Swimming against the tide: A reflection on the 2024 Autumn Budget

One positive to take from Rachel Reeves’s first Budget, is that it was not as bad as the infamous Kwasi Kwarteng Budget of 2022 – though that is to damn without even the faintest praise.

Most would agree, I suspect, that the Chancellor’s key spending targets are not only laudable, but necessary. The NHS is in a state of disrepair – as literally are the school buildings to which our children are sent.

Our transport infrastructure needs investment if we are to become a country in which businesses wish to invest, and as for the mobile phone infrastructure – how can it be that I can be within 50 miles of London and 10 miles of the county town and yet have only an intermittent weak 4G signal? Indeed, online browsing of the (not super-fast) internet to look at local posts, reveals numerous questions as to which mobile provider might deliver a good enough signal for uninterrupted calls.

Underinvestment in so many areas over so many years, means that we are ‘swimming against the tide’ when we push businesses to become more efficient – and that is a significant issue for the UK, as the key to growth is productivity. Business needs the right environment within which it can invest to improve productivity – but that is almost impossible to achieve if the national infrastructure is working against you. 

But how should the balance of that investment be split between State and private sector?

The Chancellor’s opening gambit was “Invest, invest, invest”, but given that she then proceeded to strip funds away from private sector businesses, reducing their ability to invest, it seems clear that the intention is for the public sector to carry the heaviest load in this respect. While I would like to be optimistic that the public sector will use the additional monies well, history suggests otherwise. The public sector’s track record of investing well and obtaining value for money is, putting it kindly, not great.

That said, we should not prejudge – the aim (to improve services and infrastructure) is gallant and a positive in this Budget.

However, this type of State investment does not lead to growth in the short-term. Benefits are unlikely to be seen in this Parliament, or possibly for a decade or so – and a one-off spend such as this will not be sufficient. The investment needs to be maintained year on year.

Is this possible? The IFS view is not optimistic, effectively saying that this Budget is just the same as those that preceded it, in that it is a gamble, and concluding that the most likely scenario is that, even within this Parliament, there will need to be either a dramatic slowing down in public sector spending or another heavy tax hike.

It is certainly true to say that the issues that the Chancellor is grappling with are not of her own Government’s making – she inherited a dire financial position with little room for manoeuvre.

What was, however, self-inflicted, was the decision to further restrict the possibility of resolving the situation by stating that she would not use any of the levers that are most likely to be successful – i.e. income tax, national insurance, VAT.

It should, in my opinion, be enshrined in law that mere utterance of a promise not to use the mechanisms most appropriate for the job, because you are so desperate for power, should automatically debar you from Government. To be clear, that would have ruled out both Labour and the Conservatives. If I was in a burning high-rise, I would not want the fire service turning up to rescue me and shouting up that they are going to attempt to do so without using ladders or water.

Having inherited a dismal position, and then having hamstrung herself in terms of dealing with it, the Chancellor is left with few options.

Whether the changes made to non-doms and Inheritance Tax Reliefs will help or hinder the economy in the long-run, time will tell. In the same way as Brexit, you can argue both sides, but you will never truly know without pressing the button. The big risk is that if Brexit acted as a brake on the economy and the changes to non-doms and IHT do the same, then it really is an uphill battle to deliver growth of the scale required. 

One can disagree either with the notion of changing the rules as regards non-doms and restricting IHT reliefs (for the record, I don’t), or with the specific rules put in place (I do), but it is the right of every Government, of whichever colour, to follow its own ideology.

If a Chancellor decides there should be no IHT at all, or else, that there should be no relief from IHT at all, then so be it.

But here lies my big problem with the IHT changes…

For at least a generation, business owners and farmers have been working within a tax framework upon which they made their day-to-day and long-term decisions. With a single announcement, the core element of that framework has been radically altered. As I said above, it is perfectly acceptable to change that framework – but it is incumbent upon any Government to do so in a way that is as fair as possible.

That is part of the reason why, when very significant change occurs, there is often:

• A period of consultation to help identify any unacceptable injustices;
• “Grandfathering” of rules, such that those who are already committed to a position are not unfairly prejudiced.

By way of example – a 50 year-old farmer (assuming normal life expectancy) can, under the proposed rules, still make choices as to whether, or how, he passes on his estate. Those choices are not straightforward, but they exist.

A 75 year-old is unlikely to be in the same position.

A person with a short life expectancy has no real choice at all, and they are in that position because the State told them one thing and then, once it was too late for them to do anything about it, pulled the rug from under their feet.

My somewhat extreme example – made to highlight the point, but not entirely fictitious – is of a farmer who has been diagnosed with a terminal illness and, with treatment, has 12 – 24 months left to live. Her son has been farming the land with her for over 20 years and the intention is that on her death he will inherit the land and continue to farm.

If she dies before 6 April 2026 there is no IHT on the farm, son will inherit and can continue to farm.

If she survives beyond 5 April 2026, her estate will be caught by Rachel Reeves’s new rules and the estate will not be able to fund the IHT liability. The farm that she has worked on for her whole life will need to be sold.

A question. If you were that farmer, would you continue with your treatment?

This is my issue with the measures announced – it is not what the Chancellor has done – it is how she has done it.

Taxes follow political ideology and by winning an election, the Governing party has every right to follow its instincts and change the rules as it sees fit.

However, any decent Government should follow some basic rules as to the impacts on specific groups. These particular measures, quite specifically, target the elderly and those with reduced life expectancy. That cannot be right.

There ought to be a measure of equity incorporated into a Government’s actions. Rachel Reeves is not the first Chancellor to ignore that, and I am sure will not be the last. But it doesn’t make it any less wrong.