Cost-of-living crisis scams: what to watch out for
Cost-of-living crisis themed scams are on the rise and the public are being warned to watch out for fraudsters looking to take advantage.
Banking industry trade body UK Finance has warned the public that the cost-of-living crisis has made people more receptive to unprompted and potentially fraudulent approaches offering too-good-to-be-true investments in particular.
One in six (16%) of Brits say the rising cost of living has made them more receptive to such approaches according to the trade body, while more than half (56%) of adults are likely to look for income-boosting opportunities as inflation and interest rates bite.
Young people in particular are more at risk as their financial situation tends to be more precarious. One in three (34%) 18- to 34-year-olds said they were more likely to respond to an unsolicited approach about an investment or loan opportunity.
Three in five (60%) people are worried about falling victim to a scam, highlighting an awareness of the prevalence of financial scams among the public after years of rising losses suffered by individuals.
In the first half of 2022 some £610 million was lost to financial fraud according to UK Finance figures.
Katy Worobec, managing director of economic crime at UK Finance, comments: “The rise in the cost of living can be worrying and stressful and for many keeping on top of finances might be a struggle. It’s important for everyone to be conscious of criminals taking advantage of people’s anxieties around finances by staying alert for fraud.
“We encourage everyone to follow the advice of the Take Five campaign – always be cautious of any messages or calls you receive and stop and think before sharing your personal or financial information. Avoid clicking on links in unsolicited emails or text messages”.
What scams should you watch out for?
UK Finance lists some typical scams that everyone should be aware of and has three key messages to help people protect themselves.
Those scams are:
1. Purchase scams. This is where someone looking for a cheap deal online finds a product for a too-good-to-be-true price. Often through search engines, fraudulent websites offer items such as expensive electronics at unbelievable prices. But if the website looks odd, has few reviews or the payment method is through an unusual format such as bank transfer, it is likely a scam.
2. Impersonation fraud. This is where criminals convince victims to pay for something while pretending to be from a trusted organisation. There are rising reports of fraudsters hacking service provider accounts – such as the emails of a solicitor, broker or other high-value professional service. The scammer then convinces the client to make a money transfer payment out of the blue using the hacked account. Anyone asked out of the blue in such a way should make efforts to speak to the known party either face-to-face or over the phone to confirm if the request is legitimate.
3. Payment in advance fraud. This is where a scammer offers a product, loan or other offering which seems too good to be true, with the fraudster requesting a payment in advance of receiving the product or service. The product paid for then never materialises or the fraudster vanishes and becomes impossible to contact.
4. Investment fraud. With the cost-of-living crisis worsening, UK Finance found 14% of people are more likely to search out new ways to earn money through investments. But this leaves many at risk from investment frauds – where unrealistically high interest rates, yields or other returns are promised in exchange for large cash investments. Like other scams this then typically either vanishes, becomes impossible to remove the cash from the scheme or a company will go ‘bust’ with the scammer absconding with the investor cash.
The three key messages from UK Finance’s Take Five to Stop Fraud campaign to keep people’s money safe are:
- STOP: Taking a moment to stop and think before parting with your money or information could keep you safe.
- CHALLENGE: Could it be fake? It’s ok to reject, refuse or ignore any requests. Only criminals will try to rush or panic you.
- PROTECT: Contact your bank immediately if you think you’ve fallen for a scam and report it to Action Fraud.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
Energy shortages: can you get paid to use less electricity this winter?
The energy crisis has put extraordinary pressure on household budgets as the price of gas has soared this year on the back of the war in Ukraine.
As a result, the Government has been moved to take steps to soften this blow for families who might otherwise face difficult spending choices.
Among help already in place is the Energy Price Guarantee which is designed to keep average household bills around £2,500 per year this winter, with a cap on the unit costs of the energy each home uses.
Plus, families will also be receiving a £400 rebate through their direct debits, paid monthly. There is also more targeted help for pensioners and those on benefits.
But another scheme is being launched that could pay households to use less energy still.
