Podcast Summary
Autumn Statement brings tax cuts and increases, with a catch: The Autumn Statement featured tax cuts and increases, but overall taxes are still set to rise, creating a complex picture for future Chancellors to manage public services
The Autumn Statement brought both tax cuts and tax increases, with the reduction in national insurance contributions being the most notable tax cut. However, as Katie Martin, Sam Fleming, and Rafe Uddin pointed out on the Money Clinic podcast, this tax cut comes with a catch. While the number of workers paying national insurance will decrease, overall taxes are still set to rise. The chancellor's statement was described as "phew" by Katie Martin due to the lack of market turmoil compared to the previous year's mini-budget. Sam Fleming used the phrase "sleight of hand" to describe the statement, highlighting the apparent contradiction between the headline-grabbing tax cuts and the perpetually increasing tax take. Rafe Uddin called it a "time bomb," warning of the potential difficulties that future Chancellors may face in managing public services after the next election, given the pressure to ease the effects of these stealth taxes. Overall, the Autumn Statement presented a complex picture, with both tax cuts and tax increases, and the long-term implications remain to be seen.
Government's tax relief measure doesn't offset overall tax burden increase: Despite the govt's move to cut NI contributions, 4m more ppl will pay income tax, 3m in higher rate, 400k in additional rate, & overall tax burden to reach 38% of GDP within 5 yrs
The government's decision to cut National Insurance contributions by 2 percentage points for 27 million people may seem like a welcome relief for some, but it doesn't change the fact that overall, the tax burden on individuals is increasing. The Office for Budget Responsibility reported that 4 million more individuals will have to pay income tax, 3 million more will be in the higher rate of income tax, and 400,000 more will be in the additional rate income tax. This means millions of people will be paying more tax overall. Although the average worker on a salary of £35,000 will save around £450 a year, and a self-employed person could save up to £350 a year, these savings are not enough to offset the overall tax burden increase. The tax burden is projected to reach a post-war high of 38% of gross domestic product within the next 5 years. The government chose to target National Insurance because it applies only to salaried individuals, but it's essential to keep in mind that this measure doesn't change the overall trend of increasing taxes.
Business tax cuts in focus instead of personal income tax cuts: The Chancellor prioritized business tax cuts over personal income tax cuts for financial stability, leading to slightly higher growth forecasts and increased gilt yields.
The Chancellor, Jeremy Hunt, chose to focus on tax cuts for businesses in his recent budget, as opposed to personal income tax cuts. This approach was more financially stable and predictable compared to the previous year's mini-budget. The market reaction was calm, indicating that policymakers have learned the importance of not disrupting the bond market. The budget did lead to slightly higher growth forecasts and increased gilt yields due to the continuous supply of new debt. The government's limited firepower was directed towards business tax cuts because they believe it will boost the economy and raise investment. Despite not receiving much attention in the media or being as popular as personal tax cuts, it is an essential aspect of the budget that can contribute to economic growth.
UK Government's Economic Focus: National Insurance Cut and Early Election: The UK government's recent National Insurance cut is a long-term investment for economic growth, potentially leading to an early election, but it may not significantly benefit young people.
The UK government's focus on economic growth is evident in their recent measures, including the National Insurance cut aimed at boosting workers' paychecks. This move, which may lead to an early election, is seen as a long-term investment for improving the economy, despite uncertainty over its exact impact on GDP. However, the measures announced did not significantly benefit young people, who had hoped for reforms to savings accounts or first-time buyer initiatives. The government's priority remains growth, as they navigate high inflation and strive to balance the books.
Changes for Younger Savers in Spring Budget: From April 2023, younger savers can invest in multiple tax-free ISA accounts, broadening investment opportunities
The spring budget may bring changes to help younger savers, particularly those looking to buy homes, but there are concerns it could increase housing prices due to the lack of housing supply. Another issue is the upcoming mortgage rate increases for over a million people, including the speaker herself. However, there is some promising news for young savers holding fractional shares in their tax-free ISA accounts. From April next year, they will be able to invest in multiple ISA accounts in a single year, providing more flexibility and choice. This change, along with the potential easing of the rule against holding fractional shares, could broaden investment opportunities for younger generations.
New pension measures for UK workers: Pot for life and equity investment: UK gov proposes 'pot for life' system to reduce multiple pension pots, unlocks billions for equity investment, and sells part of NatWest stake to retail investors.
The UK government is proposing new measures to help workers manage their pension savings more effectively. This includes the introduction of a "pot for life" system, which allows workers to keep their contributions with them throughout their career, reducing the number of multiple pension pots and associated fees. Additionally, the government aims to unlock billions of pounds from large pension schemes to invest more in equities, potentially boosting the UK stock market. The chancellor also announced his intention to sell part of the government's stake in NatWest to retail investors, reminiscent of the easy-to-access British Gas share sales from the 1980s. Overall, these measures aim to make pension savings more manageable and effective for workers, while also encouraging investment in the UK equity market.
Encouraging Individual Investment in UK Stock Market: The UK government is pushing for more individual investment in the stock market to make it more vibrant, but young investors are more interested in tech stocks and fractional shares, while Europe's companies rely heavily on bank financing for expansion, leading to a less dynamic economy.
There's a push in the UK, led by Chancellor Jeremy Hunt, to encourage individual investors to be more active in the stock market, as there's a belief that Europe's capital markets are not as vibrant as those in the US. During the COVID-19 pandemic, Americans received stimulus checks and many invested in the stock market, while Brits are more likely to save or spend their money. The UK government is looking to sell its remaining stake in companies like NatWest, but the discounted price and uncertainty around the process may not be attractive to young investors. Instead, they're drawn to exciting new tech stocks, which can now be accessed through fractional shares reform. This theme of increasing individual investment in the stock market is not unique to the UK and is a major issue across Europe, as companies in Europe rely more on bank financing than capital markets for expansion. Ultimately, this could lead to a less dynamic economy.
Discovering New Financial Podcasts: Unhedged and Capital Ideas: Unhedged and Capital Ideas are new financial podcasts that provide valuable insights and information on markets and finance. Unhedged goes out twice a week, while Capital Ideas shares investment experiences and lessons. Remember, they don't offer personalized advice, consult an independent financial adviser.
There are various financial podcasts available to cater to different interests and needs. Claire Barrett, the host of Money Clinic Podcast, introduced Sam Fleming, Raef Uddin, and Katie Martin, who discussed their new podcast, Unhedged, which goes out twice a week and covers markets and finance topics. They also mentioned Capital Ideas Podcast, where CEO Mike Gitlin shares investment experiences and lessons learned, and 1800flowers.com, which is not just a gift-giving destination but also a place where everything is made with love. It's essential to remember that these podcasts do not constitute investment advice, and for personalized advice, one should consult an independent financial adviser. Overall, these podcasts offer valuable insights and information, making them worthwhile investments of time.
