My view on the budget.
Couple of things in this short post. I used to provide a regular email commentary but realised there was less and less to say.
Remember we have had ten years of practically zero interest rates and five years of no growth in the main FTSE100 index and a four percent loss for the FTSE 250 in the same period. There is a loose connection with decreasing public services, increasing taxation and increasing inequality.
For the moment I am not quite sure what that is!
I have also created a templated response to use in client meetings that are coming up. Basically, you can insert any reasonable excuse into the sentence and it will make sense.
The problem we have is because of [insert reason here] we are facing [insert challenge ] and we have a crisis of [insert long meaningless but negative word or paragraph ] and until [challenge ] is managed we will have to stand with [insert people we are standing with] and I feel it is a small price for the British people to pay.
I hope that sounds politician-like. Smooth and professional, my thinking is. If we all say the same thing to each other, voters, the public and clients will not cotton on.
I’ll let you know how it goes.
With all that in mind, here we go.
In this issue.
Budget Statement.
Market Update.
Interest Rates and Deposit Investment Options.
Budget Statement.
Finally, we have the promised update which follows on from the disaster that Truss and Kwarteng left. No one ever guessed we’d have two budgets within two months.
The Government has finally woken up to the fact that we do need adults in the room – and the markets won’t be happy until they are. For me, I am not sure either is the case, the pound was down .96% on the news from Westminster yesterday.
Hunt wants to put the country’s finances on a proper footing (they are not) with increased taxes to fund services.
Overall taxation is now at 47p in the pound of everything the country produces (commonly called GDP). Let us all hope that the services improve to support that spending.
Of course, you know they won’t. The level of debt created to fund… Ok. It’s all a mess.
Whilst the headline rate of taxation has not changed much, we are seeing the restriction of allowances (no new taxes and all that) basically, we can expect incomes to increase over the coming years – but not the ‘allowances’ this equates to an effective increase in the tax take. It just wasn’t explained like that.
No mention was made of the .12p per litre increase in fuel duty from 2023 in the announcement. There seems to be some confusion over this. There is already a .5p reduction in duty that ends on the same date. So the increase is only .7p in real terms.
This per litre increase will improve income for the Government finances by some £5bn – and he (Hunt) didn’t even mention it in his speech! In fact, it’s buried on page 53 in the forecast from the Office of Budget Responsibility. Around £7 on an average full tank, every tank and from April.
Further, a change to business rates was made. This is to directly alter the model for ‘online business’ think Amazon or delivery warehouses.
Only, all of the big supermarkets immediately indicated they would be impacted. The costs of this will be passed directly to consumers. Supermarket profit margins are around 2% of turnover which is pretty low when compared with energy companies.
The shock in the budget statement was a windfall tax on energy companies. That was such a shock the share price of Centrica went up by 4%, DRAX by 6.9%. City analysts described it as ‘a very reasonable outcome’ – the Guardian.
SSE, one of the largest energy makers in the country, works on a net (after costs) margin of around 40% (F O R T Y Percent).
Some changes to Capital Gains Tax allowances and dividend relief, these limits are moving from £2000 – to £500 (in 2024) and Capital Gains Tax from £12,300 to £3000 (2024). Yes you did read those reductions correctly.
But, with average house prices up at over 10% a year everyone will have (one average) at least £30,000 a year tax free which can be put towards your care fees, or your inheritance tax bill. Just don’t invest in anything else that may go up in value or in a business that may secure a future for you and the family or you’ll be taxed on it. Unlike, Amazon.
Hunt also described ‘landmark tax deals’ to target large corporations. Which of course had the large tech firms really worried, he claims it will raise around .5% of the total tax take (£2.8bn).
Just to put some fat on that. Amazon UK revenues are around £20bn and in 2021 it paid no UK corporation tax. It is also not the only one like that.
All of this does improve on the doom and gloom that was spread by the weekend papers and ‘talking heads news’. We should all be grateful that none of it was true, but actually, some of it was and some of it was even worse.
There was some interesting ‘other comment’ that Hunt made, regarding English and Maths league tables. He did seem to quote some strange figures (and irrelevant) telling us how well it was all going.
However on fact checking he seems to be at odds with a Google search that reveals we are 21 out of 22 for reading and 27 out of 27 for maths in international league tables, he described that as the UK ‘rising 9 places’.
Numbers are wonderful things and rock bottom is an incredible place to push yourself off from. It seems that with a hard enough push and linguistics you can do anything.
Our man Hunt also said some strange things – like you “can’t borrow your way to growth” yet businesses have been doing this for many thousands of years. Micro Banks in Africa and India lend money to buy seeds, loans are repaid once the crop has grown. Perhaps I misheard him, I’ll check his speech.
On the subject of banks. The bank surcharge was reduced in the budget from 8% to 3% they must be really struggling to need that. Lloyds, HSBC and Barclays share prices – all up today.
Council Tax is going to be gripe for next April. Even with a 5% increase maximum set with inflation at 11% this will still mean a cut in services. This follows with the central Government policy of pay more and get less. It’s a top down approach.
I can’t help to think that they could have done a lot more. Scrapped HS2, moved Parliament to Leeds, used ‘locked in pension funds’ to build social housing, Prem Sikka wondered about the VAT on Private School fees – and that would have helped, but then again. Prem Sikka keeps on about the same old stuff, fairness, equality and balance.
But with an 80 seat majority, they can do what they like, except listen to that old lefty Prem.
Overall a missed opportunity, but that is probably just me being negative.
Market Update.
Investment markets still continue to be volatile. But there
has been some improvement in the overall returns of the UK markets – be careful out there.
For those of you invested, then stay invested but if not my suggestion would be to wait until [insert safe date to invest].
Interest Rates and Deposit Investment Options.
Good news for those with savings. One and two years bond rates are creeping up with one year deposits over 4.3% and two year deposits over 4.8% (source MoneyFacts – still the only recommended source of independent finance rates).
There is some good news here and we are likely to see some better returns as the year comes to a close.
My plan is to update this on a monthly basis. Just don’t rely on it. If I have something to say I’ll fire off an email.
Richard Smith
Financial Consultancy
www.moneytrainers.co.uk/workshops
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©Richard Smith 2022