The One Percent

Much has been made of the One Percent of the population of late, perhaps not surprisingly many people are wondering if the economic improvement will “filter down” to them. Recent news from the G20 summit warning that the economic recovery is in jeopardy as our trading partners in Europe fail to grow (even the mighty Germany) and there is a slowdown in growth from Asia may even prompt questions about ever receiving a share of the UK upturn.

The One Percent argument is simply that the richest continue to get richer and that the gap widens all the time, or seems to. There was a programme on Chanel 4 the other week “How Rich Are You” which attempted to address a few of the issues – from bling to benefits. The most obvious and pertinent statement being that the rich have capital, the poor do not. Capital works whilst you sleep (or when you dont work). The programme had a fairly noisy audience and probably rather polarised. Interestingly, few really knew where they come in the “pecking order”… which percentile of “rich” they belong to.

Dr Faiza Shaheen presented a chart revealing the distibution of income throughout the UK. As this is TV and not a regulated piece of information, not a lot of effort was made to contextualise the numbers (which are based on earned income). The middle level of income in Britain she contended was £20,300 – middle being the median, not the average. In short 50% of people have an income below £20,300. She also used the minimum wage as a figure (£6.50 per hour x 40 hours a week x 52 weeks = £13,520). Which incredibly puts these people at about 25%, in other words, there are still about 25% earning less than £13,520, the lowest paid was £7,654. On the graphic teachers earning £32,547 came out at 75% (which was admitted to be the average teacher’s salary) which is possible, but dont forget that average includes a newly qualified teacher earning around £21,000 and will include people that work part-time all the way through to Head teachers. Doctors, which Faiza described as GPs. earning £103,000 which would place them at 97%. Richard Bacon, the show presenter then said “that means not even doctors are in the one percent”. About £147,000 of earnings places you in the top 1%

OK, so thoughts. Statistics can be very misleading. I’m not going to dispute the figures, but warn that they only report income. They do not report wealth – assets owned (property, investments, pension funds, businesses etc). We have some clients that are very income rich, but asset poor and vice versa. Whilst the figures are meant to be about earnings, taking this as taxpayers there are estimated to be 29.8m taxpayers in the UK (of a population of 64.1m).

£489.9bn Tax Paid

So here are some different statistics, which rather confirm those of the programme, at least at the higher end. In 2013-14 HMRC collected £489.9bn in taxes, about 54% of which comes from income tax, capital gains tax and National Insurance. In terms of income taxes paid, 24.1m people are basic rate (20%) taxpayers, 4.61m are higher rate taxpayers (40%) and 343,000 (0.34m) are additional rate taxpayers (45%). Yes the numbers do not quite add up, because the balance 0f 0.84m pay starting rate or savings rate tax. Don’t forget that to not all of your income is taxed at the highest rate, but only where over certain limits. Additional rate is only payable by those earning over £150,000. This would pretty-much confirm Chanel 4’s statement about the 1% (1% of about 30m is 300,000).

£172bn Income Tax Paid

Let’s look at this a little differently. Using HMRC data, Income tax alone generates around £172bn for the HM Treasury. When this is broken down further, only about 32% is generated by starting, saving and basic rate taxpayers. Higher rate taxpayer (40% tax) contribute about £66.3bn or 38% (about the same). Additional rate taxpayers (the one percent) contribute £49.7bn which is 29% of all income tax collected. In other words 343,000 taxpayers are contributing 29% of the total income tax bill.

Faiza admitted there was a huge variance of income amongst the top 1%. HMRC data bands this in 5 ranges of income and I have also shown the number of people this applies to in brackets.

£150k – £200k (122,000 which is 0.19% of population) pay tax of £7,570 million (4.4% of total bill)

£200-£500k (175,000 which is 0.27% of population) pay tax of £19,000 million (11% of total bill)

£500k-£1m (30,000 which is 0.05% of population) pay tax of £8,190 million (4.7% of total bill)

£1m-£2m (11,000 which is 0.02% of population) pay tax of £6,050 million (3.5% of total bill)

£2m+ (5,000 which is 0.01% of population) pay tax of £8,890 million (5.1% of total bill)

“One Percent” pay nearly 30% of all income tax collected

Setting aside any politics, one can see why creating an environment of even higher taxation might lead some of these people to earn their income elsewhere. As this contributes nearly a third of all income tax, politicians might wish to think carefully about this, as presumably the tax lost would have to be recouped from the 99%, which in practice is the remaining 29,557,000 taxpayers. My maths suggests that this would mean that each taxpayer would need to pay an extra £1,681.50 in tax, given that the average tax paid per taxpayer is £5,750 this represents an average increase in the amount of tax paid of 29.2%… which I doubt would win many elections. The current average rate of tax is 17.5% of income (which is only so low due to the very high number of people (88%) earning less than £50,000). If these proportions were maintained then the average rate of income tax paid would be 22.6%.

