No summer Budget, but…

The general election left the future of many spring Budget announcements up in the air, but that situation may soon change.

When Theresa May announced her snap election in April, it threw a major spanner in the previous month’s Budget. There was no time to pass the 776 pages of Finance Bill before parliament shut down. The result was that about 80% of the Bill was removed and its uncontroversial residue passed through parliament in a few days. At the time it was anticipated that following the election the Chancellor – not necessarily Mr Hammond – would reveal a Summer Budget, just as his predecessor did in 2015. The second Budget of the year was expected to reinstate the lost measures and add a few more that were best left until after the polls closed.

It did not quite work out that way, as we all know. Mr Hammond has remained in place at 11 Downing Street and in June told Andrew Marr “…there’s not going to be a sort of summer Budget or anything like that, there will be a regular Budget in November as we had always planned…”. Shortly after that appearance, the background notes to the Queen’s Speech revealed that there would indeed be a Summer Finance Bill, even if there was no Budget.

A tight timetable

The new Bill will incorporate “a range of tax measures including those to tackle avoidance”, but precisely what those measures will be or when the Bill will emerge is unclear. The Treasury has a record of stretching seasonal limits when it comes to publications and will not be helped by the parliamentary timetable, which arrives at the summer recess on 20 July. Parliament resumes on 5 September, but only for nine days before the conference recess, which runs until 8 October.

One planned-and-abandoned/deferred measure which could be relevant to you is the reduction in the money purchase annual allowance. This generally operates when pension contributions are being made at the same time as benefits are (or have been) being drawn. If you think this might affect you, it is vital you check the current situation with us before taking any action.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

Getting our hopes up for an interest rate rise?

Last month saw the first suggestions that interest rates could increase soon.

Source: The Federal Reserve

In June, the US central bank, the Federal Reserve, increased short term interest rates for the second time this year and the fourth time since December 2015. The 0.25% increase to 1.00% − 1.25% had been well signalled by Fed officials, so there was no surprise. As seems to be the case these days, the focus was more on whether the next rate rise was still three months away or might be deferred.

The day after the US interest rate decision it was the turn for the UK central bank, the Bank of England, to make its annoucement. This was universally expected to be another “no change”, leaving base rate at the 0.25% fixed amidst post-referendum concerns last August. The rate did remain unmoved, but there was nevertheless a major surprise: three out of the eight people charged with setting the rate voted for an increase. According to Reuters, this was the nearest the Bank has come to raising interest rates since 2007.

Not so fast

Does that mean the Bank’s next meeting might see the first rise in interest rates in a decade? The answer is probably no. One of the trio of rate risers will have left the Monetary Policy Committee by the time of the next meeting. Her replacement is thought to be less anxious to raise rates. A new deputy governor is also due to be appointed, bringing the Committee up to its normal quota of nine. The balance of the Committee is thus set to change.

Despite some apparent differences between the Bank’s governor, Mark Carney, and its chief economist, Andy Haldane, most experts still do not see the first base rate increase happening until 2018. That is good news if you have a variable rate mortgage, but bad news if you have a deposit account or cash ISA.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Mr Carney prepares to write a letter as inflation rises

The latest inflation numbers show prices rising at their fastest rate for nearly four years.

The May inflation data came as a surprise to many pundits. The expectation had been for inflation, as measured by the Consumer Prices Index (CPI), to remain at April’s level of 2.7%. Instead, National Statistics revealed that annual inflation had reached 2.9% (3.7% on the Retail Prices Index yardstick).


Source: ONS

The last time inflation was at this level was June 2013, as the graph shows. Since then it has taken a rollercoaster ride to around zero for much of 2015, only to surge upwards in the past year: in May 2016 CPI inflation was just 0.3%.

At 2.9%, inflation is already above where the Bank of England had been expecting it to peak later this year. If the rate adds another 0.2% next month, then Mark Carney, the Bank’s Governor, will have to write a letter to the Chancellor explaining why the inflation target has been missed by more than 1%. It’s already clear what he would say from statements issued recently by the Bank: blame the fall in sterling since the Brexit vote.

The Bank sees little respite in the short term. In the press release issued in June alongside its interest rate decision, the Bank said inflation “is likely to remain above the target for an extended period as sterling’s depreciation continues to feed through into the prices of consumer goods and services”.

With many deposit accounts paying interest rates of under 1% (before tax), the news on inflation is a wake-up call if you’re holding more cash than you need to. A year ago money on deposit was just about keeping pace with price increases, whereas now it’s losing buying power at the rate of about 2% a year. To discuss your options in the renewed battle against inflation, please talk to us.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Independence Day

Achieving Financial Freedom

The Fourth of July marks Independence Day in the US, where they celebrate the overthrow of the King and the birth of a new and modern democracy, with ‘justice and liberty for all’. I wonder whether this year will see half the country celebrating more enthusiastically than ever and the other half wondering whether they are returning to monarchic rule.

