AJ Bell has urged the Chancellor to leave pensions out of the upcoming Budget, amid concerns that policy change could impact saver confidence.
With John Healey’s inaugural Budget set to take place on 28 October, there has been growing speculation around what he may unveil as he seeks to balance the books.
Rachel Vahey, head of public policy at AJ Bell, said: “This Budget matters hugely for millions of people saving into pensions and ISAs. The decisions the government makes today will shape their ability to build financial security tomorrow, and investors need stability, clear incentives and confidence that long-term investment will be rewarded, not repeatedly disrupted by policy changes.
“The challenge for John Healey is balancing the government’s wider fiscal pressures with the need to protect and encourage long-term saving.”
Vahey said that with Healey already committing to following the fiscal rules laid out by his predecessor Rachel Reeves, as well as abiding by the party manifesto pledge not to increase taxes for working people, he has “precious little wiggle room” and may have to turn to other taxes to increase receipts.
However, Vahey warned that any Budget changes affecting pensions, ISAs or investment incentives risk undermining confidence and could destroy some people’s long-term plans.
The Chancellor is also facing calls to target wealthy individuals, potentially through a new wealth tax or by equalising capital gains tax with income tax rates.
However, exactly who a wealth tax would target and how it would work in practice remains shrouded in mystery, says AJ Bell.
Tom Selby, director of public policy at AJ Bell, commented: “At its simplest it could be a percentage of total assets above a certain threshold, but valuing those assets would be tricky and expensive. A wealth tax remains a popular idea and could be effective in redistributing wealth, as well as raising immediate revenue for the cash-strapped government.
Selby continued: “The prospect of aligning CGT rates with income tax rates would be a significant change for investors and entrepreneurs, and one that the Treasury would need to approach carefully. While there may be a legitimate debate about the tax treatment of income and capital gains, higher CGT rates would likely affect the way people make investment decisions, the willingness to back businesses, and the incentives for people to build long-term wealth outside of pensions and ISAs.”
Selby added that there is no certainty that it would raise revenue either, pointing out that with CGT a voluntary tax, some people may choose to sit on their asset in the hope rates will fall again, rather than sell.