National Grid Electricity System Operator (ESO) is launching a scheme which would pay households with a smart meter to use less energy, by for example shutting off appliances such as tumble dryers and washing machines, at peak hours.
The National Grid ESO is one of the operators of the energy network infrastructure in the UK. It works with suppliers such as British Gas, which administer the process of providing energy into homes.
Why is this happening?
The issue the UK is facing is worse than just high prices at the moment. Worst-case scenario planning has the UK potentially facing blackouts in January and February because the energy network simply doesn’t have enough fuel to power everyone’s homes and businesses.
Plans are in place to implement a system of rolling timed blackouts, affecting different homes around the country at certain times.
But much of the jeopardy comes because people tend to use energy in their homes at similar times, particularly in winter. Think – coming home from work in January, putting on the heating and washing your clothes. We all tend to do similar activities at the same time.
Energy payment scheme explained
The National Grid ESO trialled the scheme with customers of energy firm Octopus who had a smart meter earlier this year. This trial is now being rolled out nationally between November and March.
The scheme operates through whoever your energy provider is at home, but not all suppliers will necessarily sign up. If yours does, and you have a smart meter, they will contact you with the details. You’ll get notice 24 hours ahead that if you reduce usage between peak hours, you’ll get a rebate on your energy bills.
The plan would be for any household with a smart meter that avoids using energy-intensive appliances at peak times (between around 4pm and 9pm) will get paid around £3 for every kilowatt hour (kWh) they don’t use compared to an average.
Reports estimate that some households could earn as much as £10 a day for avoiding peak times. There are currently just 12 test days planned between now and March for the scheme, which means participating households could get up to £120 back.
Customers of some providers already get discounts on bills if they use electricity late at night instead of peak times, such as Octopus’s Economy 7 tariff.
Other providers such as Ovo already have a trial scheme in place to ask customers to cut their consumption. Those that manage to lower their usage to the firm’s threshold will get up to £100 for their efforts.
National Grid has launched a campaign to raise awareness of the scheme but it’s up to energy suppliers to administer, so keep an eye out for further details from yours.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
NS&I hikes rates again – are they a good deal?
National Savings & Investments (NS&I) has upped the rates on its savings products again in the wake of the Bank of England hiking the bank rate on consecutive occasions.
NS&I now offer a Direct Saver with a return of 1.8%, up from 1.2% and 1.75% on its Direct ISA. Income bonds now also offer 1.8% returns – the highest level since 2012. Earlier in October it also increased the prize fund rate from 1.4% to 2.2% in premium bonds.
This is not a guaranteed level, but the average rate it says savers can now get based on prize wins in its premium bonds. That means you could win the top £1 million prize – or nothing at all. In practice the 2.2% rate is the average of what most savers will see as a return on their cash each year.
So, with these rates now at a decade-long high, is it time to put our cash back in the national savings bank?
Better rates elsewhere
NS&I holds a special place in the public’s imagination. Premium Bonds in particular are popular because of the prize-draw element of the savings product.
But in reality, the firm’s rates are inferior to other savings providers by some margin.
For example, at the time of writing, the best easy access account rate comes from Marcus By Goldman Sachs, with a 2.5% rate of interest on its savings account and its cash ISA, and no notice necessary to withdraw your money.
If you save for one year, you can get 4.6% from RCI Bank. For a five-year fix this rises to 4.95% from the same firm. If you want to shelter cash in an ISA, you can get a one-year bond from Aldermore for 3.65% or a five-year cash ISA from Leeds Building Society paying 4.31%.
It goes without saying then that NS&I is definitely not the most competitive. But it is also true that it will pay you a better rate than most high street banks, where you might hold your current account.
The interest rate outlook
The issue with these rates is while they look much better than in recent years, they still sit way behind inflation, which currently stands at around 10%. If you plump for the top-rate one-year bond, you’re still seeing your savings devalue by around 5.5% in a year.
On 3 November, the Bank of England staged the largest single rate hike since September 1989, hiking 0.75% and taking the base rate to 3%. This will no doubt push savings rates up even further.