That aside, the date and the name got me thinking about what we do for our clients, as independence is an important goal for many and we take great pride in helping people achieve this. Independence can come in many forms, from helping clients retire early to rid themselves of the stressful job they have grown weary of, to helping those achieve a comfortable and enjoyable retirement where they are free from worries that their money will run out, to something in between, helping a business owner become independently wealthy from their company so that they can step away from work any time they wish.

We are only able to achieve this through careful, meticulous, long term planning. It starts at our very first meeting where we identify what is most important to you and can then take many years to come to fruition. We work with you over this period to ensure you are on track and if the goal of independence changes, we amend your plan and the path accordingly.

If you or someone you know is looking for independence of some form, please contact us and we will be delighted to help.

Here’s to more people celebrating independence on 4th July 2018.

Election uncertainty…

What happens next?

I stayed up until the early hours watching events unfold and listening to commentators who were struggling to believe the results of the exit poll conducted by a consortium of the BBC, Sky and ITV.  Whilst it proved to be very accurate, pre-election polls where unhelpful in predicting the results, as has been the case in recent election results.

The election result has undoubtedly been influenced by the results of the Brexit referendum and people’s desire for a softer exit than that proposed by Theresa May in her “no deal is better than any deal” approach.

The defeat is highly embarrassing for Theresa May.  How long she remains as party leader will be seen in coming weeks and months.  However, there is no doubt that her dictatorial approach did not sit well with voters (or indeed many of her MPs).   It is highly likely the approach to Brexit will now need to change.  Those negotiating from a European perspective will know that the Conservatives do not have a mandate and this is likely to cause challenges.  However, the positive outlook is that it could become more of a win/win negotiation than a zero sum game.

Jeremy Corbyn ran a good campaign.  It looks as though Labour benefited from the desertion of UKIP voters towards those who were willing to take a more conciliatory approach to Brexit negotiations.  Similarly, Labour also appear to have benefited from the surge in young voters and indeed voting percentages in many of the constituencies were respectably high.

Never-the-less, last night’s result, along with the wider political landscape and recent terrorist activity, all create an air of uncertainty; something which humans and markets dislike intensely.  That said, although Sterling fell overnight, it was not by as much as expected by some pundits, although there is still a long way to go.

So what could all of this mean?  Some commentators are suggesting that a hung parliament would mean a consistently weaker Sterling which in turn means higher prices for UK consumers and a corresponding impact on retail sales.  On the other hand, this does mean that internationally biased investments, which many of our clients hold through their investment portfolios,  are worth more.

The significant losses experienced by the SNP and the corresponding move to the Scottish Conservatives (and Labour), also indicates the lack of appetite in Scotland for a further Independence referendum.  This in turn suggests a stronger United Kingdom which ought to be viewed positively and has to be better for the economy as a whole.

Much will happen in coming days and months but as we have said before, the sun still rose this morning and we will all go about our business as usual.

We have talked before about our three key principles and it is worth reiterating those again:

Have faith in the future –There will always be some crisis or other around the world that impacts on markets, but if we believe they are broadly efficient and capitalism works, then the long term trend is upwards.

Have patience – Have a plan and work it patiently for your lifetime and if appropriate, the next generation.  None of us are in this for the short term.

Discipline – Avoid doing the WRONG thing.  At times like this it is easy to be caught up in the broader sentiment.

Uncertainty presents opportunities and we will continue to work with you to make sure your plan stays on course whatever happens in the short term.

Keep calm and carry on.

After the election…

The past seven weeks have been torrid and not just in a political sense.  An election which was originally intended to be about Brexit, has morphed into something altogether different, with issues around National Security, Social Care and the funding of the NHS coming to the forefront; and Brexit very much taking a back seat.

Later tonight we should (hopefully) have a clear idea about who will be leading the UK out of Europe and into a new era over the next 5 years.  In the meantime, we all know that, whoever is in power this time tomorrow and once the dust settles, the sun will rise, we will all continue about our business and the business of government will continue.  So what can we expect to affect us in a practical sense over coming months?

Past performance is not a reliable indicator of future performance. However, when it comes to general elections, there is plenty of history to suggest that tax increases are more likely in the first Budget to occur after the polls have closed. From a politician’s viewpoint, it makes sense to deliver the medicine immediately, as that leaves the longest gap before the next election. For example, it was in the summer Budget after the May 2015 election that the new dividend tax rules, reduced tax relief on buy-to-let properties and 3.5% increase in insurance premium tax were announced.