UK Population 64.1 million

This is just data, one must take care not to let envy cloud judgement. Where Governments and HMRC need to do some work is where income tax is not being paid at all (by about 34.1m people or 53% of the population). This includes abut 11 million children in education (pre-school to further eductation), there are 9 millon people between the ages of 16-64 that are not employed and not seeking work – but this would include students, parents looking after children, those that are ill and those that decided to retire early. So we have more or less accounted for 20 million people “not working” and 2 million unemployed (seeking work between 16-64 and less than half were in receipt of job seekers allowance) leaving around 12.1million kind of unaccounted for. I hope that I have demonstrated that a very small number of people paying top rate tax fund a very large part of the tax collected. It wouldn’t be inconceivable to believe that there is another 1% or even 0.5% of the population that really should and could be paying UK income tax is it?

This of course takes no account of other taxes that we pay ranging from capital gains, inheritance tax to TV licenses VAT and excise duty. So in practice pretty much everyone will pay a form of tax and this does not include local council taxes. However our national demographics are also at play here. The number of taxpayers under 65 has remained fairly constant over the years at around 24million but since 1990 the number of taxpayers over 65 has increased from around 3.1m to 5.8m. The number of additional rate taxpayers has increased every year since introduction (2010-11).

Is it really the case that only 373,000 people earn enough to pay 45% tax?

In practice, anyone that you can think of that isn’t a friend (well..maybe) but whose name you know from a variety of media outlets is probably in the 1% – everyone from footballers, athletes, movie stars, tv presenters and of course pop stars. Frankly I struggle to believe that so few people pay a tax rate of 45%. After all, whilst I accept that there are all sorts of jobs (and salaries) in the City of London, according to its own website, there are 392,400 people employed in the City of London.

In summary, most people are “richer” than they think and might be surprised to learn that if you earn £50,000 or more you are in the top 12% of earners in the UK. Who would want want to be a politician to sort this out eh?

Dominic Thomas

The One PercentDominic2023-12-01T12:39:41+00:00

Cash for ISA Questions

Let me be very clear – I LIKE CLIENTS TO HAVE CASH… its VITAL. The real question is “what is a sensible amount of cash to hold?” This will be different for everyone. Cash should really be available for planned expenses within the next 0 to 3 or 4 years, that way you know its there ready for your use. Thereafter, cash is vital to run any business and any personal finances. Whilst budget calculators and spreadsheets suggest nice neat twelfths, many costs are not monthly. As thoughts turn to Christmas – this is something we all know happens annually, once the presents have been unwrapped and you start looking forward to the potential of the new year, thoughts turn to summer holidays… and so on. So having cash on deposit is a very good and wise thing and don’t forget that some expenses are unplanned – such as repairs or replacements due to loss or damage.

Interest rates are so low is it worth bothering with a Cash ISA?

The short answer is “maybe” – it rather depends on your circumstances and when you need the money. Sadly, despite ISA allowances never being higher, interest rates haven’t been lower in living memory. Many if not most, deposit accounts are paying less interest than the rate of inflation (1.3% according to ONS). So your pound is declining, slowly, in purchasing power. This is an unfortunate reality that we currently live with. I would also take issue with official figures about inflation which bears little resemblance to the spending patterns of various people (think of the price increases in gas, electricity and rail).

Just to be clear… what is a Cash ISA?

A Cash ISA is simply a deposit account where interest is tax-free. Interest is taxable normally and should be reported on your HMRC self-assessment tax return. The amount you can put into a Cash ISA is linked to tax year allowances and the ISA rules (all of which are within our free APP or you can look them up). These changed in July 2014, lets stay brief and current, the new allowance is £15,000 each for the current tax year. You can now hold all of the allowance as cash or as investments, or any combination between the two within an ISA (previously you could only contribute 50% of the ISA allowance towards cash). As a result of the new rules, you can have a more suitable balance between cash and investments within your ISA to suit your requirements.

