The Autumn Statement – the Ghost of Christmas Past

Dominic Thomas
Nov 2023 • 2 min read

The Autumn Statement – the Ghost of Christmas Past

We are in the closing weeks of the year. Our thoughts turn to Christmas celebrations and perhaps looking ahead to the New Year. The familiarity of our traditions poses a challenge to attempts to change them, yet even the harshest of men, Mr Scrooge, managed to pay attention to what is important and change his behaviour.

I don’t think it is contentious to say that the Conservatives are a party of tax cutting and yet we currently have one of the highest rates of personal taxes in the main economies. Few of us enjoy paying taxes, perhaps because often it seems that our hard-earned money is wasted on expensive ideas and ‘kit’ that doesn’t work very well at all … anyone tried the NHS IT system or indeed any ‘converting to digital’ Governmental system, let alone the military’s ability to spend a fortune on malfunctioning weaponry to cite just a couple of examples. We all have opinions. (As an aside the Power of Attorney system is going digital in 2024, so I urge you to sort yours before they muck it up and make the backlog even longer).

The Conservatives came to power in May 2010, admittedly with the assistance of the LibDems, but then we have had an entire mess of Government ever since.

According to Jeremy Paxton in 2018, David Cameron was the worst Prime Minister since Eden:

“[He] got to the top of a tree in order to set it on fire and cleared off, put the interests of his party before the country and decided to have this referendum, believed one thing was the only right outcome for the country, didn’t campaign for it, got the opposite outcome and XXX off. It doesn’t seem like leadership to me”.

Given the PMs we have had since 2018, Cameron might actually look a lot better, the bar seems woefully low, anyway, for now Cameron is back, this time as Foreign Secretary.

The backdrop of a Covid enquiry which merely proves what most of us thought, that Mr Johnson is an unreliable character (I am being polite), we have the prospect of an election looming by the end of January 2025. The Labour party seems set on sabotage and the plethora of political open goals being squandered is lamentable. The traditional approach of appealing to the notion “everyone has their price” is in the hands of the Chancellor, who is being tempted to cut taxes now that inflation appears to be returning to a more comfortable figure (4.7% October 2023 ONS).

Which of us doesn’t want to pay less tax? In an environment of rising prices, seeing your net pay remain pitifully stagnant is irksome. Yet we also know that tax pays to keep society running in some vaguely civil way. We can all find things to disagree with, it’s almost a rite of passage into a fifth decade. It’s clear that ‘the system’ doesn’t work for all, and indeed seems to generally work best for the few. The sadness is that there seems to be so few alternatives to the binary choices we have here in the UK; stuck in traditions that don’t work for the good of the country. Creativity and visionary leadership remain sadly elusive.

There was a time when the economy was thought about as a way of serving society, yet here in 2023 we are evidently a society that is serving the economy. There is no good reason why this cannot change, and despite experience, I remain an optimist in a sufficient number of decent people.

For the record, I have no intention of offending your political beliefs, but I do think we all deserve rather better than we have had. On 22 November 2023 we shall get further notice …

BACK TO ALL BLOGS

The Autumn Statement – the Ghost of Christmas PastJemima Thomas2025-01-23T10:49:36+00:00

SURPRISED? BASE RATE NOW 0.75%

Solomons-financial-advisor-wimbledon-blogger

Surprised? Base Rate now 0.75%

The Bank of England have announced today that they have increased the base rate from 0.50% to 0.75%. This will be welcome to anyone peddingly news for the next 24 – 48 hours. It will not however mean that you get much more interest on any cash deposits that you hold. It also is not likely to have a huge impact on mortgages or loans (it will have no impact immediately if you are on a fixed rate loan of any type). The decision to raise the rate was unaminous and part of the attempt to keep inflation at 2%.

The next Monetary Policy Committee (MPC) meeting will be after the summer break, on 13 September 2018. If you wish to know more, simply click this link to the Bank’s website.

SURPRISED? BASE RATE NOW 0.75%Dominic2025-01-21T15:33:07+00:00

Don’t Panic! Captain Mainwaring… don’t panic!

Don’t Panic Captain Mainwaring

I find it increasingly difficult to resist the temptation to comment on the world stock markets. The media is constantly moving from positions of fear or greed, buy or sell. This serves their purpose of having something to say and of course becomes something that they then have to continue to say for fear of not providing “the news”. Of course panic is contagious and whenever I see it, I tend to think of Corporal Jones from Dad’s Army – don’t panic Captain Mainwaring.