But if we look into the detail of what its Monetary Policy Committee (MPC) said about the trajectory of interest rates, it believes financial markets are now overpricing its interest rate path, thanks to softening economic data.
What does this mean in practice?
Despite the big fresh hike, many firms that price their products on interest rate expectations, such as savings and mortgage providers, may now be overestimating how high the ‘terminal’ bank rate will go.
This terminal rate is essentially the high-water mark for the actual bank rate. If the economy is now largely overestimating this high-water mark, interest rates, counterintuitively, could now fall -or at least moderate – somewhat.
In short, this means that interest rates on financial products could already be near their high point and will at least remain well-short of inflation until price rises come back to normal levels, something the MPC only sees happening in 2024.
In the short term, having some cash set aside can be a good tool for anyone building wealth. See our article here on that. But in practice, investing still offers the best route for anyone thinking about long-term wealth growth.
Although investment performance is not guaranteed, it has generally been a better tool for wealth growth over a long-time frame.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
How to protect your wealth in tough economic times
We’re not yet at the end of 2022 and it’s clear it has been a tough year for investors.
A toxic cocktail of inflation, rate hikes, quantitative tightening and Government instability leading to tax hikes has combined to create one of the toughest climates in decades for anyone looking to build their wealth.
But while it has been a difficult climate for many to deal with, there are some key measures anyone can take to protect and improve their wealth in such times.
The key to this is effective and active financial management and getting the right advice at the right time. Here are some ideas.
Hold some cash
This is a very basic idea, but it needs to be reaffirmed. Have a cash buffer. If you’re younger, have a family with dependents to look after, bills and a mortgage to pay it is essential to have a rainy-day fund to protect you in the event of a job loss or other problem that could leave you without an income or needing to pay a big bill.
If you’re in work, a rule of thumb is to look at your overall monthly outgoings and consider saving in cash up to a level of three to six months cover. You might want more or less, but consider how quickly you think you’d be able to get a new job and have that regular income coming back in.
If you’re in work, it’s also essential to have income protection plans in place and life insurance were the worst to happen. The younger and healthier you are, the cheaper the policy will be for you.
If you’re retired or not reliant on a wage for your living costs, then a cash buffer is really important in volatile markets. This is because if you’re using your wealth to pay for your cost of living, having to sell out of an asset when valuations are down will bake in losses permanently. Having cash to draw on is important for this in the short term.
Of course, holding cash is always at risk of devaluation thanks to inflation. This is an acceptable risk though with short-term framing for the use of this cash. To mitigate it, spread the money into savings accounts that pay decent rates. Put some in an instant access account and others in longer-time releases to benefit from better rates.
Savings rates in cash accounts are still well behind inflation but are better than they were even just a few months ago.
Beyond that if you’ve already got that cash buffer in place, top it up to an equivalent level to match your rising costs each year – or by the level of inflation if that’s easier to figure out.
Pay off debts
Debt in the current environment can be particularly toxic, but it falls into a couple of different camps.
In the past decade the economy has been largely fuelled by cheap debt. We’re used to seeing lurid stories of companies like Deliveroo taking payment by credit instalments for a pizza.
In short, it has been really easy to take on new debt. This era is coming to an end with rising interest rates. Rising rates – by design – make debt more expensive to manage. But there’s a couple of different kinds of debt to worry about here.
The most painful and urgent to fix is credit card and other unsecured debts which see rates move freely. If you have these kinds of debts paying them off should be prioritised over saving because the cost is simply going to get harder to manage.
Rising rates don’t just affect credit card APRs – they also reduce the availability and quality of deals such as balance transfer cards. In short, it’s time to kick the debt habit.
Fixed debt such as mortgages and loans function slightly differently though. Loans will often have a fixed rate which makes it more manageable to pay while mortgages come with fixed terms too and should be manageable as long as you’ve got time left on your deal.
