Efficient Wealth Update November 2018
2018 Budget: The Headlines
Good news – austerity is, apparently, coming to an end!
As always, speculation about the Budget was way out. In fact, the word ‘pension’ was barely mentioned, despite rumours that the annual allowance and tax relief would be cut and that the focus would be on recouping money in this area to fund the NHS deficit.
We have put together a list of the top things we think may mean something to you or are somewhat interesting:
- The amount of spending for ‘no deal’ Brexit planning has increased by an extra £500 million (hopefully will not be needed!).
- A UK Digital Services Tax introduced on technology companies with a revenue of over £500 million per year, e.g. Facebook. This is due to raise £1.5 billion over four years (let’s hope these companies don’t dodge their way out of it!).
- £28.8 billion for a national roads fund paid for via road tax. This includes an immediate £420 million set aside for infrastructure, e.g. potholes, bridge repairs (no more pothole-dodging for us!).
- An extra £20.5 billion to the NHS over the next five years with a focus on mental health services (great news for the NHS and an area that is seriously underfunded!).
- Personal allowance increased to £12,500 from April 2019 and higher rate tax bracket extended to £50,000 (good news all round!).
- High street fund of £675 million for councils to redevelop high streets (is this too late? See the article about the demise of the high street below).
- Plastics tax to be levied on packaging containing less than 30% recyclable material (keeping it green and bang on trend!). No specific levy on disposable plastic cups, however, which is a shame.
- Help to Buy scheme extended for two more years until 2023 (mixed reviews on this one!).
- Stamp Duty abolished for those first-time buyers purchasing shared ownership properties (this has already been removed for those buying full ownership properties). Great news for any first time buyers you may know; if you or anyone you know need help with a mortgage on these purchases please let us know by emailing email@example.com.
- Business rate bills to be cut by one-third for the next two years for all retailers in England with a rateable value of £51,000 or less, delivering an annual saving of up to £8,000 for as many as 90% of all independent shops, pubs, restaurants and cafés (good news for small business owners!).
- Tax avoidance clamp down is due to raise another £2 billion over the next five years (good news for everyone!).
We did expect some mention of simplification of IHT gifting or something similar in the Budget, but this did not happen; hopefully this is still in the pipeline and will be discussed soon.
Overall, it was a very low-key budget, which seems bizarre when so much is happening. Remember, the Chancellor did say that with a no-deal Brexit, the spring statement could turn into an “emergency budget” and so things could be all change!
If you are interested in more than the headlines you can, of course, find the full Budget documents using the following link:
Markets Take a Tumble
We have been predicting a market correction since the beginning of the year and, in October, our crystal ball powers proved accurate and we saw the markets tumble across the world.
As of 22nd October, the main markets had fallen between 5% and 10%, with the FTSE 100 one of the worst hit! Since then, the markets have continued to fluctuate and be highly volatile, something that could continue for the foreseeable future.
Luckily for those of you invested with us, and because of the asset allocation that we have designed for you, you will have seen falls in your portfolio that are significantly less than those experienced by the markets. We also took the decision to rebalance our portfolios to try to take advantage of the rise in the markets that we are confident will follow this period.
Your Client Relationship Manager will have emailed you this week with further details on this very topic, but if you would like to speak to a member of the team, or have any questions relating to performance, please do not hesitate in contacting us.
Housing Market Slump
House prices are certainly being affected by the current economic climate. That house prices are rising more slowly than the cost of living means that the property market is currently in a decline. This is a great time to buy for those wanting to get into the market, but not such good news for those who want to sell. It is also good news for house builders, who are seeing record profits as the demand for houses continues to increase and is magnified by the housing slump.
We also have to consider that interest rates will continue to rise and, whilst the recent rate rise has had a small effect overall, further increases could make it even harder for people to get into the market and slow sales even more.
It is an uncertain time for the housing market, which has not been helped by Mark Carney (Bank of England Governor) stating that the BoE are prepared for house prices to be cut by one-third! We certainly hope that really is worst-case-scenario planning!
The Demise of the High Street
The first real failure on the high street since BHS went under was the demise of House of Fraser, which is still holding on to normal business function by the skin of its teeth.
The summer saw a peak in sales along the high street, but things have crashed back to reality with plenty of disappointing sales figures and forecasts. Organisations reporting that they may be feeling the heat are big businesses such as John Lewis and Debenhams, who may be following the fateful path of those before them. If they are struggling, what hope is there for the rest of the high street?
Both John Lewis and Debenhams have shared their rescue plans: Debenhams has decided to close 50 stores across the country and John Lewis is planning to focus more on the “customer experience” to draw shoppers back to stores.
There is no hope for the high street if businesses keep doing the same things; there is a need for something new, and making the shopping process more social, more technological and more enjoyable is where to begin if we want to keep our high streets alive.
Notes on Brexit
We have still to see a final Brexit deal on which UK MPs and EU MEPs can vote, although we are down to the last 10% (or 5%, depending on your source) of negotiation. However, this final section is the most difficult to agree – the Irish border issue being the main focus of ongoing talks, and seemingly every potential solution is unworkable for one or more parties involved. We also now have the added complication of a more fragile political position in Germany, which could still disrupt progress.