Should I just pick the best rate?

A word or warning, picking a cash ISA (or any deposit account) based entirely upon the headline rate, may not be wise. Perhaps you will remember the Icelandic banking crisis in 2008, which ought to provide some cautionary tales.

It is worth the effort?

It depends on your current rate of interest within your ISA and what the alternatives are. Remember that an interest rate of 1% will be worth 0.8% to a basic rate taxpayer and 0.6% to a higher rate taxpayer. Within an ISA you get the full untaxed amount. However if the sums are small or modest, say £10,000 then shopping around for an extra 0.5% is only going to provide £50 over a year, which given that if the better new rate is with a different Bank (or Building Society) you have to go through the ususal opening an account procedures – demonstrating your identity and UK residency and so on.

If this cash is just a part of my portfolio, should it now be mixed within my investment ISA?

Maybe. If you have a modern investment ISA on a “platform” which holds lots of funds, shares etc, then the platform may well have cash deposit options too. However be warned that platforms generally charge for their adminstration based on the balance on it, so you may well (probably) get charges for cash holdings too. If its ok at your Bank/Building Society then as long as your adviser knows that you have it and therefore not “too much” in cash, that should be OK. However for long-term wealth I would encourage people to use an ISA as an investment vehicle, rather than a place to dump cash as savings. Context is everything and needs thoughtful assessment with an adviser.

So where can I find current ISA rates?

Try looking here at Moneyfacts. However, I suggest doing a proper search using their search engine or any other that is widely available. Remember fixed rates are lock-in’s. If you think rates will rise, then you may wish to question the wisdom of locking into a low rate that is fixed for ages and if you are really locking away cash for 4 years or more, then perhaps you should be thinking about investment instead.

Anything else I should know?

Well, the age old one about bias. Financial advisers and financial planners like me are in part remunerated based upon the amount of money we look after, so if you invest more, we earn more. Of course the hope and expectation is that this is a very worthwhile exercise for you – getting better returns etc (but more importantly getting your money right for you). However it needs to be clear that its not free. Of course a Cash ISA with a Bank/Building Society can appear free – there are rarely any charges, but that doesn’t make it free. This is part of the problem with the delusion that the retail banking system maintains – that banking is free. It isn’t. The bank invariably pay bonuses to their staff for new accounts opened. They lend the money back out at far higher rates of interest and make profit as a result. However that money is at risk (of not actually being repaid to the Bank) and possible Bank collapse – hence the £85,000 FSCS protection and of course there is the inflation to also consider, you may actually be losing money – as many people are if their rate of interest is less than the rate of inflation (which is the majority of current accounts and many savings accounts).

A final point – this (the above) is not advice. You should naturally always plan with your own goals and context. A Cash ISA can be a very good tool in your financial box, but it may also be a rather blunt instrument – it all rather depends on the job at hand and the degree of skill you have using it. Here is a decent little video from Nationwide which is pretty clear. I’m not promoting Nationwide and depending on when you read this the information may be out of date. However the principles are right… oh yes, Nationwide do not pay me to mention them… so no cash for promotions.

I hope this is helpful.

Dominic Thomas

Cash for ISA QuestionsDominic2023-12-01T12:39:41+00:00

Financial Equality

Its Financial Planning week 2014 an opportunity to get some information about what financial planning is all about, however sometimes, this can feel beyond the means of many “ordinary people” who continue to struggle just to get fair pay, let alone a good retirement and financial plan. It doesn’t take an investigative genius to work out that there are many inequalities in the world. There are more poor today than there ever have been, yet there is also more wealth. Many would say that education is the best long-term way of relieving poverty, helping nations and individuals to become adept at self-reliance and adding value to the lives of others and/or wider society. Good education means different things to different people, to my mind it is the ability to open one’s mind to challenge the way things are, whilst holding a knowledge of how they came about. So depriving anyone of education is essentially a deliberate attempt to maintain the status quo without asking the question “how could things be better?”

Made in Dagenham

Whatever your political beliefs, a new musical worth seeing has arrived in the West End. “Made in Dagenham” is the musical adaptation of the 2010 film by the same name. This is the story of a group of women working at the Ford plant in Dagenham in 1968, who had their pay unfairly recategorised as “unskilled”. The musical frames the resulting struggle in the context of a Britain that is thwarted by strikes and general political incompetence. Whilst some might see this as a political ideology, its rather larger and more important – in that the actions of the day, ushered in the prospect of equal pay for women. A natural and one would have thought, obvious progression of suffrage.