So what is happening? The price of oil has fallen dramatically. The Chinese economy is not growing as quickly as it was. There is nervousness about the UK leaving the EU, the possibility of a thug winning the US presidential election, perhaps forcing a showdown with anyone with different opinion. Europe has little idea about what to do with thousands fleeing war in Syria or their own ravaged economies offering few prospects of employment. Our own austerity is causing our public services significant stress and of course there is the recurring fears about viruses, war, the environment and terrorism which all play into the narrative of “its bleak”.

Fear and Greed

Shares are part, ownership of businesses. The value of which is based in part on its actual physical assets (premises, stock etc.) and part on future revenue streams (forward orders, based on data from historic orders). There is also the matter of market share, industry sector and general perception of the company. The price of shares is therefore in part objective maths, part subjective opinion.

The problem with sudden shifts in price are invariably linked to a herd mentality – playing inevitably into two camps – fear or greed.

We know this when we invest. It is not new news, but it is certainly hard to live with, particularly when the noise is very loud and the doom-sayers are everywhere.

Any real changes?

If you have genuinely altered your long-term goals and do not wish to invest ever again, you probably should rethink your entire strategy, perhaps investing is not for you. I am being serious.

However if your long term goals remain roughly the same, then the key question is has anything really changed?

Diversification

Your portfolio is split across a variety of asset classes, shares, bonds, cash and commodities. There is a global spread. You have a diversified portfolio. We have established tried and tested evidence based analysis to check that you have the right “mix” of holdings to suit your attitude to risk. To date, whilst the markets have been “disappointing” (understatement) since April 2015, the degree of “shock” is within your tolerance, but it is of course deeply unnerving, very unsatisfying and frustrating.

Time in the market not timing the market

However we are holding to the long-term principles of disciplined investing, which have been proven successful over time. This is simply part of the investment experience, albeit “painful”.

It is very tempting to think that getting out of the market now (or 12 months ago) would provide some solidity. However this is based on the notion of being able to time the market and determine opportune points to get in and out of the market (and which market). This is really therefore a double decision, when to sell and then when to buy again.

Historically, investors (professional and private) get this very wrong. Invariably they panic and sell towards or at the bottom of a market, and then decide to invest again once they are confident in the recovery (which has already happened by the time they get back “in”). This leads to further frustration and doing the exact opposite of what we all know investing is about – sell at the top, buy at the bottom. Selling holdings is the only actual way to make a loss real.

Reserve Levels

Any discussion about your financial plan has involved thinking about an appropriate amount of cash to hold on deposit – your emergency fund. You may have used some of this, you may not. It is there as a buffer, and is designed to mean that you don’t have to take money from investments when they are suffering. Perhaps some adjustments may be prudent, but this is your choice, money should serve you, not the other way around.

I am not pretending that the market turmoil is not scary. This is a normal, understandable reaction to headline news. I know of nobody that likes to lose money. Everyone wants high rewards for low risk. However, unless your circumstances have really changed, if you are at the end of your tether with the concept of “investing”, then stick to the course, taking the life-long perspective.

Pain is part of growth, falls are part of average annual returns, finance is not magic and doesn’t provide any real account of who or what you are.

We remain vigilant, we continue to work in your interests but yes, your funds have reduced in value, but we have no good reason to believe that this will be a permanent status. We do not have a crystal ball and cannot predict the future with certainty, nobody can (despite inferences by others). We are doing our best in an imperfect world. Thankfully, this is 2016 and we are not on rations or at war with the world and whilst not dismissing our troubles (which are very real) perhaps some old school laughter might help.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Don’t Panic! Captain Mainwaring… don’t panic!Dominic2023-12-01T12:19:27+00:00

What About Common Sense? Budget 2015

What About Common Sense?

There is another Budget tomorrow (Budget 2015). Sadly, the older I get the more cynical I become about whether these achieve anything. I shall be keeping clients posted in due course, but if the last Budget is to act as an indication, expect the unexpected… and as we have an election looming, expect a bribe.

