Autumn Budget Preview: Will the Chancellor Stick or Twist? Autumn Budget Preview: Will the Chancellor Stick or Twist? Gus Williams – CEO, Bevan Buckland Subscribe to the Businessin Wales daily newsletter for FREE here.  As the Autumn Budget approaches, the question remains: will this be a turning point for the UK economy? Gus Williams, CEO of Bevan Buckland, explores whether the Chancellor will deliver incremental tweaks or bold reforms to tackle deep-rooted challenges. It’s fair to say Labour’s first budget did not go down well with businesses.  Neither has it delivered the economic growth and investment that the Government hoped would buy it time against further tax rises. The problem with the last budget is that it was a fudge.  How can we raise taxes without seeming to raise taxes?  This Labour government is not unique in that respect.  Budgets over the last 30 years have all taken this approach, and the result is an increasingly complex tax system that actively encourages people to find legal ways to avoid tax.  Rather than fundamentally changing or fixing the tax system, successive governments have just applied sticking plasters to cover the widening fiscal cracks. These cracks have been baked into the economy for years:  ageing population, declining labour participation, wealth inequality, regional decline, consumer spending collapse, asset inflation, offshoring of both production and profits, asset hoarding and asset sweating. I don’t think it’s a coincidence that budget fudging has become the norm ever since Gordon Brown announced his Golden Rule in 1997.  This is the hair shirt Gordon Brown and his successors have been forced to wear ever since. The Golden Rule has no real economic basis, nor does it provide any useful framework or doctrine for monetary and fiscal policy.  Yet every Chancellor since has lived under a fear of breaking the Golden Rule.  Changes to tax and spend policies have not been based on fundamental economic principles or future returns, but on fudging the numbers to ensure the OBR forecast meets the Golden Rule, along with some political sleight of hand to wrangle at least a few positive headlines. It’s no coincidence that, ever since the Golden Rule became a political doctrine of faith, government debt has ballooned, and the economy has flatlined.  The problem is this: almost every policy that would correct the current tax imbalances and skewed incentives, to create a sustainable, balanced system over the long term, would involve forgoing short-term tax revenues.   Any tax reform that creates short-term pain in return for long-term gain breaks the Golden Rule, so it is off the table. The Golden Rule has not just put a straitjacket on successive Chancellors, but it has given the Bond Markets a stick with which to beat them.  It gives Bond traders a made-up marker around which to position and profit without having to do the hard work of broader economic analysis. I’m sure every Chancellor since has contemplated loudly, “won’t someone rid me of this turbulent Golden Rule” in the hope of an errant knight overhearing them.  Liz Truss is still muttering it in her sleep. So will Rachel Reeves just stick to what she knows and plaster over the budgetary cracks to keep the Golden Rule intact, or will she twist and do the hard work to rewrite the tax system fundamentally? The reception to her last budget was so overwhelmingly negative that it has made the Treasury very wary of just repeating the same trick.  The constant leaks and noises over the past few months, testing the water for potential tax changes in the budget, are a window into the fact that there is a debate taking place within the Government, which recognises the need for fundamental tax change. My guess is that the Treasury is pushing for fundamental reform, while the political apparatchiks around Kier are nervous about taking any radical steps.  The budget will probably end up coming out somewhere in between. From the musings I have heard, this is where the internal debate is focused: NI versus Income Tax Most of us know NI is a con job, and if it were being run by anyone other than the Government, it would be shut down as a Ponzi Scheme.  It’s an income and payroll tax just by another name.  Introduced to give the impression that we are paying into something that, over time, will pay us back, it was always just a way of increasing income tax without people realising it.  Any sane government would abolish it and just roll it into the Income Tax rates.  With retirees generating an increasing proportion of wealth and income and “passive income” falling outside the scope of NI, the case for reform is too loud to ignore.  We will probably see some “offsetting” changes to NI and Income Tax in the budget. Cash Hoarding Incentives A record £100bn of cash was poured into ISAs last year.    The vast majority of UK household non-property wealth is stored in tax wrappers – ISAs and pensions.  These tax incentives were designed and introduced when governments’ biggest fiscal fear was that people would not have enough retirement savings, as we moved away from defined benefit schemes. The reality is that all these tax incentives have achieved is to encourage those who already have good retirement provisions to hoard their excess cash in unproductive and low-risk assets.   They have done little to increase savings rates among those already struggling to save for retirement.  The “tax gains” achieved by stuffing ISAs and pensions far outweigh any incentive to invest in higher-return, riskier assets.  One of the major differences between the US and UK tax systems is that in the US, people can invest in small businesses through the wrapper of their 401(k)s.   Reform of tax-incentive-based savings to unlock some of this cash is long overdue, especially as these schemes actively disincentivise small-business capital investment and spending, two of the biggest drags on economic growth.  There have been too many leaked proposals around ISAs and Pensions to