Regular contributions
Once your cash position and debt levels are in a good place – think about the state of the market. While performance is never guaranteed, as global economic growth has progressed in the last century, so have investments in the markets that represent it.
If your investment values are down, this is ok. Generally, as markets recover so do investments.
But making continued regular contributions or even increasing your contributions can be a good strategy in this environment as it takes advantage of cheaper valuations and smooths out volatility in your portfolio through pound-cost averaging.
With that logic in mind, when asset prices are depressed, it can present a considerable buying opportunity with a well-thought-out strategy in mind.
Tax sheltering
We’re in very specific economic circumstances at the moment. With high Government debt levels and little in the way of leeway for it to borrow on international markets to fund its agenda, tax rises are coming.
That makes careful tax planning extremely important. Using up allowances for ISAs, pensions and other useful schemes are a great way to soften the blow any taxes rises might bring. But the rules are potentially changing quickly as a result of Government instability, making considered planning tricky.
Tax planning can be a complex process, so unless you’re well-versed in tax laws and financial planning, it’s probably best to get advice to ensure your wealth is working as hard as it can be within the rules.
If you would like to discuss this or any of the other themes expressed in this article, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 9th November 2022.
The World In A Week - Shining A Bright Light on Rishi Sunak
Written by Chris Ayton.
In a volatile week of trading, The MSCI All Country World Index fell -0.4% but the FTSE All Share Index recovered +1.6%. The Bloomberg Global Aggregate Index also made some positive ground and was +1.7% in GBP Hedged terms.
UK news last week was dominated by the news of the election of Rishi Sunak as Prime Minister just seven weeks after the ill-fated ascension of Liz Truss. Markets reacted with relief to Sunak’s appointment and the retention of Jeremy Hunt as Chancellor, with long term gilts now having fully recovered the extensive losses triggered by the package of unfunded tax cuts announced by Truss’s regime. The pound also climbed back to $1.16, although this was partially due to broader weakness in the US Dollar. The more UK domestic focused FTSE 250 mid-cap index also reacted well to what they consider an economically safer pair of hands, rising +4.2% over the week. Nevertheless, Sunak and his new team have their work cut out to address what they themselves refer to as a “profound economic crisis”.
In the US, Google’s parent, Alphabet Inc, reported an unexpected downturn in its core advertising business. Microsoft followed with a warning of a slowdown in its cloud computing business, a division previously thought to be economically insensitive. Then Meta, the parent of Facebook, reported another quarter of declining revenues and Amazon followed suit, also warning that an economic slowdown was starting to bite. Despite these individual setbacks, a strong finish to the week still saw the NASDAQ 100 index up +2.1% in local currency terms although, due to the recovery in the pound, this translated to -1.6% in Sterling terms.
In China, President Xi Jinping tightened his grip on power at the Chinese Communist party’s 20th national congress, securing a third term and likely beyond. He also successfully surrounded himself with loyal allies prompting fears of less checks and balances, a continued shift from market-friendly policies to ones promoting common prosperity and security, no change to Xi’s economically damaging zero Covid policy and potentially more unfriendly geopolitical rhetoric. Investors were also unimpressed with the subsequent delayed announcement of 3.9% GDP growth which fell well short of China’s full year target of 5.5%. MSCI China fell an astonishing -12.3% over the week in GBP terms.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 31st October 2022.
© 2022 YOU Asset Management. All rights reserved.
The World In A Week - An Absence of Truss
Written by Cormac Nevin.
Last week provided some welcome relief for UK investors, as the MSCI All Country World Index rose +4.1% in GBP terms (up +3.3% in local currency terms). This was driven primarily by US tech stocks, with the NASDAQ 100 Index up +6.6% (in GBP terms).
The shifting sands of the UK political landscape have been difficult to keep up with, and this past weekend and this morning have been no exception. Following the resignation last week of the UK’s shortest serving Prime Minister, it was announced on Sunday that Boris Johnson had withdrawn from the race to be Liz Truss’s successor. This leaves the field wide open for Rishi Sunak, who appears to be the market’s favourite candidate as the news caused gilt yields to drop sharply and Sterling to rally.
