THE PARTY’S OVER
They say that the eye of the hurricane is remarkably calm, and that if you were to look straight up you would see a beautiful blue sky, all the while knowing that damaging 100 mile an hour winds and rain were just around the corner. This is the same feeling I had today listening to Alistair Darling’s Budget.
Far from battening down the hatches and preparing the country for the worst, Darling intimated it was business as usual with no need to worry, as the wealthiest 2% of the population will pay the additional tax to solve our problems. That’s alright then.
It would have been naive to expect a “proper” Budget so near to an Election, but even I was surprised at the tone of the speech. To be quite smug about the level of actual Government borrowing being £11billion less than anticipated, but still at the record level of £167billion takes some doing. However, there were glimpses of what lies ahead.
The announcement that the Inheritance Tax (IHT) threshold is to remain frozen for the next four years will mean a significantly higher percentage of the population will have an IHT liability. Given the popularity of the Conservative pledge to increase the level to £1m, this came as a surprise, but at least we now have clear water between the parties on this issue.
It is also clear that this Government believes that National Insurance (NI) is the preferred way to raise revenue. This is all well and good but it means the burden falls on the working population, and that future generations will be forced to work to a far greater age than their parents. However, how long will it be before NI is extended to pensions and other income?
As for savings, the confirmation that the ISA limit will increase to £10,200 for all age groups from April is welcome, as was the announcement that this limit will increase by inflation in subsequent years. However, it would be wise to remember that it only took three years for the pension legislation that allowed contributions of up to £245,000 per annum to, effectively, be revoked so I wouldn’t bet the house on the ISA rules not changing sooner than you think. In fact, I suggest anyone planning to do an ISA next tax year may be wise to do this before the REAL Budget post Election.
Which brings me on to the crux of the matter. In the last year Ireland has had THREE emergency Budgets. Each one increased Income Tax by 2% at all rates, and the most recent halved ALL benefit payments and reduced all civil service salaries across the board. None of the Budgets were greeted with joy, but there was an understanding amongst the population that the party was over and it was time to pay the price. As a result, it is forecast that Ireland will be in far better shape financially than the UK within the next two years. In fact, consumer confidence in Ireland is on the rise as the population can see light at the end of the tunnel.
Here in the UK however, we have a Government who believe the best way to avoid a hangover is to have a “hair of the dog”, which as I know to my cost does not remove the pain, only delays it. So the country keeps staggering on, the only one left holding a bottle of wine and singing karaoke, while the rest of the world is at home taking its medicine, and believe me it is saying something when the Irish leave the party before you do.
Steven Forbes
Managing Director
February 2010 Facts
Markets and Managers we met last month
FTSE All Share
1 year return +49.3%
5 year return +10.5%
S&P 500
1 year return +50.3%
5 year return -7.9%
FTSE Eurotop 100
1 year return +47.9%
5 year return -7.1%
Invesco Perpetual Global Income (Paul Boyne/Nick Hamilton)
Since March 2009 +41.2%
5 year return N/A
M&G Recovery (Tom Dobell)
1 year return +51.4%
5 year return +61.4%
L&G UK Alpha (Richard Penny)
1 year return +86.6%
Since launch May 2005 +80.2%
Fidelity Special Situations (Anthony Bolton - Adviser to Sanjeev Shah)
1 year return +44.5%
5 year return +43.2%
(Source - ft.com 1 March 2010)
Best Bank Accounts
West Bromwich Building society paying 2.60% gross available only over the telephone and postal system with instant access.
(Source - Moneyfacts March 2010)