Sadly, emancipation in finance has still a long way to travel. It would seem that many women are less financially prepared than men. I find myself treating the results of the surveys and results on this topic with some degree of scepticism. For starters, many women earn far less than men, many women “have less time” because life is not simply about a 9-5 series of tasks that many men would still appear to think it is, something that is also touched upon in the musical. So is it any wonder that many don’t have time to plan their finances or give them much thought, particularly when they are often simply trying to get by. So with that said, the Scottish Widows 2014 Women and Pensions report was published recently. Their data suggests that the average man saves £298 a month towards retirement and the average woman saves £206 (about 30% less). The report states that 78% of women don’t know how much they need to save for a comfortable retirement. I might suggest that this is probably on the low side and in practice I doubt that there is little difference between men and women on this point (not knowing how much is enough).

So, whilst the lyrics are possibly a little … fruity, the songs and sentiment are a worthy education and a timely reminder, that men need to proactively support equality, not prevent it. Like it or not, this is an issue for us all and bringing about change, begins at home and in your own workplace.. perhaps you could start with some background research by a trip to the West End to see this great new musical, with a fantastic set, music by David Arnold and Gemma Arterton in the leading role… they may just get you to stand up…

Dominic Thomas

Financial EqualityDominic2023-12-01T12:39:40+00:00

Fair pay… it all adds up

Fair Pay… it all adds up

If you follow my blog, you will know that I enjoy the arts. A theme that seems to have been gently simmering in the West End has been that of fair pay and protest. There’s nothing new about these issues, perhaps just a regular and frequent part of the human experience, however I wonder whether this also reflects a sense of unrest and unfairness about the current economic world in which we all live.

In the summer I saw The Pajama Game, which is an old 1950’s musical, one with which I have a personal connection as I was in a production of it at school, so there was a sense of reminiscence. The musical (by Richard Adler and Jerry Ross) isn’t that well known but has a few decent tunes. It was largely brought more exposure due to Doris Day in the 1957 film version. The setting is a clothing factory called “Sleep Tite”. There is a dispute between “workforce” and “management” involving pay, throw in a little romance requiring a crossing of lines and you have a recipe with some dramatic tension. 1395144469-image

The political aspect of the story revolves around increasing pay, which the workers demand and the management attempts to deflect. The hourly wage rise demanded is an extra 7 1/2 cents (dating the story) and revealing its original source, the 1953 book “Seven and a half cents” by George Abbot and Richard Bissell. This provides the lyrics for one of the main “numbers” which is one of those very rare songs that includes mathematical calculations.

“With a pencil and a pad I figured it out!
Seven and a half cents doesn’t buy a hell of a lot,
Seven and a half cents doesn’t mean a thing!
But give it to me every hour,
Forty hours every week,
And that’s enough for me to be living like a king!”

The song illustrates how a small difference can multiply significantly over time, however as this is financial planning week, I ought to point out a flaw in the logic of the song, that of forgetting about inflation. The maths is “simple” in that is merely adds (or multiplies) it doesn’t calculate who this compounds over time but instead reveals what seven and a half cents extra, every hour, 40 hours every week provides – over 5 years $852.74 over 10 years $1705.48 and 20 years $3,411.96.That said, having checked the maths there are slight errors in these sums.

Presentation is everything and within the financial services world and I don’t want to make this a long post, but suffice to say that if inflation was 3% a year the sums would be rather different over 5 years $905.46, 10 years $1,955.14 and 20 years $4,582.68.The longer that income is decoupled from inflation, the less well off you are. The other point being that future money can sound like a lot more than it is in practice, or in reality – real (inflation adjusted) terms.

Today of course we have a public sector funding freeze, where despite inflation, salaries have remained at the same level. If this were to persist for many years, there would be a real sense of loss. As inflation is currently only 1.3% that means that over the last 12 months £1,000 is now worth £987, to stay at the same level of pay, income would need to rise by 1.3% to £1,013. Hence why many are getting somewhat agitated and expressing the view that their salaries are falling in real terms (they are).