Other political developments driving markets last week and this morning included the continuation of the National Congress of the Chinese Communist Party. Increasingly hostile verbiage from Xi Jinping towards the country’s wealthy and the tech sector, more generally, caused Asian markets to sell off heavily. The delayed release of the country’s slowing gross domestic product figures also caused the Hang Seng Index of Hong Kong listed equities to fall over 5% on Monday.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 24th October 2022.
© 2022 YOU Asset Management. All rights reserved.
Energy rescue package: how does it work?
The Government has announced a wide-ranging and costly energy bills rescue package, called the Energy Price Guarantee, to protect households from the worst of price rises this winter.
Energy bills were set to rise by about 80% in October, having already soared in previous updates to the price cap by energy regulator Ofgem.
Instead, the Government has moved to limit that increase.
How will my bills change?
Energy bills will still likely rise for households, but the worst effects have been dampened by the rescue package.
For a typical household, the annual bill for energy will come in at around £2,500 from 1st October. This is however not a hard limit on energy costs.
The way the cap works is as a limit on the price you pay per kilowatt hour (kWh) of gas and electricity. If you continue to use a lot of kWh to heat and power your home, your bills can still come in higher than the £2,500 ‘cap.’
With the way the cap is structured, there is still an incentive for households to conserve the amount of energy they use as this will still reflect in their monthly bills.
If you’re keen on cutting your usage and therefore bills, it’s really important to submit regular meter readings to your provider and speak to them if you believe your direct debits or other payments are set too high.
The guaranteed level was initially set to last for two years. But thanks to market disruption caused by Government spending plans, the new Chancellor Jeremy Hunt rolled the scheme back to just six months. Hunt has committed to review and update the scheme from April 2023, but it is unclear how the scheme will change at that point.
In terms of how much it will cost the Government, little concrete information is known as it is completely reliant on the market price of energy in the next six months.
Estimates range from £60 billion to around £120 billion, depending on what happens to the price of natural gas. Once the Energy Price Guarantee expires, bills are expected to rise again to around £4,347 per year.
Other help
There is still other help being made available to households through measures previously announced by former Chancellor Rishi Sunak.
This comes in the form of an energy bill discount which will be paid to households from October. This is worth £400 and will be paid monthly over winter automatically to bill payers. There is no need to apply as it will be directly applied and is a universal payment.
The Government is also providing cost-of-living payments to households on means tested benefits, which includes Universal Credit, Pension Credit and Tax Credits. Those households will receive a £650 payment this year, made in two instalments.
Those on disability benefits will also receive a payment of £150, but if you’re eligible for this, it likely already arrived in September.
Older people can also claim the Winter Fuel Payment – which will pay between £250 and £600 depending on your circumstances. Those who receive State Pension or other social security benefits (not including Adult Disability Payment from the Scottish Government, Housing Benefit, Council Tax Reduction, Child Benefit or Universal Credit) will receive the help automatically.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
What does the falling pound mean for my money?
The pound has fallen considerably in recent weeks and months. But what does that mean for your finances?
Perhaps the most well-reported fall was the sudden plunge on 26 September, which was largely a response by financial markets to the ‘mini budget’ from new Chancellor Kwasi Kwarteng.
Financial markets, in a signal of lacking confidence in Kwarteng’s plans, sold the pound to its lowest ever level – worth $1.03 in dollar terms. It has however rallied somewhat now.
However, there is a longer-term trend at play with the weakness of the pound.
In the past 12 months the pound has declined from a value of around $1.35 to its current level ($1.13 at the time of writing) – representing a 16% decline.
This is mainly down to major global macroeconomic trends affecting the value of the US dollar. Around the world as equities, bonds and other assets struggle, investors look increasingly to just holding dollars.
The main reason these investors look to hold dollars is that the US central bank, the Federal Reserve, is seen at the front of hiking interest rates and reducing the amount of dollars flowing around the global economy through ‘quantitative tightening.’
