Rising bills: here’s what to look out for to keep you on financial track this winter
With the economy roaring back to life as we emerge from the pandemic, household costs are rising fast to meet rising demand for certain goods and services.
Building wealth, while a long-term priority, can be hampered if a family’s budgeting gets off track. With inflation rising - 2.9% according to the most recent Office for National Statistics data – and expected to peak above 4%, now is the time to take stock of your finances and look again at where you can save money.
Inflation isn’t the only current worry. The tax burden, as set out by the Chancellor recently, is set to rise to a 70 year high.
So, what can you do to rein in spending, or cut costs where possible? Here are a few ideas.
Energy bills crisis
The hike in energy bills has perhaps been the highest profile issue for households in recent weeks. Rocketing gas prices has led to the collapse of a slew of energy providers, while surviving firms have pulled any cheap deals available.
The days of energy switching to get a better tariff, are for now at least, over. This makes heating and electricity one of the standout cost rises households now face.
While households are protected by the energy bills cap, currently £1,277 per year, that could also be set to rise to over £1,500 in the Spring. It is essential then instead to look at how to cut the actual costs of those bills.
Basic measures should be taken to ensure your house is as energy efficient as possible. Draft excluders, radiator foils and even just turning the thermostat down a few degrees and wearing woolly socks can make a big difference.
Of course, if you’re older or not in perfect health, it’s not advisable to leave your house cold. If you’re in this position, making sure you have access to the Winter Fuel Payment could be a big help.
Cut unnecessary costs
Now is the time to look at your spending habits and decide if anything can be cut out. Gym memberships you don’t use, streaming services you never watch, delivery subscriptions you don’t maximise, should all go.
While taken individually these costs may seem minor, collectively and annually they can add up to thousands of pounds.
Another area where costs are rising are weekly food shops and dining out. Lowering costs in this area can be challenging, but it’s important to be vigilant with changing costs. Food prices can swerve up and down one week to the next, so having a spending limit and trying to stick within it is key.
Make your savings work harder
The more long-term aspect of the issue of rising costs is ultimately how to maintain wealth growth while keeping your saving levels up. Working hard to keep your costs under control is the starting point for being able to maintain good habits with regards to savings and investing.
Over and above that, ensuring strong wealth growth is essential too. Inflation is eating away at more of our savings’ value, so keeping money in low interest savings accounts is essential. Thankfully with good wealth management in place, this is eminently achievable.
The World In A Week - Metamorphosis & other Market Machinations
Written by Cormac Nevin.
There was a sense of fearlessness in markets last week as we entered the Halloween weekend, with the MSCI All Country World Index returning +0.9% in GBP.
The continuation of the rally we have seen throughout September was largely driven by US equity markets. This is in spite of rather disappointing Q3 results from tech giants Apple and Amazon that were announced last week. The former referenced the global semiconductor shortage, which they anticipate will continue into the festive period, as a reason they missed revenue estimates, while the latter blamed labour shortages and general inflationary pressure for missing earnings’ estimates. Against this backdrop, Facebook rebranded its corporate holding company as “Meta”, while excited promotional videos featuring Mark Zuckerberg and our very own Nick Clegg added a no doubt welcome distraction from the ongoing criticism the Company is receiving on multiple fronts.
While the fundamentals of some large cap US tech names are arguably deteriorating, markets were assisted by the drop in long-term interest rates witnessed last week. However, while long-term rates dropped, short-term rates rose in the UK and US – and in certain markets like Canada and Australia they rose incredibly sharply. This “flattening” of the yield curve is indicative of market participant’s bets that global central banks will start lifting interest rates sooner than they are currently maintaining in the face of persistent inflationary pressures.
Whether central banks are spooked by the ghoulish apparitions appearing in bond market expectations, it is likely to be one of the closest watched developments for the rest of this year.
