Governments have financial plans too

Governments have financial plans too. Increasingly, your money is part of theirs.

And there is something worth remembering from the outset: their plan will change.

So will yours.

Andy Burnham and John Healey have arrived with their own view of what Britain should look like in five or ten years’ time. They will have priorities, ambitions, problems they believe need fixing and, hopefully, some idea of how to pay for them.

They will also want to prove that being in charge makes a difference.

That is hardly unreasonable. Nobody spends years trying to become Prime Minister only to arrive in Downing Street, look around and announce that everything seems broadly fine and perhaps everybody should just carry on.

So we should expect change.

Burnham has already talked about a longer-term plan for the country, shifting economic power away from Westminster and tackling some difficult and expensive problems. Healey has a Budget coming in October and the rather less glamorous job of making the numbers work.

This is where government finances start to look surprisingly like everybody else’s.

There is usually no shortage of ambition. Finding the money is harder.

Families understand this. Businesses certainly understand it. At some point the spreadsheet has an irritating habit of adding everything up.

For most of us, if the numbers do not work we have a fairly limited menu. We can earn more, spend less, borrow, postpone something or change the plan.

Governments have another option.

They can change the tax rules.

Most families cannot solve a funding gap by announcing a new levy on the neighbours. Governments enjoy rather more flexibility.

And this is where their financial plan can start to collide with yours.

Your own plan might involve retiring, paying off a mortgage, helping your children, selling a business, drawing pensions, enjoying some of the money you have accumulated or eventually passing it on.

The government, perfectly reasonably from its perspective, has plans of its own.

This does not necessarily mean a dramatic new wealth tax arriving one Wednesday afternoon. Governments can raise money in much quieter ways. Allowances can change. Thresholds can stay frozen. Pension rules can move. Property, investment and inheritance taxes can evolve. A collection of relatively small changes can eventually make quite a large difference.

Which is why trying to predict every Budget announcement is rarely a particularly useful hobby.

Burnham and Healey have their version of reality. Opposition parties will have another. Economists will provide several more, occasionally changing their minds without any obvious loss of confidence.

There will be forecasts, revised forecasts, promises, compromises and probably policies that everybody will later explain were completely inevitable.

We do not need to predict all of them.

What matters is recognising something more fundamental. If you have built meaningful wealth, governments are unlikely to become less interested in how that wealth is taxed.

That is not an argument for panic. It is an argument for having choices.

A financial plan that only works if today’s tax rules remain unchanged for the next 20 years is probably not much of a plan.

Likewise, if nearly everything you own is tied up in one property, one pension, one business or one particular structure, changes to the rules can matter considerably more.

Optionality has value.

That might mean having different types of assets and investments, sufficient liquidity, using allowances sensibly, thinking about when and how wealth eventually passes to your family, or simply dealing with decisions while you still have plenty of choices available.

Sometimes changes in tax rules should cause us to act.

Sometimes the anticipation of change might reasonably influence a decision we were considering anyway.

And sometimes the correct response will be to do absolutely nothing.

The important bit is knowing the difference.

A new Prime Minister should have a vision for the future. We should probably be rather worried if he doesn’t. Burnham and Healey will make choices about the country they want Britain to become, what government should provide and how those ambitions should be funded.

You should have a vision for your future too.

Because their plan will change.

So will yours.

The trick is to make sure that when the two meet, yours still works.