Pensioner pessimism drags on consumer confidence ahead of Budget

Anxious pensioners helped drag consumer confidence down its lowest level this year, a new survey shows, as concerns about the Budget clouded the outlook for households.

Just one in six consumers think that the economy will improve over the next year while half think it will get worse, according to Which?

Of those expecting the economy to deteriorate, 64 per cent cited government tax changes as a key factor while 60 per cent pointed to the change in government.

Which? said this “clearly alluded to anticipated spending and tax changes in the upcoming autumn Budget”.

Things were even worse from a personal finance perspective, with confidence in future household finances falling nine percentage points to -15, its lowest position since July 2023.

Pensioners’ pessimism about their financial future was a major factor behind the overall fall, the survey showed.

The confidence of retirees in their future household finances fell 19 points in September, taking the reading to its lowest level since December 2022 at the height of the cost-of-living crisis.

Some respondents pointed to the government’s recently announced plans to bring in eligibility criteria for winter fuel payments as one of the reasons for their negative outlook. 

The fall could also reflect rumoured changes to pension taxes. Chancellor Rachel Reeves is reportedly set to announce a number of changes to pension tax reliefs as she seeks to put the public finances on firmer ground.

Although reports suggest she has dropped plans to introduce a flat rate of tax relief on pension contributions, Reeves may still limit the tax-free lump sum and bring pension pots within the purview of inheritance tax.

Which?’s survey adds to a growing list of evidence that both businesses and households have got more cautious in the run-up to the Budget as they await a new direction in economic policy.

Robert Colville, director of the Centre for Policy Studies, said it was “not surprising” that sentiment had taken a hit given Labour’s gloomy rhetoric.

“Labour have gone to such lengths to spell out how bad the economy is and how much worse it is going to get that by the time the Budget comes, we will probably consider ourselves relieved it wasn’t worse, no matter how bad the announcements are,” he said.

Meanwhile Kallum Pickering, chief economist at Peel Hunt, noted that the surveys were consistent with a number of other recent measures of economic sentiment. “There is clear economic evidence that we’ve seen a confidence shock,” he said.

However, he suggested that the surveys were probably “slightly overdoing it”, pointing out that there had not been a “corresponding drop in activity”.  

“The thing that really matters is the overall growth outlook. We largely already know most of what will be in the budget on tax and spending, and that’s unlikely to substantially change the outlook, the positive fundamentals are likely to reassert themselves once we are passed the Budget.”