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 1st November 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Pricing in the power
Last week was a strong week for equities with the MSCI All Country World Index returning +1.2% in GBP terms, largely driven by a good earnings session in the US. The S&P 500 returned +1.6% in GBP terms with earnings momentum driving the S&P 500 to new highs. With supply chain constraints and rising raw material prices, that we have seen in the last few months, investors were anticipating how this would impact companies’ bottom lines. Overall Q3 earnings were reported to have been 33% higher than a year ago, albeit from a much lower base.
Elsewhere, UK inflation marginally fell in September to 3.1% year on year from 3.2% in August. This was an unexpected fall given that there was an extensive oil supply shortage and consumers continue to face rising energy bills. Huw Pill (Chief Economist at the Bank of England) stated that inflation could surge beyond 5% in 2022 as the product and labour shortages continue to hamper the UK’s economic recovery. Policy makers at the Bank of England are set to meet next week, on November 4th, as they will vote whether to raise interest rates from the current 0.1% level.
The giant Chinese property developer, Evergrande, finally repaid its missed interest payment of $83.5 million which had entered its last few days of its 1-month grace period. A month ago, Evergrande failed to pay back the interest on its debt which sparked a sharp selloff in risk assets as concerns regarding the liquidity of the Chinese real estate sector came to light. MSCI China rallied +3.7% last week but remains -10.8% year-to-date following the Chinese Government’s intervention into the generation of certain companies’ excessive supernormal profits.
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 25th October 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Circus Act
Written by Shane Balkham.
Inflation is the lion that every central banker is trying to tame and ahead of the UK’s inflation figures that will be published on Wednesday, the Bank of England readied its whip. Speaking to the G30 group of central bankers last night, the governor of the Bank of England’s rhetoric was aimed at preparing market expectations.
The forward guidance from Andrew Bailey confirmed that the Bank would need to act in order to curb the current inflationary pressures and that might mean an interest rate rise sooner than the general expectations of early in 2022. The role of policymakers during this crisis has been to ensure that nothing was off the table in terms of magnitude and type of action.
In a similar speech at the end of last month, the governor also looked to ensure that the Central Bank was seen as using all the tools at its disposal. Being a policymaker is a subtle game of managing expectations in such a way as not to surprise the markets. In the next fortnight we have the publication of the UK’s inflation rate and the UK’s budget, both are potentially flammable for the policymakers at the Monetary Policy Committee.
The key is to ensure that a strong enough signal has been sent out and understood by the market, and that signal is saying an interest rate raise of 0.15% is not off the table for this year, in order to bring UK interest rates up to 0.25%.
It is unlikely that this decision will be made at the next month’s meeting, as previous minutes have shown that the committee want to see the full effect of the furlough scheme ending before any action is taken. This leaves the December meeting as the earliest most likely meeting if the committee decide to act this year.
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 18th October 2021.
© 2021 YOU Asset Management. All rights reserved.
How to protect your budget from the energy price crisis
Gas price rises have soared thanks to rocketing demand for the fossil fuel as the global economy gets going again.
It is something of a perfect storm for households as the government’s energy price cap is rising too. It now stands at £1,277 and is predicted to rise again next April to above £1,600, thanks to mounting wholesale prices.
The issue it has created for the UK is that many firms in the energy market rely on low prices to offer better deals to households than the ‘big’ firms.
But this has led to a lot of companies collapsing as energy prices rise. The upshot of this is that consumer choice in the market has been totally wiped out. Price comparison services such as uSwitch have even suspended their energy price comparison services as a result.
So, what can you do to keep a handle on your energy bills with such issues at hand?
Still try and switch
If you weren’t already on a cheap deal, you could still find a provider that will offer you a better price than the energy price cap currently stipulates.
Firms such as Octopus Energy, E.On and others still offer lower prices although you may not be able to find them on price comparison sites at the moment. It is worth researching and getting quotes from as many companies as you can.
Improve your home’s efficiency
Improving energy efficiency of your home can range from minor tweaks to big projects, but there are some ways to go about it – especially if you live in an older property. For starters, excluding any kind of draft and keeping doors inside closed will retain more heat in rooms.
Other ideas, which may seem more wacky but are in fact quite effective, include getting radiator foil which reflects heat from your radiators back into the house.
