PA Consulting comments on the Autumn Budget
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Our experts reflect on the UK Chancellor’s Autumn Budget and the impact it may have in a number of key areas.
Christian Norris, CEO, says:
Tackling the productivity puzzle sits at the crux of the Budget and its success.
Additional funding is welcome but the key is that this money is focussed and targeted to get the right returns, not to simply keep the lights on. Budget increases must be tied to strategic advances, with an eye to how funding in one sector can positively benefit another. Our research shows that it is more than possible to get returns five times greater than the original investment when it is directed to the right projects. The largest investment in the Budget was in the NHS, where the additional £22 billion could be used to catalyse wider change as well as improve patient outcomes, and act as a multiple to bolster the additional £500 million life science spend.
It was good to hear reaffirmation of priorities in critical areas but questions remain as to what new schemes the government will back to support productivity. Euston and carbon capture, usage and storage (CCUS) investments are welcome. What we need to continue to see is significant investment in innovative breakthrough technologies, such as AI, which offer the government a route to overcome decades of under-investment. Time will tell as to whether today’s measures will sufficiently upgrade national infrastructure and public services.
Katie Crookbain, public services expert, says:
In terms of day-to-day spending, this was very much a ‘rollover’ budget for most departments, with all departments expected to make 2% productivity and efficiency savings to help counter rising costs. New money has only really been made available to support the government’s new missions over the next financial year – the big winners being schools and the NHS. The commitment to invest in technology to improve public services was also very welcome.
In Phase 2 of the Spending Review, which will report in late spring, departments will need to make a compelling case to get a slice of the £100 billion of capital investment the Chancellor has promised over the next five years, which has been enabled by her new fiscal rule. Departments will need to demonstrate how they are going to secure best possible value for money from that investment – and in particular, how it will help to drive economic growth. The new Office for Value for Money, chaired by David Goldstone, will be watching closely to make sure those commitments stack up.
James Turnbull, Global Head of Energy and Utilities, says:
The government’s manifesto pledges and announcements on renewable energy pre-budget have been bold and ambitious. Much of what was covered in the Budget wasn’t net new, but builds on previous commitments to areas such as carbon capture, usage and storage, hydrogen and Great British Energy.
In order to deliver on our energy transition ambitions, we need the Government to focus on areas that support the deliverability of infrastructure projects – such as consenting and getting greater access to limited resources across the supply chain.
Jason Whyte, financial services expert, says:
Despite widespread expectations of reform to pensions tax relief, the Chancellor only revealed one major change in her speech. Inherited pension wealth will now be included in the scope of Inheritance Tax (IHT) from 2027. This addresses an anomaly in how pensions have been treated relative to other wealth – around 8% of estates include pensions that until this change were exempt from IHT. More widely, pension savers and their advisors will be breathing a sigh of, well, relief that there were no changes to pensions tax relief or a cut to the pensions commencement lump sum (popularly known as “tax free cash”).
The Chancellor has launched a Pensions Investment Review that is likely to encourage more public-private investment in UK infrastructure and growth-driving sectors. Final salary pensions have historically been big investors in infrastructure and other long-term projects. But defined contribution schemes often feel that they cannot invest significant amounts in illiquid investments, while also meeting regulatory requirements to offer customers easy switching between funds. The pensions review is likely to listen to providers’ concerns and make investment in long-term assets easier.
There could be a flurry of activity to undo pensions transactions in the wake of the Budget. There was a widespread expectation of changes to allowances on pensions and financial advisors reported customers crystallising their pensions early to lock in tax free cash at pre-Budget levels. But the Chancellor did not introduce any changes – so pension providers may be receiving requests to undo those transactions or cancel any that were set to take effect later.
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