Budgets, taxes and portfolios: what advisers should keep in mind – Aubrey Capital Management

Written by Anna Macdonald, CFA, Investment Manager, Aubrey Capital Management 

The UK’s next budget will not be delivered until 26 November, the very latest date possible. That delay, while politically understandable, extends a period of uncertainty at a critical point in the economic calendar. 

For advisers, this is not simply another political talking point. The long wait risks dampening consumer confidence during the “Golden Quarter” for retail, just as households are already saving at rates unseen since the Global Financial Crisis. At the same time, Labour’s election pledges to shield workers from income tax increases are beginning to look more like a straitjacket than a reassurance. 

A shrinking fiscal space 

The challenge is stark. Just 46% of households are net contributors to HMRC, yet demands on public spending continue to rise. Social benefits are expanding, defence budgets must increase, and the cost of servicing debt has escalated. Roughly a quarter of UK government bonds are index-linked, leaving the Exchequer unusually vulnerable to inflation. That inflation remains more persistent here than in many other European economies. 

Meanwhile, long-dated gilt demand is weaker than it once was. Defined benefit pension schemes, once a dependable buyer, are in decline. This leaves the UK more reliant on overseas investors to finance borrowing, a reliance that reduces flexibility and leaves policymakers sensitive to external sentiment. 

Within this context, Rachel Reeves’ ability to stick to pre-election promises will be severely tested. Capital spending is already exempted from the fiscal rules, and an extension of that carve-out to defence could provide some breathing space. Tax reliefs on North Sea drilling and offsetting capital expenses against tax might broaden the revenue base further. Yet none of these options is politically straightforward, and in each case, the trade-offs are significant. 

The adviser’s challenge 

For financial advisers, the fiscal knots can feel daunting. Clients understandably worry about tax changes, squeezed household budgets and gloomy headlines. But history shows that political turbulence often has less impact on long-term portfolios than is commonly assumed. 

Part of the adviser’s role is therefore reassurance: explaining that investment outcomes are driven by fundamentals, not by each twist in Westminster. Diversification across geographies and asset classes remains the best protection against fiscal uncertainty. 

Opportunities in UK markets 

While the policy outlook is clouded, it would be wrong to dismiss UK assets altogether. Equities in particular look inexpensive relative to history and peers. Many strong companies have already been taken private or acquired by overseas buyers, but active managers continue to identify mispriced opportunities. For long-term investors willing to accept some volatility, selective UK exposure still has a role. 

On the fixed income side, longer-dated gilts are offering interesting opportunities. Their low coupons mean capital gains are possible if yields fall, and importantly, those gains are tax free. For clients comfortable with some price fluctuation, this may be a valuable tool in portfolio construction. 

Advisers may also wish to revisit listed investment trusts. Discounts remain wide, even for those with predominantly overseas holdings. For investors with patience and a willingness to look under the bonnet, verifying net asset values and dividend coverage carefully, these can offer diversified exposure at attractive entry points. 

Looking beyond the UK 

While there are reasons to stay engaged with domestic markets, advisers will recognise that the best safeguard against policy risk is global diversification. At Aubrey, I sit alongside colleagues running our Emerging Markets and Global Conviction strategies. Their perspectives are a reminder that there is always growth somewhere in the world, even when conditions at home are challenging. 

This global lens is particularly important now. The UK may feel hemmed in by fiscal rules and political promises, but investors are not bound by national borders. For clients, exposure to global equities, emerging market growth stories and alternative assets can all provide balance when domestic policy looks uncertain. 

Conclusion 

Adam Smith warned that governments, when pressed, eventually resort to “improper” taxes. The UK is approaching that juncture. For clients, the risk is that fiscal policy becomes increasingly reactive, with households bearing the brunt. 

For advisers, the response is not to predict every twist in the budgetary process, but to ensure portfolios are robust against uncertainty. That means global diversification, active selection where opportunities are clear, and careful communication with clients. Political debates may dominate headlines, but the fundamentals of long-term investing remain unchanged.