At home, despite the hard-line position being talked about by the opposition, it would seem that we are finally seeing the Conservatives, at least, realising that they have to put the country, rather than their own political careers, first. Mrs. May seemed to garner much more support for the current negotiation strategy than expected at the last 1922 Committee meeting. Hopefully we will see the same altruistic approach being adopted by all MPs at the vital hour.
On a lighter note, Chancellor Hammond announced the release of a new ‘Brexit’ 50 pence piece to commemorate the historic moment, which will be issued after 29th March next year- possibly the least said on this decision the better!
More on Help to Buy
The Help to Buy Scheme will be extended from its current deadline in 2021 to 2023, the Chancellor of the Exchequer has announced.
In his Budget, Philip Hammond, confirmed the previous mutterings of extending the scheme, which first came to light at the Conservative Party conference in September. The Help to Buy Scheme was launched in 2013 and is available for new build properties, offering a government loan of up to 20% (40% in London) of the home’s value. In November 2015 the government announced an extension of the initiative up to its most recent deadline of 2021.
Earlier this month and in anticipation of the Budget the Intermediary Mortgage Lenders Association (IMLA) called on the government to clarify the future of the scheme to prevent a “destabilisation” of the housing market.Speaking at the time, Kate Davies, executive director at IMLA, said: “Lenders and borrowers place heavy reliance on the scheme, and a major step-change to arrangements would risk significant market disruption and potentially undermine the government’s ambitious targets for new housing supply.”
IMLA requested the government give lenders enough notice of any proposed changes to plan ahead.The Association of Mortgage Intermediaries (AMI) also voiced its support of an extension to the scheme, warning mortgage approvals and purchases were likely to “stumble” if the government failed to do so. The AMI predicted without the scheme new build loan-to-values were likely to fall back again and a drop-in purchases and approvals would put more pressure on the remortgage market to support lending.
The proof is in the pudding, with stats showing that the Help to Buy Scheme has been successful at getting first-time buyers on the move. The Ministry of Housing, Communities and Local Government stated that more than 420,000 people have now used the schemes to get on the housing ladder.
If you are looking to explore your options and wish to see if Help to Buy can help you, then our experienced mortgage team will be able to talk you through your options.
Book of the Month
About six years ago we recommended Bill Bryson’s A Short History of Nearly Everything as our book of the month. This month we are continuing in a similar vein, as it has been a while since we thought about how we got here and are recommending David Christian’s Origin Story. If you thought that the history of the physical world was a little boring or of no interest, then this really is a book to make you think.
Christian’s prose is not just beautiful, he also has the ability to share information in a wonderfully interesting and insightful way. Take this book as a natural thriller and spend time thinking about every chapter. It will make you grateful for the world and the universe we have.
Spread the Word this Winter
It may only be early November, but the icy-chills of winter are already creeping their way in. The crisp air and icing-sugar like dusting on the leaves may be beautiful, but the reality of this time of year is sinister.
For thousands of people in the UK, the end of summer marks the point where they are faced with an impossible choice: whether to enjoy heat or whether to eat. The winter of 2017 saw record levels of food poverty in the UK and, coupled with astronomical hikes in fuel prices, a growing number of people had to choose between a hot meal in freezing conditions or a warm room but no food. If predictions are correct, this year will only be worse.
In this day and age, this dilemma is not only heart-breaking, but is completely unnecessary. More than 3,000 people are needlessly dying each year, some as a result of suicide, due to the inability to heat their homes. Most of these vulnerable people are either elderly or on benefits. The choice between going cold or going hungry has other effects too: depression, isolation and exposure to life-threatening illnesses to name but a few. Living this life in a perpetual state of anguish and discomfort has to stop.
You may be reading this and thinking that this problem doesn’t apply to affluent Rutland. Surely this sort of thing doesn’t happen in our county?
The truth is that the ‘heat or eat’ dichotomy happens everywhere. As food writer and poverty activist, Jack Monroe, says “People don’t often talk about the issue- it is shrouded in shame and secrecy, so it could be happening on your street, to your neighbours. It is devastating, debilitating and happening in hundreds of thousands- if not millions- of homes in the UK.”
So, what can be done to protect the health and wellbeing of those in your community at this time of year?
This winter we are supporting our neighbours at the Rutland Foodbank, who aim to eradicate the awful choice of ‘heat or eat’ by providing nutritionally balanced meals for those in food poverty.
The Rutland Foodbank are blessed with an abundant group of volunteers and donors alike, but the main concern they have is that not all local people know where to find them. They’re finding that Rutlanders in the villages surrounding Oakham have rarely heard of the service they provide, so few are accessing the food and facilities that they can offer when they are most in need.
This is where you can help. Spread the word! It doesn’t matter if you tell a friend over coffee, share a social media post, or scream it from the top of your lungs in the supermarket, telling people about the help that is out there is one of the most crucial steps we can all take in ending this crisis.
Living in food or heat poverty are not things to feel ashamed about. Support is here on your doorstep, so please get in touch.