Smart plugs and timers strategically placed in the house can also be a good way to save energy, especially if you forgot to turn the TV off at the socket before bed.
Other higher investment and more long-term efficient solutions include getting brand new roof and wall insulation installed. This can cost thousands but will be recouped as your bills come down over time.
Finally, installing new eco-friendly biomass boilers or solar panels have a high upfront cost, but could in time pay you for putting energy back into the grid. According to Renewable Energy Hub such equipment could save you up to £2,000 a year in energy bills.
Turn down the thermostat
Ultimately the ‘price’ you are quoted is only ever an estimation by the energy company of what they think you will use.
If you live in a three-bed house and they estimate you’ll use £1,500 of energy per year, it doesn’t mean you’ll actually use that amount. The one sure-fire way to pay less for your energy bills is to simply use less energy! This means turning down the thermostat, putting on a jumper and slippers and having a hot water bottle in bed at night.
Although it is not advisable to slash your energy usage in mid-winter, especially if you’re older or have any health conditions, finding ways to cut down on overall energy usage can have miraculous effects on your bills.
Minor changes such as turning off electric appliances you’re not using at the wall socket, cutting down on tumble dryer cycles, and switching to energy efficient lightbulbs will have a significant impact on your bills in the end.
Budget 2021: Here’s what to expect from Rishi Sunak’s upcoming tax announcements
The Chancellor, Rishi Sunak, will deliver his latest taxation and spending policies on 27 October.
The Budget will account for the government’s spending plans and how it intends to fund that spending. While we can only predict what is likely to come up, we already know that the government is adding 1.25% to the annual cost of National Insurance. This will already add hundreds to the tax bills of anyone who earns an income via salaried employment or company dividends.
Other policies we already know are on the horizon:
- Self-employed tax tweak – as part of the government’s ‘Making Tax Digital’ shift, basis periods for self-employed workers are being reformed. While not costing them more upfront, it will net more income for the Treasury as it speeds up the timeline for taking revenue.
- Corporation tax hike – a range of coronavirus relief measures are due to expire, meaning that overall corporation tax burdens will rise significantly in the new tax year.
- Minimum wage hike – announced by Boris Johnson at the Conservative Party conference, the so-called living wage is set to be raised to £9.42 an hour.
- Student loan repayment threshold – this is likely to be lowered from the current £27,295 salary threshold, meaning more graduates will have to start paying the 9% levy on their incomes.
It is possible that further tax rises or changes to personal allowances may be limited. The government will be (politically) aware that more tax hikes will not be welcomed by the public. But Boris Johnson’s Government still has a lot of time before the next election. With restraint and paying down the debt of the coronavirus heavy on Sunak’s mind, what else could be coming up?
Here are some potential policies the Chancellor could unveil.
Capital gains tax
Recently touted and often referred to, a capital gains tax hike might hit the Conservative’s wealthier voters hardest but would be the easiest to square with the so-called ‘Red Wall’. Capital gains are taxed at a lower level than income, with many critics saying the rates should be equivalent as it effectively gives a tax break to those able to earn a living via capital gains – i.e. people who already have capital.
Inheritance tax
This is another one that has been on the cards for some time, but hasn’t yet materialised. Inheritance tax (IHT) is a much-loathed duty for families to pay after the death of a loved one. But it is also the target of the Office for Tax Simplification (OTS) because it is a very complicated levy to pay and is riddled with rules, exemptions and differing allowances.
Chances are that if Sunak does anything, he’ll work to simplify rather than raise or lower IHT rates. This would likely have the effect of not directly seeming like a hike – but will most likely raise more revenue for the Treasury as people will lose ways to avoid paying.
Pensions tax relief
Almost always on the chopping block but never actually cut (yet) – the rate of pensions tax relief for higher rate payers has been a low-hanging fruit for a long time. Doing away with higher rate tax relief on pensions could net the Chancellor an immediate multi-billion-pound windfall and would only affect higher earners.
If you would like to discuss your portfolio or any of the potential changes mentioned in this article, don’t hesitate to get in touch with your adviser.
