For weeks, the press has been full of it. The Budget! The Budget! What the Chancellor will say in it. What the Chancellor won’t say in it. What the Chancellor should say in it. And so on.
Come Budget Day — today — the hype is even more frenetic. Experts line up to tell us what they think. And what do they think? Mostly that middle-class couples in Rotherham, with two kids, will be £5 a week better off. Or is that worse off? I forget.
For investors, all this is so much useless flannel. And frankly, that also goes for all that pre-Budget commentary that is supposedly investment-related.
Much ado about nothing
Why do supposed experts trot out all these banal predictions about the Budget? Largely because their public relations advisers tell them that they have to, because that’s what the competition is doing. Why do newspapers print it? For the same reason.
Does the Chancellor read any of these earnest exhortations about what he should and shouldn’t do? I very much doubt it. And I’m certain that if he does, then it doesn’t inform the policy-making process. Because that’s not how Whitehall works.
And what about today, Budget Day? Should you be glued to your TV or laptop? I wouldn’t recommend it.
In fact, I can remember only one occasion, back in the 1980s, when a Budget announcement required immediate action by me as an investor. And that was the announcement of Insurance Premium Tax, chargeable on policies taken out from the following day. I phoned my broker, and there and then took out the endowment policy that I’d been planning to purchase. Net saving: £2 a month, or so. Big deal.
Gun, foot, aim, fire
So what should you, as an investor, do about the Budget? Chiefly, it’s this: remember not to let the tax tail wag the investment dog.
It’s an old saying, but one that huge numbers of investors — and pundits — cheerfully ignore.
What does it mean? Simply this: that if an investment doesn’t make sense without taking into account any taxation dimension, then it’s unlikely to make better sense with the taxation dimension taken into account.
In other words, if you don’t think that investing in small speculative start-ups is a good idea, then don’t. Irrespective of the fact that, via Venture Capital Trusts, there’s a favourable tax regime.
Likewise, it’s possible to shelter investments from Inheritance Tax if you invest in certain AIM-listed companies. But unless you planning on dying in the immediate future, I don’t think that this is a smart way to make an investment decision. Especially for older investors looking for income.
And so on, and so on.
It’s the economy, stupid
So where does that leave us? Frankly, I’m more interested in what the Chancellor says about the economy than any tinkering he may do with investment-related taxation matters.
In other words, as an investor with a significant stake in UK plc, via shares, index trackers, and investment trusts, then the prognosis for the UK economy will have a more direct impact on my investing outcomes than any fiddling with tax rates.
For as all the evidence repeatedly shows, over the long term, shares handily outperform cash, gilts and bonds.