The politician in Chancellor Jeremy Hunt must have wanted to go further in his Autumn Statement giveaways, but that was never likely to happen.

The Chancellor has put too much effort into reassuring the markets and the British public that he is a careful custodian of the economy to jeopardise all of that for a few quick wins. 

That’s why measures such as cuts to income tax or inheritance tax were parked for another day.

Instead, yesterday’s Autumn Statement was dominated by two major announcements, firstly the reduction in the main rate of National Insurance from 12% to 10% from January 6, affecting over 27 million people. 

Class 2 NI, paid by the self-employed earning more than £12,570 will be abolished from next April, while Class 4 NI for self-employed paid on profits between £12,570 and £50,270 will be cut from 9% to 8% from April.

The other significant announcement was the decision to make the so called “full expensing” tax break – allowing companies to deduct spending on new machinery and equipment from profits – permanent.

The first announcement regarding the NI breaks is intended to give a large proportion of the British electorate an almost instant saving, whereas the tax break for businesses should give a medium to long term boost to the UK economy.

Other announcements of note included state pension payments increasing by 8.5% from April in line with average earnings and a much-deserved boost to the minimum wage – officially known as the National Living Wage – which will rise from £10.42 to £11.44 an hour from April. The new rate will also apply to 21 and 22-year-old workers for the first time, rather than just those 23 and over.

Given the need to balance the requirement to engineer growth but without damaging the downward trajectory of inflation, the Chancellor had limited room for manoeuvre. 

There was also a real sense from both the Chancellor’s statement and the response from the Labour opposition that we are at the start of an election year, with both sides setting out their likely positions for the battle ahead, namely the Conservatives wanting to be seen as the party of economic responsibility and Labour as the party that can bring change after 13 years of Conservative government.

Chancellor Hunt will have one more roll of the dice – the main Budget in the spring – to go further than he was able yesterday with the need to do something about the fiscal drag, when tax thresholds do not keep up with the rising cost of living, pulling more people into higher tax brackets, likely to be high on the agenda.

Our 25^th Anniversary

We were delighted to celebrate our 25^th anniversary with a small party at The Neston Club earlier this month. It was lovely to mark this occasion with some of our longer standing clients as well as staff and other friends of the business. We even made the local news!

Thank you to everyone who has helped us to reach this milestone and we look forward to continuing to provide all clients with the same high level of service over many more years.

A question I am increasingly being asked by clients is whether a change in Government has a significant effect on the financial markets.

The question is an interesting one given that next year will see a General Election in the UK and a US Presidential Election.

As things stand, the polls suggest that both Prime Minister Rishi Sunak and President Joe Biden will have a fight on their hands to retain power in their respective countries.

Intrigued by the question posed, I have looked back over almost 100 years of election results in the UK and US to see what the effect was on the FTSE and S&P market indexes.

The answer is that, while the results of elections can impact in other ways, depending on the politics of the successful party whether that be Conservative or Labour here or Republican or Democrat in the US, the historic effect on the financial markets has been virtually negligible. 

In the UK, there is also a sense at the present time that were Labour to win a majority and form the next government, the change in terms of the overall approach to the stewardship of the economy would not be that noticeable. The message from Labour leader Sir Keir Starmer and Shadow Chancellor Rachel Reeves in their speeches at this week’s Labour conference in Liverpool was one of economic responsibility and a balanced approach.

It feels like, whether Labour or Conservative are successful at the next election, we are in a different place to where we were a year ago when Liz Truss was briefly in No 10 and a couple of years further back when Jeremy Corbyn was still leader of the Labour Party. Politics are back in the middle ground rather than overtly to the left or right.

Since our last newsletter, there has been little change in terms of the overall UK economic picture with minimal movement in the rate of inflation or interest rates. 

The headlines this week have rightly been dominated by the renewed conflict between Israel and Hamas and our thoughts go out to all those affected by the violence, many of whom will have family in the UK. 

The crisis has not so far affected the financial markets, although we will continue to monitor this as we do other geo-political events around the world.

As we move into next year, the hope is that we will continue to see a fall in inflation and the corresponding interest rates, which will be good for client portfolios after a challenging couple of years. Healthy global growth is a prerequisite for this to happen.

Our 25^th Anniversary

As we mentioned in last month’s newsletter, we are looking forward to celebrating our 25^th anniversary next month.

Once again, I’d like to reiterate our huge thanks to everyone who has made this milestone possible, whether our clients, staff or wider industry partners and connections.

Prime Minister Rishi Sunak came in for a fair bit of criticism at the weekend for telling the British public to “hold our nerve, stick to the plan and we will get through this”.

The PM’s interview with the BBC’s Laura Kuenssberg followed the announcement by the Bank of England that it was raising its base rate from 4.5% to 5%. 

The decision takes the base rate, to which millions of loans are pegged, to its highest since 2008, with inflation stuck at almost 9% and proving harder for the Bank to bring under control towards its 2% target. Rates have been rising in the UK since December 2021.

