OBR forecasts present need for tax increases in the Budget
August 2018

The long-term outlook for government finances suggests tax increases are inevitable.

The Office for Budget Responsibility (OBR) produces medium-term financial forecasts alongside the Budget and Spring Statement, but that is not its only task.  It is also required to take a longer-term view of the public finances, producing a Fiscal Sustainability Report every two years.

The latest version of the report was published in mid-July and did not make for comforting reading.  The graph is a good summary of the bad news:

  • The purple lines show the projected government borrowing as a percentage of the size of the UK economy.  In 2017/18 annual borrowing was 1.9% of Gross Domestic Product (GDP). By 2067/68 it becomes 85.6%.
  • The green line shows the total amount of government debt, also as a proportion of the UK economy.  As at May 2018, total borrowing was 85.0% of Gross Domestic Product (GDP). By 2067/68 it becomes 282.8%.

In the report, the OBR says, “Needless to say, in practice policy would need to change long before [2067/68] to prevent this outcome.”  That means reduced expenditure and/or increased taxation.

Reductions in expenditure are unlikely, as much of the rise is driven by the costs of caring for an ageing population.  In the short term, increasing taxes is also hard to imagine given the current political climate.  In the longer term, tax rises appear unavoidable based on the OBR’s calculations.  The first indications of what form tax rises might take could emerge when the Chancellor gives his response to the OBR in the Autumn Budget.

If you are looking for any solace, it is best sought in mathematics: these types of long-term projections are highly sensitive to relatively small changes in the underlying assumptions.  If the UK economy were to grow faster than the 2.2% the OBR has assumed, the situation improves significantly.  Alas, the opposite is also true.

With the UK’s growth rates remaining low, however, it seems likely the government will need to take some kind of action soon.

  • The value of tax reliefs depends on your individual circumstances.
  • Tax laws can change.
  • The Financial Conduct Authority does not regulate tax advice.


2018 proves volatile after the smooth sailing of 2017
August 2018

The first six months of 2018 were unpredictable times for investors as global stock markets suffered a sudden bout of volatility.

Source: LSE

The unpredictability came as a major surprise after the general stability of 2017.  Once the dust had settled there was a mixture of good and bad news.

The UK markets were inevitably led by Brexit, with negotiations mainly at the intra- rather than inter-government level.  The other perennial British topic, the weather, produced the Beast from the East, depressing economic activity in the first quarter.

US short term interest rates continued to rise under the new chairperson of the Federal Reserve, with more increases promised for the second half of the year.  Meanwhile, the tension between America and North Korea turned into a denuclearisation agreement and the Trump tax cuts were followed by the start of Trump trade wars, hitting long-term allies as well as the supposed target of China.

For all that, an investor who opened their first newspaper of the year on 1 July 2018 would have thought nothing much had happened.  The FTSE 100 index fell by less than 1% in the first six months of 2018.  Across the Atlantic, the S&P 500 rose in the same period, but only by 1.7%.

The small overall changes are a reminder that daily market movements often turn out to be self-cancelling noise, best ignored by the long-term investor.

  • The value of your investment can go down as well as up and you may not get back the full amount you invested.
  • Past performance is not a reliable indicator of future performance.
  • Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Now and Then by Dave Goetsch
March 2018

Dave Goetsch, Executive Producer of  The Big Bang Theory, reflects on his investment experience in the recent market downturn and contrasts his new perspective with memories of the 2008-2009 financial crisis.

Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair.  It’s striking how different I feel now.  In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling.  I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them.  They were always going up and down in ways no one could predict, and I couldn’t trust those folks who said that they could anticipate what was going to happen.  So when the market went down, I went down with it—sinking into a depression, knowing there was nothing I could do.

What a difference nine years make.  I haven’t changed because the stock market rebounded.  I changed because I learned that there was a different way to think about investing.  I was right not to trust those people who thought they could predict what was going to happen in the markets, but I was wrong in thinking that there was nothing to do.  I’ve learned that I can have a great investment experience if I just accept a few simple truths.

I have to understand the uncertainty of the market.  The stock market, as measured by the S&P 500 Index, has returned about 10% per year over the last 90 years,1 but there are very few individual years in which it has ever actually returned that amount.  In fact, how many of those 90 years do you think the S&P 500 was up more than 20% or down more than 20% for that year?  The answer is 40.  Astounding, right?  I wish somebody had explained that to me decades ago.  Then I would have known to look at stock market returns in terms of decades—not years, months, days, or hours.  I would understand that so many of those articles and cable news pieces are just noise, designed to keep an audience obsessed and unsettled.

I haven’t changed because the stock market rebounded.  I changed because I learned that there was a different way to think about investing.

