The editor reflects on the first Budget from a Labour-led UK administration for 14 years. It was, judging by the previews, never going to make for happy reading. And so it proved.

Well, at last, the UK’s new finance minister, Rachel Reeves, delivered her Autumn Budget yesterday, just in time for Halloween. In total, there were almost ÂŁ40 billion ($52 billion) of tax hikes; there was additional borrowing, arguments – some highly controversial – about the true size of fiscal “black holes,” and promises to make parts of the public sector more efficient. (Good luck with that.) As of the time of writing these words a few hours after Reeves stopped talking, UK government bond markets are a bit softer, and my editorial colleagues are wading through a mass of reactions. 

There has been considerable speculation for weeks about tax hikes. And this duly took place: a rise in capital gains tax, a squeeze on the reliefs for inheritance tax, higher employers’ National Insurance contributions (which are likely to be passed on almost entirely to employees, which arguably kills a pledge in the Labour Party manifesto of this year); no continuation of the income tax threshold freeze beyond the current 2028/29 cutoff (which is some small comfort, assuming that does not change), and the imposition of value added tax on private schools. 

And in a move that surprises few, Reeves has moved ahead with removing the UK’s resident non-domicile system and is adopting a temporary residence-based approach instead. “Domicile” will cease to be a feature of the UK tax code. Details about trusts and inheritance tax are crucial, and they don't look good. Stephen Kenny, head of private client at audit and accountancy firm PKF Littlejohn, said Reeves has left non-doms with few reasons not to leave the UK as soon as possible. He wrote in a note yesterday: "Historically, the IHT payable on an offshore trust was always linked to the settlor’s domicile at the time they settled it. It’s now linked to the settlor’s residence at the time of the charge, which massively increases potential liabilities. For many non-doms, paying UK IHT on all assets in an offshore trust will be unacceptable. There’s no question that many people in this situation will leave the country to [move to] more tax-favourable jurisdictions."

Another comment, from Matthew Sperry, Private Wealth partner at Katten Muchin Rosenman. catches the flavour of the change: â€śLabour seems to have largely adopted what they had proposed previously. This includes no grandfathering for trusts that were IHT protected, meaning foreigners resident in the UK for 10 years will be fully exposed to IHT – including those that settled trusts that were IHT exempt under current law. I fully expect that this news will hasten the exit for many non-doms that were advised to postpone any moves until after this Budget. Labour has ignored those that have warned that this move would eviscerate the non-dom tax base."

Well, that appears to undermine the notion that Reeves might have been willing to soften the IHT blow.

While some speculation before yesterday may have added to a sense of panic, it is also uncontroversial to state that the long lead-time to the Budget has created plenty of time for people to fret, examine foreign options, and act. Data suggests that business owners and holders of equities, for example, have sold out to avoid a possible big CGT hike. Even if the actual new CGT rates aren’t as scary as thought, will these people reverse course? 

This is an ideological Budget, and clearly very pro-state in its direction of travel. The package shifts resources from the wealth-producing side of the country to the wealth consumption side. While not as severe as some feared, the changed rules on IHT mean that there is more risk that a family-run farm or business might be broken up upon the death of the original owners, particularly if a farm or firm is above a certain financial size. That seems hard to square with the fact that family-owned businesses are often the bedrock of a broad-based economy and society, and often make better employers.

Now it is true that spending on medical care and improving infrastructure will ultimately boost the supply side of the economy; if our roads are better, broadband is faster and our health is more robust (fewer people will be off work because they are ill, etc). But all too often politicians of all stripes like to call spending “investment,” but that can play fast and loose with what businesspeople understand investment to be. Quite a lot of the higher spending is on consumption – such as above-inflation pay rises for public sector (unionised) employees. The productivity of the state typically lags that of the private sector. Tilting the balance yet further to the public sector does not seem a formula for faster growth. If we look at the countries around the world where wealth rises fastest, they tend to be less heavily taxed in general. Even socialist Sweden moved away from this model in the 1990s, to give one example.

Of course, the wealth sector cannot be insulated from worries that have arisen in recent times about widening inequality and rising demands on the public purse from, say, the defence side (Ukraine, other), better medical care (for example, mental health and ageing populations), and the like. Reeves made much of the alleged neglect of certain areas of spending in her speech yesterday, and it is hard not to be struck by what she said. Many of us no doubt grumble about potholes in the roads, or spotty internet connections, or the fact that no reservoirs have been built in the UK for more than three decades. There is a lot to do.

But I worry that with the world economy in a difficult position, and facing likely tariff hikes if there is a Trump presidency in the US next January, and still handling the disruptions from geopolitics and the pandemic, now is not the time to add to burdens on business. I am unconvinced that Reeves’ effort yesterday will go down as a net plus for the UK economy. I hope I am wrong.

Where do we go from here?
Where does all this leave the UK-based wealth management industry, and how the country is seen abroad?

In talking to people in Switzerland, Singapore, Dubai, the US and Luxembourg, to give a few cases, there is a sense that the country is losing its wealth edge, and quickly. Unless Reeves and colleagues are able to counter this and learn, the impression appears now set that the UK is not a friendly place for wealth owners.

Now it is true that when there is uncertainty and change, this creates much work for private client advisors. People tell me they are flat-out with work. A London-based lawyer who has worked in the field for decades says clients are worried and he is spending a lot of time talking to them. I come across this time and again.

But getting work from people who are trying to reduce the impact of a policy is only one way to make a living, and it is arguably a diminishing advantage. Overall, the UK must expand the cohort of affluent and HNW individuals and families, and that means encouraging enterprise. It is clear, to my mind, that the UK wealth sector is operating in a chilly cultural environment, and needs to raise its game in explaining to a wider public why wealth management matters, and why helping and guiding entrepreneurs and heads of business is important.

It may be that the passing of time will do the job of changing minds. If there really is a big flight of HNW people abroad, and the tax base shrinks and the economy is sluggish, Reeves might have to change course, particularly if opinion polls look grim and her party starts losing by-elections. 

The wealth sector, whether the government likes it or not, cannot hope to keep its head down and hope for the best, but it must prepare for changes and try to influence thinking more than it perhaps has chosen to do in the past. The sector must be part of a growing conversation, and be as constructive as it can be. For example, family offices and other holders of large blocks of capital must try and insert themselves into conversations about how to invest in areas such as infrastructure, which politicians like to make much of.  

This Budget was never going to be a fun experience for the affluent and HNW end of the population once this new government came into office. And thus it has proved.