In the post-election environment, whoever ends up as Chancellor will be presenting a new Finance Bill, probably in July. There is a raft of measures to reinstate because so many were dropped from the March Finance Bill in the rush to get it passed before parliament shut down. When reviving the spring Budget, the Chancellor will almost inevitably wish to add some new tax legislation based on what was (or, as important, was not) stated in their party’s manifesto.

Changes which were not originally in March’s Finance Bill are unlikely to take full effect before the start of the next tax year (2018/19), but even so there may be some “anti-forestalling” measures that bite immediately. One area which looks ripe for a further attack is tax relief on pension contributions. You may recall that the tapering of the annual allowance for high earners was announced in the July 2015 post-election Budget.

If you are contemplating large pension contributions in this tax year, it could be a wise precaution to make them before the new government’s first Budget.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

 

Hail to the Chief

America’s next President, Donald Trump

Like many I’m sure, this is going to take some time to sink in, but the people of America have voted, narrowly, to elect Donald Trump as their leader for the next four years. This has defied the polls, betting markets, financial markets and popular opinion, but as the Brexit vote in June showed, the unexpected does happen.

He is clearly a man with many personal flaws; his views on women, immigrants and religious minorities are misplaced at best and abhorrent at worst. That said, Mrs Clinton was hardly untarnished either with the email scandal refusing to go away. As the campaign dragged on I felt sorry for the American public; for out of 300 million Americans, these two were the best candidates for one of the most powerful positions on earth?! The campaign was ugly, brutal and a sad advert for democracy across the world from one of its greatest advocates.

For all his flaws, for many voters, his one redeeming feature is that he is the antithesis of a politician.

Given the lack of any real detail in terms of policy from Mr Trump, excepting his promise to build ‘The Wall’, have half the country really voted for his vision of America? I expect the deep divides been Democrats and Republicans have led many supporters of the latter to hold their nose and vote for Trump, as they could not bring themselves to vote Democrat, or especially for Hilary Clinton. Others, as with the Brexit vote in the UK, I imagine, simply voted for change.

Whether this would be positive or negative, those who felt disenfranchised or left behind in the wake of globalisation probably felt things could not get much worse and therefore a vote for Trump was a protest against ‘the system’.

For all his flaws, for many voters, his one redeeming feature is that he is the antithesis of a politician, something he proved time and again during the campaign. The irony is that the billionaire is a prime example of the elite that many are revolting against. Still, the American dream is such that extreme wealth does not alienate you from ‘ordinary folk’, for anyone can become a billionaire in the USA. I’d argue that inheriting a real estate from your father probably helps however.

Looking ahead

The votes are in and on the 20th January, 2017, Mr Trump will be inaugurated as the 45th President of the USA. So what will a Trump presidency mean for the US and the world? As mentioned, the lack of any real policy detail means that it is hard to tell. The concerns are that his rhetoric suggests America will turn more isolationist and retreat from foreign affairs which could worsen the situation in the Middle East and leave Chinese aggression in the East China Sea unchecked. His anti-immigration views and talk of the Wall could affect the vibrancy of the US economy and deter those who have skills to bring to the US. The promise to return jobs from abroad raises the possibility of protectionist measures which would harm the US economy and set a dangerous precedent of retaliatory measures being adopted by global markets.

The positives are that although he may not do much for the economy, financial markets should benefit from his pro-business and anti-regulation stances. His disdain for the environment and climate change is deeply worrying but in a financial sense will be a boon to natural resource industries.

As well as Trump’s victory, it was also good news for the Republicans in general who kept control of both the House and Senate. Unlike Obama who was hamstrung by a Republican controlled Congress, Trump should be able effect change given the one party rule in Washington – for the next two years at least.

The fact that any real change requires the approval of Congress is also a reason for calm when considering a Trump presidency. The party has shown they are not afraid to disagree with their presidential nominee and when he is in power they will hopefully provide a challenge to some of his policy whims. His plans for widespread tax cuts are likely to be watered down by a fiscally conservative Republican party which is good news for America’s finances.
In terms of wider impact, this remains an unknown. Initial reaction in the markets to a Trump victory during the night were negative but many of these losses have been reversed and his victory speech went some way to soothing investors’ fears; he almost sounded humble.

So, it remains to be seen; assuming the campaign was all rhetoric and bluster to appeal to the more extreme voters and he really is a more measured, diplomatic businessman, it might not be such a bad choice. If he is actually as self-centred, insecure and bad tempered as he appeared in the campaign and during his public life, the US and the world has a problem.

With elections throughout Europe, in particular Germany and France, coming up, 2017 promises to be an interesting year.

As ever, if you have questions or would like to discuss the impact of these events with us, do please feel free to contact us.