Thanks to this trend, the pound is among nearly all other major currencies in losing value to the dollar.
But while these are complex trends affecting the whole world, there are some specific effects on our own finances in the UK. Here are the major impacts.
Inflation
One of the least easily-noticed, but biggest issues for a weaker pound is that it will cause more inflation – despite the Bank of England hiking rates to quell rising prices.
This is because the UK economy is highly dependent on imports to supply households with the everyday goods they need.
When the pound falls in value against other currencies, especially dollars for which many major global commodities such as oil are priced, it reduces the nation’s purchasing power.
This makes these products more expensive for us to consume. Although in practice it is difficult to immediately notice the effect, in the long term it will keep the overall level of inflation higher than it otherwise would have been.
Travel
Perhaps the opposite of the above effect – a weaker pound means it is more expensive for people to travel abroad.
When visiting other countries, travellers and holidaymakers will find buying anything they might spend on more expensive as their pounds don’t go as far as before.
This will have varying effects depending on where they go. Europe might not be as much as a stretch thanks to the Euro falling, but a trip to DisneyWorld in Florida might quickly become prohibitively expensive for some.
There are some quick and easy ways to mitigate the worst of foreign exchange rates for holidaymakers though. The most important is to avoid exchanging physical currency at Forex shops, or even at places such as the Post Office. These companies routinely offer foreign currency at extremely high markups compared to the basic Forex conversion rate.
The best solution to this is generally to use new digital-only banks such as Monzo, Starling and Revolut, who offer much better exchange rates and fees for spending abroad and cash withdrawals than old-fashioned High Street banks do.
Investments
A weakening pound also affects investments – but the consideration here can be more complex.
Holders of UK companies that earn in the UK might find that their stocks are worth less as a result of the stock being priced in pounds.
But many major UK firms actually derive much of their incomes from abroad. With a weaker pound this is a good thing for those companies as they will be able to import more valuable foreign incomes. It also makes UK goods sold abroad more competitive to buy, boosting that income for those firms.
Buying companies or other assets denominated in dollars will become more expensive. But the relative value of those assets for those already holding will be a bonus as their sterling value appreciates relative to dollar values.
The effect of pound weakness for investments is complex though and there’s no unifying theme, as individual wealth structures will be impacted differently.
If you would like to discuss any of the themes in this article, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
Mini-budget 2022: market and political turmoil cause major Government reversals
Extraordinary events in the UK throughout September and October have seen the Government announce a ‘mini-budget’ – the contents of which have now largely been scrapped.
Prime Minister Liz Truss, and her first Chancellor Kwasi Kwarteng, announced a series of tax-cutting measures on 23 September.
The Chancellor in his statement said the changes, which were far from mini in reality, were designed to kick-start the economy and provide ‘supply side’ reforms to help businesses grow and let households keep more of their money.
Kwarteng’s announcements were far ranging and were described as one of the most dramatic shifts in policy from the Government since the infamous 1972 Budget from then Chancellor Anthony Barber.
But markets, the media and politicians reacted extremely poorly to the measures which were posing potentially hundreds of billions of unfunded changes to Government policy.
Despite political opposition to the measures, what really killed the mini-budget was the reaction by the bond market – which ultimately would have been asked to fund the measures through new Government debt issuance.
Where are we now?
Liz Truss was forced to sack her Chancellor Kwasi Kwarteng on 14 October. This is because the Bank of England had implemented a special program to support the bond market and protect certain pension funds from running out of cash.
Bank of England Governor Andrew Bailey set a deadline for the scheme of 14 October. This forced Liz Truss’s hand and triggered a series of reversals which initially saw the Government ditch plans to scrap the 45p income tax band, then reverse plans to hold corporation tax at 19% instead of a planned rise to 25%.
Once Truss sacked her Chancellor Kwasi Kwarteng, Jeremy Hunt – a former leadership candidate and health secretary – was brought in as the new Chancellor to steady the ship of Government.
