In the weeks leading up to today’s UK Budget, financial advisers and their clients have faced what many are calling the ‘Hokey Cokey’ approach to government policy on tax and spending.

Proposals have been floated, leaked and then hastily withdrawn, leaving advisers and their clients in a fog of uncertainty. Income Tax hikes were ‘in’ before being scrapped, replaced by an extended freeze on thresholds, the income levels at which higher tax rates come into force.

This is stealth taxation through ‘fiscal drag’. If tax thresholds do not rise to keep pace with wage increases and inflation, then as people earn more – to keep pace with rising prices – they move into higher tax brackets. This means they are paying more tax, even though their spending power in real terms has not increased

In the pre-Budget Hokey Cokey, the annual Cash ISA allowance of £20,000 had looked safe, only for rumours to then begin to circulate of a cut to £12,000 to encourage people to invest in the stock market.

Pension perks have danced in and out too, with salary sacrifice* caps and whispers of changes to tax relief causing concern. To this we can add talk of mansion taxes, Capital Gains Tax tweaks and levies for drivers of electric vehicles (EVs).

For advisers, this level of unpredictability complicates planning and erodes client confidence, reinforcing the need for flexible strategies and clear communication in an environment where policy seems to change with the wind.

The irony was not lost that the Office for Budget Responsibility (OBR) revealed the contents of the ‘Hokey Cokey Budget’ before Chancellor Rachel Reeves had the chance to present it in Parliament. So, what are the key takeaways?

The headline measures include a freeze on Income Tax thresholds for an additional three years to April 2031, the introduction of National Insurance on salary sacrifice pension contributions above £2,000 from April 2029, and a new property tax on homes valued at more than £2 million, taking effect from 2028. Collectively, these and other changes are expected to raise £26 billion in additional tax revenue by 2030.

However, the OBR revised its forecast for productivity growth downward by 0.3 percentage points to 1%, which is projected to reduce tax revenue by £16 billion by the end of the forecast period. In March, the OBR anticipated the government’s day-to-day tax revenues and spending would reach ‘balance’ by 2029-30 with a surplus – or ‘headroom’ – of £9.9 billion. That figure has now increased to £21.7 billion, providing the government with greater flexibility.

Markets responded swiftly. At the outset of the premature OBR release, both sterling and UK government bonds weakened. By the time Chancellor Reeves delivered her address, both had reversed course, buoyed by the improvement in forecast headroom. The UK stock market moved marginally higher, broadly in line with global markets.

For individual investors, however, the picture is less encouraging. The Budget includes a two-percentage point increase in tax rates on dividends, property income, and savings income. High-value property owners will also face the new ‘mansion tax’, which is a council tax surcharge on homes worth over £2 million.

The government opted not to alter the pension tax-free lump sum allowance (a pre-Budget concern). However, the combination of reduced salary sacrifice benefits and the 2024 Budget’s inclusion of pension assets in Inheritance Tax calculations from 2027 may prompt wealthier individuals to reassess pension contributions and explore alternative structures to manage their wealth.

We believe that now more than ever, advisers will need to use a range of solutions to structure clients’ wealth in the most efficient way. Clients will need to understand the differences between investments targeting capital growth and those designed to pay an income. They will also need to appreciate the advantages and drawbacks of pensions and understand the rising costs of property.

At Marlborough, we offer a broad spectrum of services – whether managed portfolio solutions (MPS), multi-asset funds, or tailored portfolio solutions – to help provide advisers with the investment tools required to meet their clients’ needs.

*Salary sacrifice is an agreement between an individual and their employer, where the individual gives up part of their taxable pay. The employer then directs that money into something else, often the individual’s workplace pension. The individual’s taxable income is lower, so they pay less Income Tax and National Insurance (NI). The employer also saves NI.

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Edward Kennedy is Head of Marlborough’s Personal Portfolio service.

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.