Budget 2018 roundup

So Chancellor Hammond has finally delivered his long-awaited 2018 Budget and he was particularly bullish on the economy and said austerity was ‘finally coming to an end’. The 2018 economic growth forecast was upgraded from 1.3% to 1.6% and public borrowing this year is expected to be £11.6bn lower than forecast in March.

Investors should welcome the slight increase in the lifetime allowance for pension savings to £1,055,000 from April and the Capital Gains Tax allowance will increase to £12,000 at the same time. The Junior ISA allowance will also increase to £4,368, although it is disappointing to see no change to the adult ISA annual subscription limit, held flat at £20,000.

PENSIONS

Despite the normal rumours and speculation about pension incentives being curtailed, it was actually a blissfully quiet budget in terms of pensions.

Stronger-than-expected public finances have effectively bailed the Chancellor out of making controversial cuts to pension tax relief.

There were however, a few pension announcements to note:

Hammond backs the Pensions Dashboard – and state pensions WILL be included

The Budget documents provide some succour for those concerned about the Government’s commitment to the Pensions Dashboard.

While the 2019 implementation deadline still feels like a stretch, the fact a commitment has finally been made by the DWP to provide state pension information is a positive step in the right direction.

For the project to have any chance of success savers need to be confident the information available is both accurate and comprehensive. Anything less than this and people simply will not trust the information it shows them.

For this reason it is highly likely the Government will need to legislate to require older schemes to make their information available for the Dashboard.”

Automatic enrolment charge cap set for review as Treasury looks to boost ‘patient capital’ funding

The Government has hinted the 0.75% automatic enrolment charge cap could be increased next year - it will consult ‘to ensure it does not unduly restrict the use of performance fees within default pension schemes’.

While details are thin on the ground at this stage, it may be that the Chancellor feels the existing charge cap potentially blocks schemes off from investing in the riskier next generation companies he expects to drive growth in the future.

Any shifting of the charge cap will need to ensure it doesn’t reduce value-for-money for automatic enrolment scheme members.

Ultimately the aim of auto-enrolment default funds schemes is to maximise returns for retirement investors over the long-term rather than back particular sectors or businesses. If the charge cap were increased for certain types of investments, the trustees of that scheme would have to be confident the extra price paid by members was still money well spent.”

Government confirms cold-calling ban will catch lead generators

Progress in banning pensions cold-calling has frankly been glacial and there is little doubt many more people have been targeted by scammers as policymakers have prevaricated.

Nevertheless it is positive the ban now appears close to becoming a reality, with the Government aiming for as wide a scope as possible by confirming so-called ‘lead generation’ firms will also be in scope.

However, the ban will only be effective if the Information Commissioner’s Office (ICO) bares its teeth and comes down hard on the crooks who will inevitably seek to flout the rules.

It is also critical that the Government doesn’t see this as the end point. While a ban on cold-calling will help in the fight against pension fraud, scammers’ tactics are evolving and policymakers must continue to monitor the market and ensure savers’ hard-earned retirement funds are protected.

STOCK MARKETS

Retail

The Chancellor today unveiled a raft of measures designed to help consumers and to revitalise the high street, although ploughing through the budget document it’s hard to see which sectors might benefit from ‘Fiscal Phil’s’ largesse.

The big news is that the individual personal allowance will rise from £11,850 currently to £12,500 from next April, a year earlier than scheduled. Similarly the threshold for higher-rate income tax will rise to £50,000 as of next April.

This will be a welcome relief for consumers who are seeing food and fuel price rises eat into any pay gains they may have seen this year.

Saying that, the Chancellor froze the increase in fuel duty for another year, saving car drivers an estimated £1,000 and van drivers an estimated £2,500 since the duty was frozen.

There was also a range of initiatives designed to help the UK embattled bricks-and-mortar retailers. In line with leaked figures there will be a £675m Future High Streets Fund to underwrite strategies to re-invigorate the traditional retailers and to finance the actual physical infrastructure including local transport.

The aim is to increase footfall on the high street which has fallen continuously over the last couple of years according to analysis from the British Retail Consortium, BDO and Springboard.

This initiative is coupled with a unilateral digital sales tax aimed at global retail platforms which in the Chancellor’s words ‘create value in the UK’ but aren’t paying their share of taxes.

The tax is projected to raise £275m in its first year, starting in April 2020, rising to £400m per year by 2023-24. While laudable, it’s hard to imagine Amazon, Ebay or their peers quaking in their boots at the thought of such a levy.

The Chancellor insisted the digital sales tax wasn’t a tax on online sales. Instead, it said the initiative was aimed at specific digital models. The Budget report confirms the affected industries as ‘search engines, social media platforms and online marketplaces’.

Infrastructure

A £30bn investment in infrastructure is theoretically good news for numerous London-listed companies which are active in roads and bridges.

Hammond had already announced at the weekend Britain’s biggest ever single cash investment in the country’s road network, hence why some of the potential beneficiaries saw their share prices rise as soon as markets opened on Monday rather than during the Budget speech.

The Chancellor said the Government would abolish the use of PFI and PF2 for funding future infrastructure projects, but would honour existing contracts.

Investors will be watching various infrastructure investment trusts tomorrow once the market reopens for any comments on this announcement.

Pubs

Pub operators should be pleased that duty on beer and spirits is being frozen. They should also benefit from news that the government is looking to reduce ‘unnecessary red tape’ and lower the cost of wedding venues. Reports suggests this means making it easier to hold weddings in pubs, hotels and restaurants.

Gambling

Remote gaming duty will increase to 21% to compensate for the loss of revenue from fixed odds betting terminals where stakes are being cut to £2. That is less severe than many people had expected which suggests that bookies could fly on the stock market tomorrow, given how they had been heavily sold-off in the preceding few days amid market speculation over the tax.

Defence

Other potential beneficiaries of the Budget include cyber security stocks and defence experts amid news that the Government will give the Ministry of Defence an extra £1bn to boost cyber capabilities and at-sea deterrents.

Senior Analyst

Tom Selby is a multi-award-winning former financial journalist, specialising in pensions and retirement issues. He spent almost six years at a leading adviser trade magazine, initially as Pensions Reporter before becoming Head of News in 2014.

Tom joined AJ Bell as Senior Analyst in April 2016. He has a degree in Economics from Newcastle University.

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