The Pajama Game has now concluded its run in London. The unrest about pay increases has not…

Dominic Thomas

Fair pay… it all adds upDominic2023-12-01T12:39:39+00:00

Financial Planning Week

Its that time of year when members of the IFP (Institute of Financial Planning) open their doors or put on events, pitch up to radio stations to discuss matters of financial planning for the week. This is really an opportunity to ask questions and gain better understanding of the financial planning process.

I was somewhat pleased to see a faily favourable item in a national newspaper that was expressing the view that financial planning is worth paying for, even though it may seem expensive. One of the great problems within the system is one of cost and it may not surprise you to learn that most financial planners work with a very select group of clients, who make up a tiny fraction of the overall population. There are around 20,000 financial advisers, of which only 2,000 are members of the IFP (as I myself am).

The IFP would certainly welcome and encourage as many as possible of the remaining 18,000 to become financial planners. That’s not to say that the other 18,000 aren’t doing a good job, but its probable that they aren’t doing financial planning, but rather providing good (hopefully) financial advice – which tends to be rather more reduced to a particular issue of focus – such as “arranging a pension” or “making an investment”. All good things, but not necessarily financial planning, which involves planning all of your finances around all of your life, now and into the future, ensuring that your money doesn run out before you.

One of the hot topics at the moment is that of pensions. The once dull-as-dishwater pension plan has now been given a new lease of life thanks to the Chancellor. It would be a masterful understatement to say that anyone with an investment based pension now has more options to think about. However, for some people reviewing the decisions made is also going to be pretty vital to ensure the very best arrangements. Here is a very short video from the IFP for those not yet retired – there is some sound.

Dominic Thomas

Financial Planning WeekDominic2023-12-01T12:39:39+00:00

Walking With Dinosaurs

Walking with Dinosaurs

You may remember the programme “Walking With Dinosaurs” which was first broadcast on the BBC in 1999. It was a ground-breaking award winning series due to the technical special effects that some clever people at Framestore achieved. One of my clients worked on the series and has since had a succesful career in Hollywood doing similar things with monsters in movies. Anyway, interest in dinosaurs seems to have been re-kindled ever since, despite the efforts of the character Ross the palaeontologist from “Friends” who attempted to bore everyone to death.

It was only a few days ago that I was blogging about a video suggesting that IFAs will become extinct in 2014 much like the dinosaur. So it was some degree of irony that on Thursday night I was at an award ceremony run by the Financial Times Financial Adviser magazine held, you guessed it, in the Hintze Hall of the Natural History museum in Kensington. If you’ve been there, you will know features a huge Diplodocus. I’d been invited along (noted in our inducement register) by a company that we have used successfully with a number of our clients, very much a new world technology focused company, a company of tomorrow – or at least as far as we can see ahead. I hadn’t been to this annual event before and to be honest, probably wouldn’t hurry to return again.

This was a night for service awards, which frankly I thought might have extended beyond “Product Providers” the majority of whom were life and pension companies or mortgage lenders, but it didn’t.

The awards are voted for by advisers, the results were very surprising and seemed to contradict my own experience of dealing with some of the organisations over the years. I have to admit that we don’t arrange mortgages, so I have no idea today who is a good lender when it comes to service, though I have my suspicions.

Whilst I wouldn’t wish to pour cold water on the achievements of those that won, (seriously – congratulations!) it did make me pause to wonder, why advisers voted in a such a way, suggesting that many are still rather trapped in the old world and the old ways of doing things, in fact being advisers that arrange stuff rather than holistically plan, perhaps I’m wrong on this (it wouldn’t be the first time) but the results and event itself were rather… enlightening. I left wondering how many might find themselves in trophy cabinets rather than those that they clutched…. there weren’t any awards for advisers, so its not that I’m a sore loser… its just that I genuinely think the days of the giants within the life and pension industry are seriously numbered. The news on Friday that one giant (Aviva) is seeking to swallow another (Friends Life) for an initial £5.6 billion merely adds weight to my assertion that cannibalism within the financial services industry is still the main diet. Still, it was a fun evening and the people I was with, who were good company, certainly echoed similar feelings to mine.