The PM went on to tell viewers: “I’ve never said that it’s not challenging, I’ve never said that this isn’t going to be a difficult time to get through.”

While inflation is undoubtedly proving stickier than the Government and many commentators anticipated, it will, over time, start to come down.

For now though such a high level of inflation inevitably affects the returns on different types of investments. Stocks and shares don’t like the uncertainty and bonds don’t like rising interest rates.

There are many challenges to being the Government of the day and one of them is the inability to please everyone. 

While previously we have seen a succession of financial support measures for the pandemic, energy crisis and other emergencies, this time round the PM is holding firm in resisting support for people facing the pain of ever rising mortgage payments.

Similarly, the PM continues to resist calls to meet the various pay deals being sought by striking public sector workers.

The Government’s position is that further financial bail-outs and settlements will only stoke the inflation crisis and do nothing to reverse rising interest rates.

All of which continues to highlight the importance of clients taking a long-term, diversified approach to their financial planning, rather than one that is event driven.

We are currently undertaking our standard review of all investments and will be contacting clients over the next few weeks. Portfolios are broadly the same as they were six or 12 months ago.

Client Security

There have been a couple of instances recently in which client emails have been hacked resulting in us receiving messages purporting to come from clients asking us to withdraw funds.

In both cases, thanks to the rigorous approach we take towards client security, we identified that the emails were not legitimate and flagged the issue with our clients.

Instances like the above explain why we encourage clients to use our Personal Finance Portal for security and convenience.

The portal gives clients the means of seeing their complete financial picture in seconds and at a time and place that suits them. It’s also always up to date and easy to use. 

Most important of all, everything is completely encrypted, meaning that you can communicate with us using the built in messaging service safely and securely. 

For those clients who aren’t currently using the portal, we would recommend that you speak to one of our team to find out more. Once you are registered, it really is simple to use and will give you extra peace of mind regarding your financial security.

With cyber-crime an ever-greater problem, there are also a range of other steps we can all consider to protect ourselves whether securing our devices, data or identity.

This article published in PC Mag in April 2023 offers a series of tips that may be of benefit – https://uk.pcmag.com/antivirus/94680/12-simple-things-you-can-do-to-be-more-secure-online

Welcome Tyrone

We are delighted to welcome a new member to the Phillip Bates & Co Financial Services team.

Tyrone Cisarello has joined us as an administrator and is already getting to know clients and contacts in our wider network.

Tyrone lives in Wirral and has worked in the financial services sector for a number of years.

The decision by Chancellor Jeremy Hunt to abolish the lifetime allowance on pension pots is an important one.

Within a few minutes of the Chancellor sitting down after his Budget speech, we received several enquiries from clients wanting to know the implications of the announcement.

The lifetime allowance limit was first introduced by Chancellor Gordon Brown in 2006 with a cap of £1.5million before increasing to £1.8million in 2012 under the Coalition Government and then subsequently reducing to the current £1.073million level, thereby significantly increasing the number of people impacted.

The abolition of the lifetime allowance in the Budget was accompanied by the announcement that the annual allowance would rise by £20,000 to £60,000.

It wasn’t all good news though. Hidden in the small print was the fact that people will now only be able to take 25% tax free cash from their pension subject to a maximum of £268,275. This means that irrespective of whether someone has a bigger pension pot than the previous lifetime allowance, this is the most they will be able to take out.

The announcement regarding the scrapping of the lifetime allowance was followed in short order by Labour saying that they would reinstate it and instead introduce a targeted scheme aimed directly at doctors.

In the light of this, our recommendation would be that any action should be taken sooner rather than later and certainly well ahead of the next General Election.

Many of the other announcements in the Budget were confirmation of what we already knew was coming. They included the capital gains tax exemption reducing from £12,300 to £6,000 in April 2023 and then to £3,000 in April 2024, while the dividend tax threshold will lower from £2,000 to £1,000 and then £500. Meanwhile, there was no change to the decision to increase corporation tax from 19% to 25%. 

As the tax take continues to go up, our team will continue to advise our clients on the best ways to prepare for these changes in line with their longer-term financial planning requirements.

One announcement which did please many clients (and grandparents), was the extension of free childcare support for every child over the age of nine months.

Elsewhere in the Budget, the Chancellor shared his economic outlook with the heartening news that inflation is forecast to fall by the end of the year to 2.9% from the current level of 10.7%. While no one can yet be sure if this will play out exactly as he hopes, it feels about right now that we have experienced the inflationary shock.

Similarly, while the Office for Budget Responsibility (OBR) is only predicting that the economy will grow by 1.8% in 2024 and 2.5% in 2025, this was accompanied by the expectation that the UK will avoid slipping into recession.

Away from the Budget, the markets have experienced a choppy week on the back of the Silicon Valley Bank failure, providing a stark reminder that the financial crisis of 2008 was not actually that long ago. However, with far better controls and consumer protection in place, the risk of contagion this time around is remote.

As ever, if you have any questions regarding the Budget or any other matters, please get in touch with a member of the team.