is as good as mine.

Ed Vaizey is a partner and board director at Consolidated Communications

Recommended

Tax relief but little rate relief for Isa savers – IF

Not one of the top ten paying instant mini-cash Isas launched in 1999 when the savings wrapper came to market remains in the top ten paying accounts today according to new research from Intelligent Finance.Only two managed to last out the first year before slipping out of the top ten the online bank says.IF says […]

10 steps to put personal pensions back on the map

In view of the Government&#39s continuing inability/wilful resistance totake simple, practical measures to make personal pensions moreattractive to the ordinary man in the street (who, as we all know, isutterly turned off them), here are my 10 suggestions for achievingthis:•Restore waiver of premium cover as an integrated supplement,with tax relief on the premiums and a […]

Sticky situations

Continuing the theme of doing business in today&#39s challengingmarketplace, I am going to reiterate my belief that communicationbetween advisers and clients is essential. It&#39s the glue (superglue,actually) that holds the relationship together. The fact that theremay not be a direct product-related reason to communicate should notdeter this communication.•How you communicate?•Who you communicate with?If you are […]

Trustees turning to Advisers

Accepting an appointment as a trustee should not be taken lightly.Trustees have big responsibilities and if these are ignored ortrustees overstep the mark, they can find themselves personallyliable for any losses that the beneficiaries suffer as a result.However, the enactment of the Trustee Act 2000 will have made life alittle easier for trustees in some […]

The Natixis Solution: H2O MultiReturns Fund

A product designed to bring some unique attributes to the crowded absolute return global macro space With diversification and risk management top of investors’ wish lists when it comes to alternatives, step forward the H2O MultiReturns Fund. H2O Asset Management is an independent boutique backed by Natixis Global Asset Management and has a 14-year track […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment