4 reasons why the next UK budget is no reason to worry

There’s a lot of doom and gloom ahead of Labour’s first autumn statement. But if you’re worried about what it could mean for you and your finances, it’s important to remember that speculation doesn’t help – and could make things worse.

UK budgets are always big news.

Whether you’re wondering how much it will cost to fill your car with petrol, or how big your tax bill will be, budget time is often accompanied by a sense of nervousness. The big question: “How much is it going to cost me this time?”

The stakes seem even higher this time around. With a new government (one that concedes there’s pain ahead), the questions over what’s in store haven’t stopped since Labour were elected in July. Everyone is wondering what Rachel Reeves’ first budget as chancellor means for pensions, inheritance tax, capital gains, and much more.

As a result, clients have naturally asked us what they should do ahead of this statement. But we can’t and won’t make changes based on speculation. At times like this, it’s much better to focus on what we know.

1. Nothing has happened yet

Keir Starmer and Rachel Reeves have been putting in the groundwork since day one, preparing us all for some unpopular spending and taxation decisions. It seems pretty clear there will be tax rises (although the party’s election campaign promised not to touch national insurance, income tax or VAT).

You could say the government is testing its ideas in public. For example, its decision to remove the Winter Fuel Allowance for those not on pension credit instantly became controversial (and party members have urged the government to rethink it). Is Labour preparing people for the worst, so the final announcement looks much rosier?

The key point to remember is, yes, there are likely to be some surprises. But nothing has happened yet.

2. This won’t be a repeat of the disastrous Liz Truss mini-budget

One of the reasons many are so anxious about this budget is the now infamous emergency ‘mini-budget’ that kicked-off Liz Truss’s ill-fated 45 days as Prime Minister. The pound plummeted, more than £400 billion was wiped off pension fund assets and mortgage rates soared after she made her statement. Nearly all the tax measures announced were reversed three weeks later.

We can say quite confidently this kind of turmoil won’t happen again. One of the biggest issues affecting markets then was £45 billion of unfunded tax cuts and a lack of independent assessment by the Office for Budget Responsibility. Labour has committed that any statement must be signed off by the OBR first.

3. History tells us rash decisions aren’t good for the long-term

Acting impulsively on any bad news is usually a mistake.

Take stock markets for example. Quite often, after an initial fall, the market can bounce back again fairly swiftly. If we’ve acted in haste by selling out of a single stock, sector, or region, then those losses are ‘locked in’.

We saw that in the immediate aftermath of the pandemic in 2020. Despite big falls early on, global markets broke all kinds of records. As research on the cumulative total returns for the 60/40 portfolios from J.P. Morgan highlights, almost every year in the last 20, you could come up with a reason not to invest.

But with a diversified portfolio, sufficient time and a portfolio that matches your risk tolerance, an investor who stayed in the market, even during the hard times, would ultimately benefit.

Source: J.P. Morgan, FactSet. Cumulative total returns for the 60/40 portfolio (net total return for MSCI World and Bloomberg Global Aggregate Indexes) are calculated from December 31 of the year prior until the updated data. Data as of January 31, 2024.

4. Change is inevitable

We’ve seen this movie before. We know how it goes.

Change is inevitable in budgets, from government to government, or year to year. As stated in our previous blog, “Three key points from the Chancellor’s Spring Budget“,  we noted that even when a government describes a move as permanent, things are subject to change anyway.

Our role as financial planners is to get rid of the noise. We’re here to help you avoid wasted energy thinking about what might happen and help you take a long-term perspective.

So what now?

We’ll be updating you here and in person after the budget statement. For now, our advice is “as you were”.

If you were planning to do something in the next six months, such as selling shares, it’s actually no worse doing it now than waiting. But there’s no reason to divert from your course just yet.

Depending on October’s announcements, we’ll sit down with you to talk about how it affects you – and if it does, how we can find a way to make the most of them. Even big announcements – for example, an increase to capital gains tax – still require individual application.

Just now though, act as if nothing’s happened – because nothing actually has!

Still worried? Get in touch.