Inflation is causing chaos, but good wealth management can bullet-proof your finances
Inflation is rising quickly, and with it the cost of living for everyone. But canny wealth management can be the best safeguard against the rising tide of costs.
Inflation – or the pace at which the price of goods and services rises – is at its highest level since March 2021. The current rate of inflation, as of 15 September, is at 3%, based on the Office for National Statistics (ONS) CPIH which includes housing costs and is considered the most accurate measure.
Areas such as petrol costs, energy bills prices, food shops and all manner of other expenses are soaring in price as the country adapts to demand after the worst of the pandemic. But day-to-day personal finance pressures of rising bills aside, one of the most pernicious impacts of high inflation is the erosion it causes to wealth.
Inflation is the very reason why good wealth management matters. The current top-rated easy access cash ISA offers a rate of just 0.6%, according to Savers Friend.
Inflation is still expected to increase this year, but relatively speaking the average rate on inflation over the last 30 years has been 2.9%.
Using this calculator from Candid Money, we can see the impact inflation has on savings. At a rate of 3%, £100,000 of savings today will only have the purchasing power equivalent to £54,379 in 20 years’ time. That is an extraordinary erosion of wealth.
Were this pot of cash to sit in the best-buy cash ISA mentioned above, it would grow to £112,746 and have today’s equivalent purchasing power of just £62,425.
Instead, if you were to invest that £100,000 with an average return of 5%*, after inflation averaging 3% over 20 years, you’d be left with a pot worth £271,264 – which would have the equivalent purchasing power today of £150,192. And this is without added future contributions.
The importance of tax
The other greatest factor that will have an impact on the value of your wealth, ultimately, is tax. While it is unknown what the government will do with its latest measures, we have a taster of what is to come in the form of the National Insurance hike.
There’s no guarantee on what measures will be changed, but it is likely as the government looks to pay down coronavirus debt it will at the very least attempt to close some loopholes and end some tax perks.
The issue here is it is extremely difficult to keep ahead of these kinds of tax changes. While it’s a reasonable bet that ISAs will be protected, other tax wrappers such as pensions are under constant scrutiny for what is called ‘salami slicing’ or the whittling down of allowances and closing of other benefits.
Combined with the harsh realities of inflation, smart wealth management, undertaken in conjunction with a qualified financial adviser, is a no-brainer that will save your hard-earned nest egg from crumbling.
*Investment returns are never guaranteed, this is taken as a representative example.
National Insurance hike: From dividends to salaries - what it means for your money
The government has announced that it intends to hike National Insurance payments by 1.25% from April next year.
The change will take effect from the new tax year, 6 April 2022. It will have an impact on anyone in employment, self-employment and those over state pension age but still in work. Workers’ wages, investment incomes and anyone who takes an income via dividends will be affected.
The government says it is raising the tax in order to help fund the cost of social care, while also using some of the cash in the short term to clear the backlog of NHS patients caused by the pandemic.
How much will I pay?
When it comes to extra tax on salaried income – a basic rate payer who earns £24,100 a year would be £180 worse off after the NI hike in 2022-23. A higher rate payer on a wage of £67,100 would contribute £715 more in the same period.
What about dividends?
The government says it will also increase the tax paid on dividends to help fund the cost of social care. The current tax-free allowance for dividend income is £2,000 per tax year. Above this, basic-rate taxpayers have to pay 7.5% tax on dividend income. This will rise to 8.75%. Higher rate and additional rate payers will see dividend taxes rise to 33.75% and 39.35% respectively.
Are limited company owners affected?
The move will also affect anyone who owns a limited company. Many adopt this structure as a way to pay themselves an income via dividends, as the rates are generally speaking around 5% lower than income taxation. Anyone who takes a salary from their company and dividends too faces a double hit of extra taxation.
If you would like to discuss the National Insurance rise and what it might mean for your portfolio or income, don’t hesitate to get in touch with your adviser.
