The Itty-Bitty Swap Shop Budget

This week’s Budget was the Itty-Bitty Swap Shop. Little scraps here and there and taking some from one bucket only to pour it into another. Largely kicking the difficult can down the road.

Two numbers less reported – for me – arguably had the biggest impact on all of our wealth on Wednesday.

The main number for me was the revised ‘growth’ forecast of just 1% for the UK economy next year. This really overshadows everything. It’s a bit like a gym bunny working out every day but still having biceps like wobbly blancmange. Not good and not productive.

The other number which could arguably impact any investor or pension saver’s wealth more was the 10% fall in Alphabet shares on the same day. The global ‘spook-off’ about AI being overcooked continues. Given Alphabet alone represents about 4% of a global collection of shares (the ‘MSCI World’ IndexA global index that tracks large and medium-sized companies from 23 developed countries around the world.), its performance matters. As a rough guide, if you have £100,000 in a pension pot which is invested in shares, Alphabet’s woes alone would have knocked off about £400 on Wednesday. Then expand the story out to all tech companies spending more and more on AI and you get the picture…

(If you’re worried about tech concentration and bottlenecks, I’ll be looking at growth for 2027 and where some overlooked opportunities might lie in an upcoming webinar, joined by an investment specialist from Baillie Gifford – you can sign up to join live or on catch-up.)

But back to the Budget. Some headlines will be broadly popular. But small. An extra £100 paid into accounts for those in (English) Council Tax bands A-D next January sounds nice but won’t touch the sides.

And despite the economic knock-on effect, the additional 3% surcharge on banks will be popular as a headline because not many of us feel acute sympathy for the financial wellbeing of our banks. This week was a great reminder that markets are creatures of emotion, not pure numbers. Although taxes on banks went up by 3%, bank shares rallied after the Budget as investors wiped their brows and thought, “Thank gawd that wasn’t as bad as I was expecting!”

How we all cheered as some tariffs on imported goods were suspended, saving us an estimated 40p a week. Oh, come on – this includes crisps and choccie! Kemi Badenoch was unimpressed, saying that the Prime Minister promised to end 40 years of neoliberalism but instead delivered “4p off gherkins.” Ouch.

One positive set of changes was announced for those planning to buy a first home. People with a Lifetime ISA will no longer be charged a penalty if the property they end up buying exceeds the £450,000 maximum threshold – they will get back what they put in. That feels fair. There is new support coming in the shape of Government loans for first-time buyers – the Your First Home Scheme.

And from April 2029 we’ll have a new First Time Buyer ISA to replace the LISA – open to all first-timers, not just the under 40s, still with a maximum annual Government bonus of £1,000 if you save £4,000 a year here. The 25% Government bonus will be paid on the account balance when the funds are withdrawn for an eligible first home purchase, up to the value of £450,000. And bye-bye penalties – if funds are taken out for another purpose, the saver simply forgoes the bonus.

The big losers from the Budget were landlords and cash savers with bigger savings pots.

Cash savers were first in the Chancellor’s big game of Swap Shop. Thankfully, crazy plans to meddle with Cash ISAs were scrapped. So, every adult will continue to be able to put up to £20,000 every tax year in a Cash ISA OR a Stocks & Shares ISA OR a mix of both. This is good. But as we fill up the ISA bucket so we lose out on the higher tax on the savings interest bucket.

Tax on savings interest and property income was hoiked up by another 2% from next April. Basic rate taxpayers get the first £1,000 interest tax-free and then will pay 24%. Higher rate taxpayers will now pay 44% (with £500 tax-free) and additional rate taxpayers an eye-watering 49% (with nada tax-free). So, as a general rule, USE THE ISA! And for those with more cash, check out tax-free ‘gilts’ as an increasingly interesting option.

Property. Oof. I’ve had a rental property for ages, and it’s been getting progressively more and more pointless. It’s only an aversion to dealing with the dysfunctional property market which has delayed me selling up. I’m not sure if I will sell now, but the tipping point gets ever closer. Cry me a river, you might think, but the upshot is pretty clear. Fewer rental properties = higher rent for all.

Gas also featured in the Budget Swap Shop. Gas standing charges are being scrapped. Hooray, we cried. Not so fast. The cost of gas per unit will go up. Ho hum.

And business owners also had mixed headlines. Founders’ Relief will mean Capital Gains Tax (CGT) of just 10% on gains made from a sale of a high-growth business up to a total lifetime allowance of £10 million. But that’s only for bigger companies. Less punchy owner-managed businesses will now face more tax on the way out, as their Business Asset Disposal Relief is capped at £500,000, not £1 million. In other words, gains of more than £500,000 will now be taxable at the full CGT rate – so that’s 18% on the first £500,000 and 24% on the rest. The Chancellor is trying to stop the next home-grown tech whizzkid Amazon-wannabe from leaving our shores for America, whilst clobbering smaller businesses with more modest growth plans. That’s the vibe – the full detail is yet to be hashed out.

Over and out for this week. A last request – I would love to know what you thought. Please do share your view on what was good, bad or ugly. A decent and progressive Budget? Lipstick on a financial pig? Or what was missed? We’ll report back next week. If you want a fuller round-up of the facts, you can digest all of the detail here.

Have a lovely weekend, all.

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