In a couple of days' time, Rishi Sunak, Britain's chancellor, will unveil his latest plans for the public finances.
You might think: "Wait a minute. We just had a spending review the other day. You know, the one where he put up taxes? How can we need another one already?"
And I'd agree with you. But we're back in the era of showbiz chancellors looking to position themselves for the main prize, so another budget it is.
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Here we shall attempt to lay out what the chancellor might have in store for us in his little red box...
The good news and the bad news
The good news for the chancellor is that the public finances are actually in a better state than had been expected this time last year.
The bad news is that this is like saying "we thought your entire house had burned down, but turns out we managed to save... the front door".
The public finances are in a state, and the chancellor knows it.
So while he'll probably make a cheery big deal of how we aren't in quite as deep a hole as we could've been (no doubt that'll be down to "the government's clever steering of the economy in a time of crisis" etc etc), he's also not going to play down the challenge ("but we still have a lot of work to do to build back" blah blah).
One thing Rishi Sunak is not, is an MMT man. He's already been telling anyone who'll listen that Britain needs to watch it on spending and inflation, because if interest rates go up even a tiny bit, we'll be shelling out billions more on debt repayments.
The tension between a prime minister who is clearly happier with saying "yes" to everyone and throwing money at everything, and a chancellor who still believes that printing money surely can't be the answer to everything, is interesting.
Right now, the chancellor's view will probably win out. It's 2021. The government doesn't need to hold an election until 2024. If you're going to give the electorate a hard kick in the wallet, now's the time to do it.
They've already administered that via the new "health and social care levy". Corporation tax is also going up. So in terms of the big blocks of tax and spending policy, we've already got most of them in place.
So we're unlikely to see anything headline-grabbing out of this particular budget.
However, there are a couple of points to remember on that. One is that Sunak is not a Philip Hammond.
There are plenty of things you could get irritated with Hammond for, but one massive saving grace he had as chancellor was that he clearly wasn't a future prime minister and nor did he want to be. So it reduced that whole "here's my leadership pitch" aspect of the budget spotlight.
Sunak is much more of a future PM-type, even if the odds are slim and politics is cruel (just ask George Osborne and Gordon Brown). So that means more temptation to cook up schemes that are essentially small-scale wastes of time and money but which make him look good for 15 minutes.
Financial repression and stealth taxes
The other, more important point, is this: just because it's a quiet budget doesn't mean he won't do anything significant.
The main thing investors need to understand about today is that we're in an era where – in stark contrast to the notional philosophy of the New Labour late-1990s days – no one is "intensely relaxed" about anyone else getting rich, or even pretending to be.
Governments are firmly entrenched in all areas of the market and the economy. Nowhere is considered off limits and everyone is considered fair game.
How does a government pay off its massive public debts when the tax burden is already about the highest it's ever been?
Stealth taxes are one method. The key with stealth taxes is to find a part of the financial system from which the level of revenue that you can raise is much greater than the amount of fuss it will cause.
So for example, everyone has a strong understanding of income tax (or at least knows it exists and that it affects them personally). You can't change that without people noticing. That's why when chancellors are looking for a big giveaway, you get an income tax cut.
This is why pensions often come in for such big hits. From Gordon Brown's dividend tax raid to the introduction of the Lifetime Allowance, revenue raising measures which would have likely cost a government the next election had they been enacted via income tax, say, go essentially unnoticed because people find pensions unutterably dull.
You might think that pensions have been milked dry. And it's certainly getting to the point where any further restrictions will start to be noticed by a much larger group of people. But don't be surprised if the inheritance tax rules around pensions are tweaked, for example.
There's no doubt that stealth taxes are harder to come by for a chancellor these days. Brown was the master of the stealth tax – or at least, he picked all the low-hanging fruit on that tree before anyone else could.
That takes us to the second way to cut debt. It's via the ultimate stealth tax – inflation. This is the technique known as "financial repression". Financial repression basically involves forcing savers to lend to borrowers at rates which do not compensate them for inflation risk (and in some cases, credit risk).
I wrote about how green finance should represent an excellent repression tool on Friday. I suspect we'll see more of this. Slapping the word "green" on a financial product or tax seems to make it all the more palatable to both voters and investors. There may not be much more mileage in that wheeze, but I'm guessing the chancellor will stick with it while the going is good.
In short, the direction of travel is clear. You can expect more complexity and more cost from the tax system.
How can investors protect their portfolios against this? It's a subject we've covered on many occasions in MoneyWeek magazine and it's one that we'll continue to do. Get your first six issues free here – and I'll even throw in a copy of my book, The Sceptical Investor, you lucky thing.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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