(Kitco News) - The United Kingdom’s economic outlook has become a little more complicated after the government’s budget was leaked, proposing new taxes, increased spending, and limited savings growth for consumers as it anticipates lower economic activity over the next five years.
On Wednesday, the Office for Budget Responsibility (OBR), the UK government’s financial watchdog, accidentally published Rachel Reeves’ proposed budget more than 30 minutes before she delivered it.
According to the documents, the government is proposing tax hikes amounting to almost £30 billion, while at the same time increasing spending by £10 billion.
In an expected change that could impact the nation’s bullion demand, the government announced in its budget that, for everyone under 65 years old, the amount of money that can be saved tax-free each year in a cash ISA (Individual Savings Account) will be reduced from £20,000 to £12,000.
The change in UK cash ISAs was proposed earlier in the summer by New Financial, a British financial markets think tank. According to market data, cash ISAs are the most popular form of savings account, collectively holding nearly £300 billion. In its report, New Financial stated that a lower threshold could lead to a net increase of around £10 billion a year in investment in U.K. equities.
With limited savings options, one UK-based bullion firm expects investors to turn to gold to preserve their wealth and hedge against growing economic uncertainty.
Paul Williams, managing director of Solomon Global, said his company is already seeing a surge in demand for Capital Gains Tax (CGT)–exempt bullion. In the UK, all gold, silver, and platinum bullion coins produced by The Royal Mint are classed as CGT-free investments for UK residents because they are recognized as legal currency. This includes gold and silver Britannia coins, Sovereigns, and the popular Queen’s Beasts range.
“Sales of CGT-exempt gold have surged ahead of the Budget, and 46% of visitors to our site are now exploring gold bullion coins specifically because of their tax-free status. Unlike ISAs, whose rules can be rewritten at the Government’s whim, the tax treatment of UK legal-tender bullion coins has remained consistently favourable,” said Williams in an exclusive comment to Kitco News.
“Reeves’ decision to slash the cash ISA allowance by almost half could force millions to reconsider how they protect and grow their long-term wealth, and will likely encourage more people to look for alternative tax-efficient areas, gold being one. Channelling people towards assets they may neither trust, nor fully understand, could see many more turning to traditional safe havens and time-tested stores of value.”
The new trend seen by Solomon Global is also reflected in The Royal Mint’s latest sales figures. In a report published last week, The Royal Mint stated that total bullion coin sales revenue increased by 102% compared to the same quarter last year, and was 6% higher than in the previous quarter.
The Mint said gold coin sales revenue rose 5% quarter-on-quarter, maintaining robust levels established earlier in the year. Meanwhile, silver demand saw extraordinary strength, with coin sales surging 44% compared to the previous quarter and 83% compared to last year.
Growing demand for bullion also comes as the OBR expects the UK economy to continue to struggle. The OBR forecasts average GDP growth of 1.5% over the next five years, 0.3 percentage points lower than in March.
“Against this backdrop, the Budget delivers a frontloaded increase in spending of £9 billion and backloaded increase in taxes of £26 billion. This doubles the current surplus to £22 billion in 2029-30 but also leaves debt 2 per cent of GDP higher than in March,” the OBR said in its budget report.