Dominic Thomas

Walking With DinosaursDominic2023-12-01T12:39:38+00:00

Watch out there’s an EMMIT about

Dominic Thomas
Nov 2014 • 4 min read

Watch out there’s an EMMIT about

No idea what I’m talking about? Well, that’s probably a good thing. There have been a number of people that have been encouraged to move their work pension schemes into a SIPP (Self-Invested Personal Pension)… nothing necessarily wrong with that, unless they are still with the same employer and missing out on payments into it …entirely different story… anyhow these people have been encouraged to buy shares in Emmit PLC, a company admitted onto the AIM (Alternative Investment Market) run by the stock exchange (the market). It seems that some people have been offered “cash back” on their investment into Emmit plc, which is paid by a third party.

Needless to say (I hope) this is invariably the mark of a scam and one that the regulator (the FCA) is now aware of and warning investors about. Whilst not providing an outright “its a scam” statement, they naturally have serious concerns as invariably the sort of people that make these investments lack the experience to know that they are incredibly high risk and of course may be breaking pension rules, unwittingly incurring all sorts of penalties from HMRC. Sadly, experience of these things is that those caught up place all their pension fund or a very high proportion of it into a single share. AIM shares are generally considered much higher risk than those listed on the FTSE AllShare. By way of an example, I was writing to someone earlier this week who had shares in blue chip companies that you would know (ie. much lower risk and much safer). By the time I had outlined the value a paragraph earlier, the value had altered by £50… which ok is not a huge sum, but this was in the space of the time it took you to read this post, this far. At the time of writing the EMMIT PLC penny shares were worth 97.5p before being suspended… have a look.

You can read the FCA statement about the matter this link. Please note there is nothing to suggest that EMMIT PLC are doing any wrong or in any way involved, this is about the advice to move a pension and then buy AIM listed shares, which in this instance happens to be EMMIT PLC.

So if you come across anyone that has had a call from an adviser trying to arrange this ….who are you going to call? This is sadly not a rare problem. The jargon of the financial services industry does little to prevent some people being fooled into thinking that this is a “normal” investment. I spend a considerable amount of my time helping clients to avoid making such mistakes.

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Watch out there’s an EMMIT aboutDominic2024-03-13T11:09:07+00:00

The Outlook for America

I thought that you may find it helpful to have some more “typically financial” market information within the blog. Steve Williams, who sits on our Investment Committee is something of a whiz with the metrics of markets. Here Steve outlines his thoughts about the US.

Above average

The preliminary estimate from the Bureau of Economic Analysis for growth in Q3 came in at 3.5% on an annualised basis or 2.3% compared with the same time last year. Beginning in Q2 2009 the US economy has seen 22 consecutive quarters of expansion. And that alone is cause for concern for some commentators. According to Bloomberg, ‘the average length of the growth phase of an economic cycle… has been 22 quarters in the post-World War II era’. Of course there are exemplars – the 1961-69 expansion lasted for 35 quarters and the 1983-90 expansion endured for 40 quarters.

The International Monetary Fund expects the US economy to grow by 2.2% in 2014, considerably faster than the 1.8% average for advanced nations. If they’re right – and I am guessing that they are not far off – Q4 will see the current run of growth extend into its 23rd consecutive quarter. Notwithstanding that, a slowing in the present pace of increase is likely to be sustained. Real wages remain depressed, just as they are in the UK, and that is suppressing consumption, limiting business investment and house building activity. Impetus is slowing abroad too.

Indeed, the October employment report counted 214,000 new jobs compared with consensus expectations of around 230,000. The Financial Times reported expectations as high as 275,000 from Capital Economics. The 12-month period prior to October, saw the US economy add an average of 220,000 new jobs each month – the best 12-month stretch since the heady days of 2006. Nevertheless, anything over 200,000 is indicative of a sustained expansion.

I’m not uncomfortable, at this stage, with forecasts for growth to be maintained in 2015, albeit at a less than inspired medium pace (perhaps between 2% and 3%). Consumer spending will be buoyed by lower energy costs and employment gains. In addition, there is reasonable cause to expect an increase in business spending too. Thus far, serious Business Fixed Investment has been lacking – not surprising given the degree of slack that has persisted in the US economy and a backdrop of low inflation. But there is evidence to suggest that the degree of slack is much diminished and, if that continues, businesses will be increasingly incentivised to invest. November’s New York Empire manufacturing survey revealed a 31-month high for ‘planned expenditures’.
If we do see an upturn in levels of business investment, the US economy is likely to see sustained expansion moving well ahead of the 22-quarter average.