On 17 October, Chancellor Hunt announced the effective scrapping of all the measures set out in the mini-budget. The only surviving measures were the reversal of the National Insurance hike and the stamp duty cut – as both those measures had already been enacted (more on those below).
But the planned cut in the basic rate of income tax to 19% has been binned. When he was Chancellor, Rishi Sunak promised this change in 2024, but Hunt, keen to reassure markets and return confidence to the Government’s economic policies, has scrapped the tax cut completely.
As for other measures, the alcohol duty cut will no longer go ahead, IR35 freelance tax reforms will take place instead of being scrapped, and the Energy Price Guarantee will no longer run for two years (more on that here).
The retreat and reversal of policies has left major questions over Liz Truss’s leadership. Jeremy Hunt was compelled to go further than simply cancelling the changes because the Government had caused a major confidence loss in markets that effectively were on the hook to pay for the measures.
This comes against a backdrop of tough and volatile market conditions, monetary policy tightening and ongoing high inflation. Together, this makes the mini-budget’s measures extremely unpalatable to investors, even if these measures were designed to promote growth and help households in the UK.
A couple of measures have survived however, and these are detailed below.
National Insurance and dividends
The 1.25% hike in National Insurance payments has been fully scrapped, and this will take effect from 6 November. According to the Government, the average worker can expect to save £330 in NI payments in 2023/24.
Dividend tax will be affected by the cut to National Insurance, effectively taking the rate back to where it was before it was hiked in the first place.
Dividend tax rates will be reduced to 7.5% for basic rate payers, 32.5% for higher rate payers and 38.1% for additional rate payers. All of this will take effect from 6 April 2023.
Stamp Duty
Kwasi Kwarteng also made significant changes to the way in which stamp duty works.
No one will pay stamp duty on a property worth less than £250,000 while the first-time buyer (FTB) threshold has risen from £300,000 to £425,000. The maximum level of FTB relief will also raise from £500,000 to £625,000.
These changes were made effective immediately from 23 September.
If you would like to discuss any of the themes raised in this article, please don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
The World In A Week - It’s all about the rates
Written by Chris Ayton.
Although down in local currency terms, the MSCI All Country World Index rose +1.3% in GBP over the week and the FTSE All Share Index was up +3.8%. The Bloomberg Global Aggregate Index was down -0.8% in GBP Hedged terms.
In the UK, in a further attempt to dampen inflation, the Bank of England increased interest rates by 0.75% to 3%, the largest monthly rise since 1989. However, while bringing modest relief to homeowners, it also indicated that rates may rise less than the market expected going forward as the UK has already entered a recession. In other positive news, UK construction activity grew more than anticipated and UK new car registrations surged 26% from a year earlier, with hybrid and electric vehicles driving the rise.
In the US, the S&P 500 Index finished the week down -3.3% in local currency terms but further Dollar strength reduced the loss to -0.7% for GBP investors. The Federal Reserve also increased interest rates by 0.75%, its fourth monthly increase in a row. However, unlike in the UK, the Fed Chair Jerome Powell indicated that US interest rates are likely to peak at a higher level than expected as inflationary pressures were proving sticky, although he did note the pace of those rises to reach that peak may slow. This week’s inflation print will be closely watched.
Continental European equities enjoyed a strong week, with MSCI Europe ex-UK up +3.7% in Sterling terms. Producer Price Inflation in the Euro Area eased a little, but the reading did nothing to ease concerns around inflationary pressures across Europe, at a time of a weakening economic outlook and continued conflict in Ukraine. European Central Bank President Christine Lagarde said she still does not expect a recession in the Eurozone economy but that, even if there was, it would not be enough to stop them raising rates further to quash inflation.
In Asia, Chinese shares rebounded sharply as there were rumours of an imminent relaxation of China’s strict COVID-19 restrictions. A Chinese foreign ministry spokesman said that he was not aware of any such news, but this did not stop these unfounded rumours pushing the MSCI China Index up +14.1% over the week in Sterling terms.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 7th November 2022.
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