Autumn Budget: Financial services sector walking a tightrope as many products and services could be impacted by budget outcome
Hugh Fairclough, partner and head of financial services at RSM UK comments on the potential impact the Autumn Budget could have on the financial services sector.
“The Autumn Budget is shaping up to be one of the most consequential in recent years, with the Chancellor facing a £30–£40bn fiscal gap and a need to restore market confidence without triggering volatility. Bond and swap markets will be watching closely, as their reaction will influence borrowing costs and pricing across the financial services sector.
“Higher taxes or extended freezes on income tax thresholds could reduce disposable incomes, dampening demand for mortgages and personal loans, as people cut back and prioritise essential spending over further debt burdens. Lenders may respond by tightening credit standards, and repricing loans upwards to protect profit margins, creating affordability pressures for borrowers.
“Lower household incomes could curb deposit growth for banks. Meanwhile, rumours of cuts to the Cash ISA allowance, from £20,000 to £12,000, may redirect savings into investment products, boosting demand for tax-advantaged vehicles such as stocks & shares ISAs. For investors, potential hikes in dividend tax (currently up to 39.35%) and alignment of capital gains tax with income tax rates could reshape portfolio strategies, prompting a shift toward tax-efficient wrappers.
“Long-term insurance products, including life cover, could see reduced uptake as households prioritise short-term liquidity. Pension tax relief reforms, such as caps on salary sacrifice, are also under discussion, which could affect retirement planning and advisory demand.
Hugh Fairclough concludes: “We’re hopeful that important lessons have been learned from the infamous mini budget, which led to a loss of market confidence and brought a level of volatility that impacted both institutions and consumers alike. Financial institutions should prepare for potential shifts in consumer demand and pricing strategies following the Chancellor’s announcements.”