What’s in the box, George?

Having recently emerged from the political cauldron of the general election, UK investors welcomed the shift from the potential uncertainty of coalition to an unexpected, if slim, majority for the Conservatives. Proposals by Labour and the Liberal Democrats to hit the wealthy with measures including mansion taxes, rent controls and the abolition of the non-dom regime were rejected at the ballot box, to the relief of wealth managers and investors.

But while some threats have receded, others have loomed into view, notably the EU referendum and a potential raid on pensions relief.

Chris Kenny, partner at Smith & Williamson, said investors needed to focus on the referendum as a potential source of volatility, even though prime minister David Cameron was now operating from a position of greater strength in terms of his electoral success and the performance of the UK economy. “We’d expect the UK to remain and would prefer to see a referendum sooner rather than later. This would get rid of the uncertainty.”

Some wealth managers flagged concerns around the Conservatives’ tougher commitment to fiscal austerity, after George Osborne, the chancellor, pledged to eliminate the deficit by 2018 — a policy that would front-load cuts to public spending in the first half of the parliament.

Balancing the books is a laudable aim, but only if doing so does not risk dragging down GDP growth by cutting investment and consumer spending. Frederique Carrier, director of European equities at RBC Wealth Management, said Mr Osborne could ease the pain in the Budget. “We think he’ll announce plans to smooth this transition, to reduce the impact of austerity.”

However, Mr Kenny argued that the Conservatives were likely to press ahead while they had the momentum of victory. “If there were ever a time to do it, you’ve got a benign economic background and a political consensus . . . By the time you get to the fourth of fifth year of a parliament any additional cuts are going to be even harder to get through, particularly with a 12-seat majority.”

Wealth managers added that any further attacks on pensions relief and allowances — reduced in successive Budgets — would discourage the savings culture needed to ensure people were properly provided for in their retirement. But since the government was narrowing its revenue-raising options by imposing a “triple lock” on increases in income tax, VAT or national insurance in this parliament, pensions — as well as other reliefs — could be targeted once again.