The World In A Week - Facebook, faceplants
Equity markets were generally flat last week in Sterling terms, with the only real exception being MSCI Japan that sold-off -3.0% in Sterling terms, though a large portion of this was down to Yen weakness, which declined -1.7% versus the pound. The environment continued to be challenging for bond markets, the focus on inflation expectations and the forward-looking interest rate environment drove yields higher. The Barclays Global Aggregate Index and the Barclays Global High Yield Index sold-off -1.4% and -1.3% respectively.
With the third quarter earnings season still a week away, the focus during the week was on the September payroll numbers coming out of the US. The report came as a disappointment, with payrolls rising $194k in September versus expectations of $500k. However, details within the report illustrated bright spots, and likely positive enough to keep the Federal Open Market Committee (FOMC) on track to announce the beginning of tapering at their November meeting. Some of the positive read throughs from the Non-Farm Payrolls (NFP) included an increase in the average work week and average wages, which should ultimately help increase spending. Despite the overall lacklustre report, bond yields reacted in-line with the expectation for the Fed to proceed with tapering, as the US 10-year treasury yield closed above 1.6% for the first time since June.
On the corporate side, we did have a few announcements. PepsiCo, in the US beverages sector, beat expectations as they saw stronger organic sales driven by their international business, which is potentially a positive evaluation for multi-nationals. The Company’s gross margins missed their target due to higher costs/labour, which is not a huge surprise in this extraordinary inflationary environment. Levi’s (US clothing and apparel) also stood out, beating and raising expectations, as they were able to offset cotton price headwinds by pricing power. The moral of the story appears to be that pricing power, and a strong brand, is what is likely needed to win in the current inflationary environment.
Last week was one that founder and CEO of Facebook, Mark Zuckerberg, would probably rather forget. At a U.S Senate hearing, whistle-blower Frances Haugen called out the social media behemoth for allegedly placing profit before child safety, society, and democracy. Amid a storm of criticism, Zuckerberg responded with a “not true”. To compound matters, Facebook services including Instagram and WhatsApp went dark for several hours, making a winner out of Snapchat and helping send Facebook shares down the most since the coronavirus pandemic began.
The World In A Week - Remember, remember the 5th of November!
Written by Richard Warne.
Wow! Just like Guy Fawkes night, both equity markets and bond markets have kicked off the month at a rocketing pace, with the MSCI All Country World Index +3.3% in Sterling terms and the Barclays Global Aggregate Bond Index +2.3% (local terms) and +0.8% in Sterling hedged terms. A nice seasonal winter warmer with the days drawing in and getting steadily colder.
As we near the tail end of the Q3 earnings season in the US, it feels like Groundhog Day, as US indices continued to make new all-time highs. Dovish commentary from the Federal Open Market Committee (FOMC) in the US, and the Bank of England (BoE) meetings in the UK, sent bond yields falling as central banks continue to attempt to control inflation against an uncertain macro backdrop. FOMC Chairman Powell’s ability to weave a fine line, feeding a dovish enough tone, encouraged investors to add risk. However, under the surface, companies that reported last week, certainly delivered a mixed bag of results.
Investors punished any company that missed their earnings. Companies that benefitted from the Work From Home (WFH) last year, during the pandemic, had a chastising week. Roku (TV streaming), Peloton (home fitness) and Chegg (educational services) all sold-off sharply after materially guiding below market expectations. It appears expectations versus reality are starting to bite, with some of the valuations on these WFH themes previously hitting unsustainable highs.
On the flip side, we saw companies that are benefitting from economies reopening, coming to the fore, and beating expectations. Many signalling how they are dealing with supply chain issues or inflation, which are topics hot on the lips of many investors now. Under Armour (sportswear & apparel) beating expectation by cost-cutting and staying tight on inventory. While Nike (sportswear & apparel) had a strong week after they announced that their Vietnamese factories are returning to full operations after the COVID-related shutdowns. Live Nation (live entertainment) rebounded following positive earnings.
A positive week for markets, but not all fireworks. Treason and plot in equal measure.
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 8th November 2021.
© 2021 YOU Asset Management. All rights reserved.