In order to be a long-term investor, you have to have a long time horizon.  This can be hard to remember when you’re being assaulted by noise, but if you can stay strong, the results are stunning.  By results, I don’t mean the investment returns, which hopefully are good.  The return I’m talking about is how I feel every day.  I worry less—not just about the future, but also about the present.  Of course, I know that there are no guarantees when it comes to investing, but I feel like I’m going to be okay.  I have a plan.  There’s no way I could’ve done this without a financial adviser.  I needed someone who could not just talk me through what my asset allocation should be, but also help me work through how I felt about investing and what exactly I could do to change my perspective.  I was a mess nine years ago.  Now, my outlook is totally different.  The markets haven’t changed; they still go up and down.  The difference is, I don’t anymore.

If you’d like to discuss your investment strategy, please get in touch with us.

1. S&P data © 2018 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.


The Chancellor’s first Spring Statement
March 2018

Mr Hammond made clear some while ago that he wanted his Spring Statement to be a short financial briefing rather than a mini-Budget, complete with rabbit-out-of-hat announcements.

Although his speech ran to 25 minutes, rather than the 15-20 that had been promised, the Chancellor stuck to a no-frills script.

Click here to view our Spring Statement Summary

There were no new tax measures and no spending changes.  The Office for Budget Responsibility (OBR) trimmed its projections for government borrowing, but Mr Hammond simply banked the savings for his Autumn Budget.  Spending will be subject to a detailed review in 2019.

While the Chancellor appeared to say little, his statement was followed by the publication of a range of documents covering areas including:

  • English business rates – The next revaluation of business property in England will be brought forward one year to 2021, with three-yearly revaluations thereafter.
  • Entrepreneur’s relief – A consultation paper was published on how to give entrepreneurs’ relief in circumstances where it would otherwise be lost because of a new share issue.
  • VAT threshold – The government issued a call for evidence on restructuring the VAT registration threshold to offer more incentives for small businesses to grow.  There is some evidence that businesses deliberately limit growth to avoid crossing the existing £85,000 threshold (which has been frozen for the next two years).
  • Tax and the digital economy – There were several papers examining taxation issues surrounding the digital economy, including VAT and income tax leakage through internet trading platforms.
  • Self-funded work-related training – A consultation paper was published examining how to extend the existing tax relief framework to self-funded work-related training by employees and the self-employed.

Many of these documents will eventually result in legislation, but that doesn’t mean no tax changes in the interim.  The impact of last November’s Budget (and some earlier measures) will soon be felt with the start of the new tax year.

Please get in touch with us if you’d like to discuss any aspects of the Spring Statement and how they might affect you.

Tax Tables 2018/19
March 2018

Click here to view our tax tables for the 2018/19 tax year, updated with announcements made in the Spring Statement on 13th March.  We hope you will find them useful and interesting.

Please get in touch if you would like a discussion with us about your tax or general financial situation.

Reminders for the new tax year
March 2018

The start of the new tax year on 6 April marks several changes to tax and related matters that could make you richer… or poorer.

The absence of a Spring Budget doesn’t mean that the usual raft of changes at the start of the new tax year have disappeared.  Most of the important changes were announced in the Autumn Budget, in November 2017.  However, Scotland has also recently approved a new set of income tax rates and bands.

Here is a list of the more important changes that take effect for 2018/19:

  • The personal allowance rises by £350 to £11,850. However, the allowance will still be phased out at £1 per £2 of income over £100,000, leaving an effective 60% (61.5% in Scotland) tax band for between £100,000 and £123,700.
  • The higher rate threshold will rise by £1,350 to £46,350.
  • Scotland will see several changes to income tax.  A new ‘starter rate’ of 19% applies to the first £2,000 of taxable income and an ‘intermediate rate’ of 21% applies to taxable income between £12,150 and £31,580.  The higher rate threshold will increase by £430 to £43,430 and the higher rate will rise by 1% to 41%.
  • National Insurance thresholds rise, with the starting point for Class 1 (employers and employees) and Class 4 (self-employed) becoming £8,424 a year.  For employees and the self employed the upper limit for full rate contributions will also rise in line with the non-Scottish higher rate threshold (to £46,350).
  • The dividend allowance will fall from £5,000 a year to £2,000 a year, reducing a higher rate taxpayer’s net income by up to £975.
  • Company car scale rates will generally rise by 2% for petrol vehicles and 3% for diesels.  The proportionate increase in tax can be more than those numbers suggest.  For example, on a BMW 320d the charge rises from 24% to 27%, increasing the tax payable by one-eighth.
  • The pension lifetime allowance will increase for the first time since 2010, albeit only by £30,000 to £1,030,000.
  • Pension automatic enrolment minimum contributions will rise.  In most instances that will mean a doubling for employers and a 150% increase for employees.

The number of changes, both positive and negative, can make April pay checks a puzzle if you are an employee.  This is one reason why the start of the tax year is a good time to talk to your financial adviser.  Click here to get in touch with us.

The value of tax reliefs depends on your individual circumstances.
Tax laws can change.
The Financial Conduct Authority does not regulate tax advice.