But whilst I’m reasonably bullish on the US economy I am reluctant to express too high a level of conviction. That’s because one of the more reliable early warning signs of impending recession – the shape of the US yield curve – can barely be considered useful at this time, so affected is it by recent unprecedented monetary policy actions. The reality, I think, is that asset prices are more vulnerable to shocks today than they have been for some time. Indeed, with the Fed’s policy of QE in full effect there was always a sense that ‘good news was good news’ and ‘bad news was good news’ too. After all, flows of bad economic data were met with increased flows of monetary stimulus. From here on, ‘bad news’ may well be taken as ‘bad news’ again.

Steve Williams

The Outlook for AmericaDominic2023-12-01T12:39:37+00:00

Talking Money – Pension Freedom

Clients should now have recieved a hard copy of Talking Money. This issue provides a little more “flesh on the bone” about the new pension freedom that the Chancellor outlined in his Budget. There are many very positive aspects of the changes announced and some are already in action. However some caution is needed and I imagine that there are likely to be some adjustments to the final terms, which are likely to be announced in the Autumn statement next month.

One of the main issues is that despite this making “grown up pensions” and providing people with choice, this does also come with a plethora of options that need thoughtful and careful reflection. Whilst the Chancellor told us that everyone would have free advice at the point of retirement, this has already been reduced to”free guidance” and in practice that means going along to the Citizens Advice Bureau to speak to someone who will almost certainly provide a guide and then refer you to an independent financial adviser.

As you may know, I spend a fair bit of the year attending conferences and training sessions. This is part of my own continual professional development (CPD) but there’s no lip-servcie to this – its pretty vital. The rules for pensions have altered, scrap that, been revolutionised in a “landmark” year for pensions. However despite the appearance of simplicity, there is even more need for good advice and for those that end up opting for a flexible pension rather than an annuity would be wise to review this decision regularly (one of the advantages of making it) and give proper consideration to guaranteed alternatives.

There are about 7.7million employed workers between the ages of 50-64 in the UK according to ONS reports. Even if there were an even demographic spread, that suggests a tidal wave of over 500,000 people reaching 65 each year. There are not enough hours in the day or qualified advisers to currently facilitate this easily. So make sure that your friends and colleagues are aware of all the options, but above all working with someone that puts pensions in their right context – your income to suit your lifestyle.

Dominic Thomas

Talking Money – Pension FreedomDominic2023-12-01T12:39:36+00:00

The European Tax Question

OK, some controversy. Nobody likes to have more of their income taken away by Government. The recent extra tax charge that the EU are demanding from Britain has caused something of a stir. Most of us probably got “fed up with this insolence”….some probably still are. David Cameron is talking tough and threatening not to pay and of course this plays into the debate about the EU and our notions about it being a bureaucratic monster. Nobody wants to pay more tax, and certainly not more than their fair share, particularly if it appears that the recipient doesn’t use it wisely.

So, without wishing to alienate anyone, I wonder if this situation is really so very different from being self-employed. Those that are self-employed pay income tax twice a year with deadlines on 31 January and 31 July. The problem with the system is that there is a high degree of uncertainty surrounding the level of income for the self-employed – unlike an employee who may receive a fixed salary each month. The self-employed have no such guarantee, with income dependent upon how “successful” their year has been – financially. They have to submit accounts, paying the tax in two instalments with a catch up payment each January. This is because the tax payment in July is half of the previous year’s total tax bill and therefore an estimate of future earnings. As the income is likely to change, more (or less) tax may be required. So someone that has had a better year than expected will have to pay more tax.

So I wonder, how different this really is from the UK paying its owed tax to the EU? (leaving aside the argument of whether the EU serves its purpose from a UK perspective). Imagine if the self-employed decided that, despite having a good year, (which means making more profit) they simply refused to pay the extra tax demanded. I would imagine that HMRC would take a similar line to the EU… those are the rules, set down by your elected representatives, which you have the right to vote in or out of power on a regular basis, being a democracy. I know that this is politically sensitive, but it’s just a thought. Not liking paying is not sufficient reason not to pay. As for the argument that a demand is accompanied by a few weeks to pay is “not the done thing”… welcome to the world of financial advisers, who get 4 weeks to pay random levies from the regulator, created by others that malpractice… the sums aren’t as big, but to a small firm they certainly feel as big and rather unfair.

Dominic Thomas

The European Tax QuestionDominic2023-12-01T12:39:36+00:00

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