I am concerned about pensions and the constant meddling by Governments of all persuasions. The point of pensions is to encourage people to save for their retirement, so that they are not dependent upon the State, something that would seem in stark contrast to “reforms” over the years. Pensions are meant to be simple, and frankly they could be. The fact that they are not is entirely due to politicians, not the pensions industry. Complicated doesn’t begin to touch the surface of rules that are designed by short-term thinking…. so I shall reserve judgement until tomorrow, once I can actually digest the information rather than rely on newspaper stories.

Dominic Thomas

What About Common Sense? Budget 2015Dominic2025-01-21T15:51:07+00:00

What about China?

For some time now, I’ve been complaining about the oversized contribution from investment in China’s recent expansion

[1]. Actually, I’m not the only one. Policymakers are busily crafting the conditions that might bring about a rebalanced economy – one less reliant on exports & investment and more reliant on domestic demand & consumer spending.

The IMF might be right

‘Investment growth in China declined in the third quarter of 2014, and leading indicators point to a further slowdown. The authorities are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation. Slower growth in China will also have important regional effects, which partly explains the downward revisions to growth in much of emerging Asia.’ WEO January 2015.

Building more and more factories to house more and more machinery manned by more and more workers will get you a long way; China’s economy is not far off 40 times larger than it was in 1978 when Deng Xiaoping succeeded Mao Zedong. But while ultra-high levels of investment are associated with rapid expansion they’re not generally associated with sustained growth. The returns that are associated with an over-reliance on debt-fuelled investment diminish with time (thanks in part to an inevitable inefficient use of capital) while the risks are amplified (owing to overleverage and rising volumes of non-performing loans).

China, I suggest, has a debt problem – today’s Financial Times reports that ‘Chinese corporations are now among the most indebted in the world’ – but with everything else that is going on in the world[2] investors are not yet fully alive to the possibility of a much slower pace of growth. Indeed the huge premium that the market for Chinese A shares (dominated by domestic investors, it has risen in value by over 60% in the last 6 months) has over the market for B shares (dominated by international investors, it has risen in value by a much less thrilling 19% over the same period) suggests that Chinese investors are most hopeful of sustained high growth rates.

So far as I can see, two paths are apparent; China’s rate of growth can slow in orderly form or disorderly form, but it will slow nevertheless.

Steve Williams

[1] Post 2008 in particular, where gross fixed capital formation has accounted for around half of the Chinese economy[2] It’s all so exciting; an extraordinary oil price decline, huge gulfs in monetary policy between those in the US and Europe, Syriza’s rise to power in Greece, another full-blown Russian crisis and Japanese policymakers throwing everything, including the kitchen sink, in a spectacular attempt to kick-start their economy

What about China?Dominic2023-12-01T12:39:57+00:00

Retail Therapy

Most of us have probably at some point dabbled in a bit of retail therapy, bought something nice to make us feel a bit better. Invariably the feeling is all too fleeting, which most of us observe and move on, however some, much like addicts, seek out another high or buzz, returning to the shops. Unfortunately most western economies are based upon this reality to a greater or lessor extent.

However, whatever your economy is based on, the cold reality of life will eventually be something that cannot be avoided. You may have seen the rather sad tale of Louise Gray, a widow of the 7/7 London bombings. Mrs Gray received a substantial sum from the Criminal Injuries Compensation Authority and awards were also made to her son and daughter, which were placed into Trust (presumably a Bare Trust) as the son gained access to the funds at 18. However, he simply took funds out and entrusted them to his mother, who it seems had spent her funds and then spent his. Sadly this resulted in her son Adam taking his mother to court to return the money to him, which she couldn’t so was recently sentenced to imprisonment for 2 years and 8 months.

Of course, I know nothing of the detail of this case, but I imagine that Mrs Gray has found it very hard to adjust to life following the loss of her husband and rather than seeking professional help and support sought comfort in things. Of course, she may have sought and even found some counselling, but even if she did, her behaviour suggests that she was avoiding confronting some very harsh realities, which I imagine would be a difficult process for most people.

It would be easy to dismiss her actions as foolish, yet it is plain that it is far easier to avoid reality than face it. The Greek election vote is something of a vote for denial of reality, but then, aren’t our own politicians in a rush to make promises that in reality delay the unyielding inevitability of collective need to get our finances in order? Whether its tax cuts, tax breaks, spending increases, decreases… it all boils down to some basic sums… you cannot continue to spend what you don’t have, without a day of reckoning. Talk of finally paying off the FIRST World War debt (some £1.9billion is still owed) is somewhat flawed… the debt hasn’t been repaid, its been repackaged… much like switching a credit card balance to a cheaper one isn’t clearing debt. Perhaps you thought that the country would have paid for WW1 by now, some 100 years later…war is expensive in every possible sense! How much better off our Nation would be if we had found the courage to repay debt rather than simply maintain it. The truth can be pretty painful can’t it…..

