Due to the idiosyncrasies of the parliamentary calendar, when the chancellor stands at the dispatch box on October 30, parliament would have actually spent more time in recess than it has spent sitting since the Labour party was elected to form a new government.
Over that same time period, Rachel Reeves will have had ample time to consider how to balance her mission to secure the highest sustained growth in the G7 against the need to address Labour’s fiscal inheritance and, in particular, the oft-discussed "£22bn black hole in the UK’s public finances".
The likely answer to this will be a raft of tax rises at the Autumn Budget, which HM Treasury does not think would necessarily affect the everyday lives of ‘working people’.
If you accept the need to address the public finances, choosing to tax wealth over income is a reflection of where we are as a nation currently. Bluntly, there is very little this government could do with respect to income (save reneging on commitments not to raise national insurance).
Taxes are currently set to represent 37.1 per cent of GDP by 2028-29, with UK households seeing an increase in taxes paid of £3,900 since 2019-20, on average.
By comparison, domestic wealth related taxes as a proportion of GDP are still approximately 3 per cent – exactly where they were back in 1970.
And so, when the Autumn Budget is delivered on October 30, we think it is likely that we will see substantial rises in the current rate of capital gains tax as well as some tinkering with the inheritance tax regime.
The difficulty, as alluded to above, is that these changes – specifically changes to the accumulation and decumulation of wealth – will have a direct impact on this government’s broader mission: to secure economic growth through investment.
At Pimfa, we believe there is a direct correlation between the treatment of taxation on investments and people’s willingness to save and invest. Clearly, any substantive tax changes will have a direct effect on this balancing act.
However, the headline rate of tax is simply part of the consideration for investors, and our representations to the government on this matter have reflected this.
Therefore, in recognising this fiscal position and considering her next steps, we believe that the chancellor should prioritise the following three principles as she reforms our taxation framework: stability, competitiveness and practicality.
Stability
The stability of our taxation framework is fundamental to ensuring that investors have confidence in the financial decisions that they make. For example, it is vital for them to know how their wealth will be treated in accumulation and decumulation from a taxation perspective.
More broadly, stability has an impact on investors' confidence in the advice that they receive to support these decisions. The preceding five years have seen a number of tweaks to our taxation framework, the erosion of thresholds and of course, the off-again, on-again uncertainty related to the pensions lifetime allowance.
