It was what was not in the Kwasi Kwarteng’s controversial “mini-Budget” as much as what was included that has exercised Mark Soper ACII…

Well, this certainly has been an event leaving much of the UK and global financial communities – including the IMF – totally astonished.

Emergency meetings with banks, a £65 billion Bond-buying intervention by the Bank of England to keep pension funds afloat, excoriating criticism from normally Tory-friendly media; and what next? – possibly even a reversal of some of the announcements in next month’s Budget. What a climb down that would be for any Chancellor and PM just a few weeks into the job if they are forced down that road by the weight of opinion against them, not least from within their own party.

But could it have been different?

The backlash appears to be focused on the fall in the pound ­– which was already at a relatively low level against the US Dollar even before last Friday’s announcements. It is the requirement that the Government will possibly now need to borrow (quite a few) sheds’ more money to support the proposed tax cuts that has sent the pound reeling… and this feeds into the prospect of higher interest rates, more expensive mortgages and less disposable income for millions of people.

This unplanned-for borrowing comes alongside the estimated £150 billion of funds required to fund energy support costs to private and corporate consumers. Perhaps the Chancellor had been looking towards the possibility of lower energy-related borrowing, following the 36% fall in crude oil and the 17% fall in wholesale gas prices since June – who knows? The problem the Government faces is that the pound has now significantly reduced in value and energy prices are in dollars… so any reduction in global prices will not have the equivalent effect on UK consumers.

Well, we are where we are and it looks like a very big mess and at the very least a significant loss in credibility for this newly-formed Government.

Time will tell if they have pulled a rabbit out of the hat!

However, putting those concerns aside, my thoughts now turn to what wasn’t in the statement at all: other measures that could have been introduced that would have appealed to higher earners (including bankers with bonuses!) that may not have caused quite a stir.

Relaxing Pension Regulation

The tax cuts announced (aimed at “growing the economy”) will unquestionably benefit higher earners most, earning opprobrium from many quarters. So, was there a missed opportunity to take a different route? There has been running commentary on this for some time, but a significant increase in both the Lifetime Allowance (the maximum fund accrued before a tax charge may be applied) and the Annual Allowance (the maximum contributions that can be paid into a pension plan each year) could have appealed to higher earners liable to a 45% income tax rate and the 2% NIC surcharge.

Keeping the 45% higher income tax rate and the rules surrounding bankers’ bonuses, but allowing these earners to choose to divert some or all of these earnings into pension funds without exceeding the Annual Allowance or the Lifetime Allowance would, I believe, have been less controversial… and at the same time provided the stimulus for more tax payers’ money to be diverted into investment markets.

At the same time as easing the LTA, the Annual Allowance rules will also need to be relaxed at some point, and the Tapered Annual Allowance either scrapped or re-set at a higher earnings level. Otherwise, inflation will bring many more people into the net.

It is the view here at RetireEasy that the Lifetime Allowance – still frozen at just over £1million until 2026 – is an invidious tax on many individuals who have been encouraged to save hard over their working lives to be faced with an unexpected tax charge. Ten years ago, the LTA was £1.8 Million!

At the same time as easing the LTA, the Annual Allowance rules will also need to be relaxed and the Tapered Annual Allowance either scrapped or re-set at a higher earnings level. But will the Chancellor have enough wiggle room to do both of these things unless he elects to reverse his tax cuts for higher earners?

National Insurance Contributions

The employer NIC rate was increased from 13.8% to 15.05% to help pay for the furlough scheme that was introduced at the start of the pandemic. Was this another missed opportunity?

Instead of reversing this increase, the Government could have made it mandatory or at least promoted the installation of Salary Sacrifice options for all workplace pensions. This type of arrangement can be beneficial for many workers ­– especially where the employer passes the benefit of the lower Employer NIC charge to the employee as an additional pension contribution.

Care needs to be taken here with workers on lower earnings and the correct signposting; but, again, this measure may have caused less controversy.

As I said earlier, we are where we are and the lady, we are being told, is not for turning. But who knows if the pressure now mounting on the PM and Chancellor might lead to more considered measures replacing the ones that, to date at least, have received more brickbats than plaudits.