Richard Potts is the CEO of Irwin Mitchell Asset Management

It was always going to be a balancing act between the near term need to boost the economy and medium term pressures to reduce the deficit. Overall, it looks as though events in the bond market are going to hold more sway than the budget with yields rising sharply on perception of higher inflation.

Overall the budget can be characterised as being long on big, thematic announcements such as green bonds, a new infrastructure investment bank and free ports supplemented by short term boosts to the economy from no new tax increases this year, extension of the furlough scheme, more pandemic support, extension of business rates support for retailers and the leisure sector together with a freeze on tax for alcohol and fuel. Taken together, give a ways amount to £60bn this year (but see below for the cost in later years).

All of this adds up to boosting growth in 2022 to an annualised rate of 7.3% although this year’s growth falls to an increase of 4% down from 5.5% expected in November of last year. Unemployment is still expected to rise to 6.5% which is well below the Bank Of England’s forecast of 7.8%.

There is a sting in the tail. £60bn is being given away this year but tax rises by 2025 are expected to take £30bn from the economy each year with more to come. In aggregate the tax increases will boost the tax burden to 35% of the economy, the highest since the 1960’s: a strange place to be for a Chancellor said to favour lower taxation. Mainly driven by growth but still a relative fiscal contraction, government debt is expected to fall to 2.8% of GDP by 2025-26 from 1% next year and 17% this year.

By freezing income tax bands personal income tax will rise over the years. Corporation tax is going to rise significantly to 25% but this is to be off-set by an increase in allowances for investment some worth up to 130% of expenditure. Such moves are to be encouraged but add additional complications to an already complex system. CGT appears to have been left alone for the time being.

Covid is forecast to have cost the economy 3% which looks to be lost forever, meaning that effectively all our living standards will be that much lower.

Is it a good budget for savers? As always the most reliable indicators come from the markets. Sterling is essentially unchanged against a basket of currencies and down about 0.1% against the dollar and euro. The stock market has declined but that is more down to a reaction to events in the US where technology shares ae falling again. 

Bond yields have risen which is a sign of optimism about growth which is certainly apparent from the short-term announcements: longer term there have to be questions given the increasing tax burden and reduction in government spending. Overall, individual actions will have a significant impact on specific sectors but in aggregate it’s unlikely to change the overall picture much.