A new Chancellor to deliver the Budget

Posted by Liz Rees in Government and taxation category on 19 Feb 20

All change at the Treasury

Although part of a wider cabinet reshuffle, the shock departure of Sajid Javid as Chancellor came after he refused to fire his closest advisors. The upshot is tighter Government control over the Treasury.

The new appointment, Rishi Sunak, a former high-flying investment banker, is a close ally of the Prime Minister and supports his plans to create a fairer society in Britain.

What could we expect of Sunak?

Given the issues Boris Johnson had with his predecessor, we could assume that Mr Sunak will take a more flexible approach to support No.10’s ambitious plans.

Sunak could remove Javid’s fiscal rule of spending no more than 3% of GDP on infrastructure. The £22bn a year infrastructure spending programme, which Sunak worked closely on as Treasury Chief Secretary, is likely to be at the forefront of his Budget speech.

He may also propose greater day-to-day spending, marking a clear end to Philip Hammond’s austerity measures. However, spending has to be paid for and that is likely to be through the issuance of more government debt given Johnson’s pledge not to raise income taxes.

The government also faces the dilemma of how to help the Northern towns that ‘lent’ their vote whilst not alienating traditional Tory constituencies in more prosperous parts of the South. Rumours of a mansion tax have not gone down well here.

Sunak’s arrival means that changes to pension tax relief are unlikely to surface this time round but remain on the table. Any decision may be deferred until after the spending review later in the year yet we may get an idea of the direction of travel.

Think ahead

Uncertainty makes it difficult to plan ahead but investors should try make the most of their allowances whilst you still have them. We think it unlikely that this year’s ISA or SIPP allowances will be affected, but you never know for sure.

Government spending has the potential to boost the UK economy and stock market so investors may want to have some exposure to domestically focused UK companies that are well-placed to benefit. We like Morningstar bronze-rated Franklin UK Mid Cap Fund which has significant exposure to manufacturing and construction companies.

Important Information: We do not give investment advice so you will need to decide if an investment is suitable for you. If you are unsure whether to invest, you should contact a financial adviser. Remember that pension and tax rules depend on personal circumstances and may be subject to change in the future. Past performance of an investment is not a guide to future performance, the value of investments or income from them may go down as well as up.