After a week of stuttering but progressive momentum in investment markets, we have now seen what the Budget changes are inflicting upon us and, as probably expected, there is little to no good news for people and businesses.
From an investment market perspective, the budget has underlined what a lot of economists and investors had suspected, namely that we are in recession and that the costs of the pandemic now have to be reconciled. For my part I have no issue with this, what I do object to though, is paying for other people’s incompetence and that has certainly been the case with the cost of the Truss/Kwarteng nonsense!
Looking at the impact of the budget and recent changes to taxation, we will see smaller businesses tax burdens increase gradually by a quarter over the next few years (for those with profits of less than £250,000 per year), individual income tax and national insurance is now accounting for a third of many people’s wages (above the £12,570 annual tax allowance) and there are then the stealth taxes such as council tax (which is likely to increase by 5% next year) and of course VAT.
I think that it is fair to say that we do indeed pay a lot of taxes and that we are starting to realise that the people charged with spending this money need to be better at what they do and more accountable when doing it. Some of you may have seen the ‘predictions’ from the Office for Budget Responsibility (OBR), whose figures seem to be wildly out of kilter with their previous predictions/calculations; worrying on the one had that they are so high, but more alarming is the fact that they have adjusted them by 2 to 3 times what they previously were; how can they get it so wrong we should ask, or does it suit the situation?
Anyway, back to the business in hand and what this all means for investments; well it’s a mixed one, as it will bring even more cost controls to many businesses, which can be a good thing, but this will be counteracted by a more difficult marketplace to move products within, as there will be less money supply, which when coupled to employees own remuneration requirements it is likely that the ultimate outcome will be that unemployment will rise, as companies lay staff off or fail altogether, so a tough Winter for many, but in the process it will create a leaner business marketplace from which to move forward, which investment markets and investors like, so what is bad news for many can also be a good sign for investment sectors.
As I have said before, is not going to be a nice Winter for so many of us financially, but the impact of the changes being forced on many may spur investment markets into recovery at an earlier point in time.
Trying to call which investment sector will fare better than another is not really on the cards as yet, but this month has seen a recovery across nearly all areas (property is the one sector which is lagging behind, probably as you may expect) and hopefully the weeks ahead will provide a better indication as to whether the worst predictions are behind us (even though the consequences are very much with us) and a more sustained recovery can start to get underway, we can only watch and hope and ultimately put our faith in those in government appointed with looking after our affairs, although we won’t mark them out of 10 just yet, it wouldn’t look great!
As someone said to me, ‘control the controllable and leave the rest to others to worry about’; whilst this is true and very good for the mind, the older you get the more you look at the people who you are obliged to trust with matters such as governance and question their decision-making and I think that most of us would agree, in recent times it’s not been very good has it?
As an aside, I am finding through my discussions with clients (well, most of you are now friends as we’ve been on our journey for so many years!) that a lot of people are struggling to process the pace and negativity being thrust upon society during recent times and whilst it is becoming a well worn line, we really do need to look out for each other in these difficult times; for my part, I will always be available for chats with my clients/friends on any topic that they wish to bring to the table and if we can make sense of some of the nonsense and smile a bit in the process then for me, its time well spent!