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The prime minister’s pessimistic party meeting speech supports the UK for a massive tax hike in next month’s budget, and speculations about changes in pension and ISA tax systems are once again full.
In a spring statement in March, Rachel Reeves vowed to “support the UK’s culture of retail investment.” But her ambition to encourage us to invest more is a culture of fear that we have. Worries about impending rules change are destroying confidence in the benefits of long-term investments.
Earlier this year there was speculation that cash ISA allowances of £20,000 a year would be cut to encourage more savers to switch to inventory and share ISAs.
And what about the outcome? A record number of people are stuffing cash into tax-free savings accounts. The Coventry Building Society has calculated that since Reeves became prime minister in July 2024, more than £59 million has been saved to cash ISAs, and that UK households could save £300 million in taxes. The estimated £102 million cost of removing stamp duty on UK stocks held by retail investors under the ISA, instead of sticks, could have been a very convincing carrot. Rumors of stamp work leave for the New London Stock Exchange list is welcome, but that has not progressed well.
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Nevertheless, following my recent column on a dash to get tax-free cash from pensions prior to budgets, a considerable number of (old) FT readers have emailed me to say they prefer to hedge the risk that pensions will be targeted because they prefer to use ISAs to prefer to invest.
The Prime Minister was leaning hot to consider reducing the level of tax-free cash that could be taken from pensions in his final budget, but this could not be realized. This week’s poll by wealth manager Rathbones found that early withdrawing money from pensions is the most common financial regret for those who have preceded what’s in the famous redbox.
The tax-free cash-russ factory has revolved again ahead of the November budget, urging pension withdrawals to reach record levels. There is also fear of changes to high pension tax credits and restrictions on pay sacrifices. This has become even more popular over the past year as it allows employers to save staff on national insurance contributions.
This has influenced investor behavior in many ways. As we still extend our retirement benefits, we may be tempted to pay more for our pensions while our annual allowance remains at the generous £60,000.
However, those close to retirement age are waiting for more detailed details, especially since 2027, about how inheritance tax will be applied.
Some readers have adopted a strategy of recycling tax-free cash into stocks and shares ISAs, taking advantage of their own and their spouse’s £20,000 a year. “If it spreads over two years, this gives £80,000 between couples,” one reader pointed out to me.
Alternatively, as many readers over 55 say they plan, if tax-free cash is being used to pay off your mortgage, subsequent mortgage payments (interest and capital) reductions can instead be invested in stocks and shares ISAs.
Anyway, the rise in taxes and the risk of our flatline economy going into a recession encourage many of us to save cash.
According to this week’s ONS household savings data, if people have spare money, they’re more likely to hide it than splashing it. Fragile consumer trust has been criticized for slowing sales across the retail and hospitality sector in recent months, partly on inflationary pressures from the last budget, which still affects households.
Analysts have denounced much of the rise in UK food prices in supermarkets and restaurants passing the costs of higher employers’ national insurance and minimum wage increases.
Clive Black, a veteran retail analyst at Shore Capital, says the biggest trend in supermarket checkouts is the rise of the premium “Dine in Home” range, with sales increasing by 15-20% over the past two years. There is a standard meal for a family of four at a chain restaurant, easily breaking the 100 pound barrier and paying 15 pounds to pay 15 feels like a bargain.
The same applies to flashy “ready to drink” cocktails (I’m a particular fan of spicy margaritas). It’s about £4 cans, less than half the price you’d pay for a similar drink in the pub. This week, the British Beer and Pub Association warned that 2,000 watering holes risk calling the time completely. But that’s a paradox of recycling – when everyone starts to cut it, it becomes disastrous for the consumer economy.
Unfortunately, there are weeks of more pre-budget uncertainty to endure. Those of you who own stakes in these companies in the retail and hospitality sector and investment portfolio hope that your budget will not overturn Christmas deals by delay.
Claer Barrett is the consumer editor of FT. claer.barrett@ft.com