Dominic Thomas

Retail TherapyDominic2025-01-21T15:44:02+00:00

Inflation rate now 1%

Today, the ONS revealed that the inflation rate has fallen to 1.00%. On the one hand this appears to be good news – prices are not rising rapidly so we dont have to spend quite as much paying for goods and services. On the other hand there are some negative issues with this too. Firstly, whatever any Government says, inflation effectively devalues and reduces debt in real terms, so a degree of inflation for any economy carrying huge national debts (like ours) is actually rather a helpful tool. Secondly low inflation means that Government doesn’t have to worry too much about price rises and attempting to offset this with tempting offers not to spend (i.e. increasing interest rates which encourages saving rather than spending). So low inflation would suggest further long-term low rates of interest, which will displease anyone with cash in the bank using it to provide income.

The main causes of the reduction in CPI (Consumer Price Index) are described by ONS as falls in transport costs (fuel, air transport and second hand cars). A little delving into the data reveals that food and non-alcoholic beverages decreased by 1.7%, clothing by -0.2%, transport by -0.2% and thet delightful category “miscellaneous” decreased by -0.8%, all essentially deflation. However costs rose 4.0% for alcoholic beverages, 3.3% for electricity, water and gas, 2.0% for health, 2.4% for restaurants and hotels. Education costs rose 10%… which I assume consists in part of University costs. So your personal rate of inflation will rather depend on what you spend your money on. If you wish to delve more deeply into statistics, here is the official excel spreadsheet link.

Personally, I would be less inclinded to reply on national statisitics for your personal financial planning. It is not that I don’t trust the figures, it is simply that they include many things that you may not buy regularly. The weighting of the “basket” of goods and services is defined by others and when planning your own finances, it is much more sensible to consider how relevant it is that education costs, new or second hand cars are as part of your normal budget…. perhaps not much, so peak at the tables may provide clues to your own personal CPI.

Dominic Thomas

Inflation rate now 1%Dominic2023-12-01T12:39:45+00:00

Autumn Statement – 3rd December 2014

So the Chancellor has delivered his Autumn statement, most of which was leaked in the media or announced in his radical budget (well radical for financial planners). The main points of the budget that we didnt know already is the provision to pass ISA allowances between spouses on death. This will certainly please married couples with large ISA funds. Prior to this, upon death an ISA becomes part of the estate, unless it has been held in specific AIM listed holdings for at least 2 years thereby benefitting from an IHT exemption, but invariably increasing the degree of investment risk (p56 of statement). The ISA limit will increase for 2015/16 to £15,240 from £15,000 as it is today.

Stamp Duty

A signficant change to Stamp Duty on property was announced, which mirrors the system used for income tax rates, that is, the more you earn, the more you pay, but only over certain thresholds – higher rates are only applied once thresholds are reached and nor applied to the full amount. Stamp Duty has now adopted this approach, some will be better off at the lower end of the property price range, some will be considerably worse off. The aim probably being twofold, to increase and encourage first time buyers and be more of a help to people trying to get onto the property ladder, whilst also attempting to dampen price increases at the top end. You can see a helpful chart on the impact of these changes on pages 53-54 of the Statement.

On a similar theme, the higher rate (40%) threshold has been increased marginally more than previously announced (by £100). We will have to wait until 12 December to find out what the interest rates will be on the new NS&I Fixed Rate Pensioner Bond (only for those age 65+). No doubt the free newspaper you pick up this evening or the TV and radio coverage will have pundits discussing the changes. You might want to look at the figures towards the back of the report, (page 100) which essentially show the UK’s income and expenditure. All the talk of austerity (which is certainly more real for some than others) has still resulted in national overspending and this looks likely to continue until 2016/17 with lots of “if’s, but’s and maybe’s”. If you do have any questions about your own situtation and how it might be effected by today’s Autumn Statement, do get in touch.

Dominic Thomas

Autumn Statement – 3rd December 2014Dominic2023-12-01T12:39:42+00:00

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

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

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