Does anyone envy Liz Truss today?  It is hard to imagine tougher times for anyone to become leader of the country.

• An energy ‘war’ being waged which could end up costing the country more than a military conflict would
• inflation rising and this now being reflected in wage rises which could prolong the time it takes to get it down to a manageable level
• a world just coming out of the first pandemic for 100 years, and as a result is still not functioning as it was pre-Covid
• and doing this while living in a house where, according to Boris, the cat and dog are at each others throats

Not exactly the background a young Ms Truss would have wanted when she was dreaming about becoming a Lib Dem or Conservative Prime Minister.

The coming months will let us know how successful she is in dealing with this.  In all honesty I suspect a lot of this is out of anyone’s direct control.  However, her government can set the country’s fiscal policy and it will be interesting to see what changes are announced to tax in the upcoming emergency budget.

When the previous Chancellor announced a freeze in tax bands until 2026 inflation was running at less than 2%.  Last November, when the government predicted inflation would rise to 7% for a short time this year, (proof, if needed, these predictions are pointless), I wrote that if we saw inflation higher for longer than predicted, this freezing of the bands would end up being more punitive than an increase in the rate of income tax.

With wages now rising at a fast pace, freezing these bands for a further four years will result in thousands of people either paying tax when they didn’t previously, or paying tax at a higher rate band.  This could create a vicious circle with demands for even higher wage rises to counter this.  It will be interesting to see what the new Chancellor announces as although a cut in the rate of tax would probably generate more headlines, on its own it will not solve this problem.

Inflation is also a new phenomenon for a lot of people.  When discussing the merit of taking a pension from a final salary pension scheme it always surprised me how clients in this position seemed to brush off the benefit of having inflation protection, even if this is capped at 5% as it is in many schemes, for the pension in payment.

It may not look it but I was a child in the 70s when inflation was rampant, but even I remember workers’ wages going up more than once a year and helping my mother stock up on any food that wasn’t perishable before it went up in price.  Aahh….the good old days!

So there is plenty for investors, as well as the new PM, to worry about then, but there is hope on the horizon.

Firstly, although Russia has taken advantage of Europe’s naiveté when it came to energy transition, it is now acknowledged by even the most ardent ‘green’ that we will still have a number of years dependency on carbon fuels, or nuclear, before we can reach a clean energy nirvana.  The fact that all countries now appreciate this and are determined to avoid being in thrall to Putin means we will likely see the reopening of oil and gas fields that previously were seen as politically or economically unviable.  This should be good for the UK given the resources we have on our shores.

Secondly, this energy war is really only affecting Europe which means the other 6.5bn inhabitants of the world are not directly impacted.  In the US for example, the only issue will be whether European consumers will still be able to afford the new iPhone when it comes out.

Thirdly, although the coming months will be tough and may require some sacrifice we will get through them.  Markets are fully aware of the challenges we are facing with a lot of these priced in, and although it is likely to be a volatile time you have to bear in mind that any surprises could just as easily be positive as negative.  If that is the case we could see a recovery sooner than all the doom in the media would have you believe.

Also hopefully it will be more peaceful in Downing Street assuming Dylan the dog moved out with Boris.

Steven Forbes

P.S.  As we approach the anniversary of Alan Steel’s passing I just wanted to thank those of you that made a donation to the Fundation we set up in his name.  As a trustee I am overwhelmed to say that in the last twelve months £25,000 has been donated which will be a huge help to the local causes that were dear to Alan’s heart.

The Fundation has also been granted charitable status therefore any donations made are eligible for Gift Aid so those of you that have made a donation should be aware that you can claim tax relief on them.

The company has pledged to donate a portion of profits to the Alan Steel Fundation each year and this will ensure that although, sadly, Alan is no longer with us the causes will continue to benefit as if he was.