Hogg Roast

Given the press and media have been engulfed by the horrific events at Westminster, the implications of Brexit (yet again) and debating the virtues of Martin McGuinness since his passing, you will be forgiven for missing this nonsensical story from the Bank of England.

 

The Story……

 

Charlotte Hogg had held the position of the Bank of England’s chief operating officer since 2013 and was set to become the Bank of England Deputy Governor……second in command in essence. A big promotion and a big deal……making her the most senior female in the Bank's history

 

During her time with the Bank of England, she was responsible for and wrote the Code of Conduct for the Bank of England……which was the moral and legal compass to follow in employing senior positions held within the Bank of England.

 

However, at the eleventh hour (probably more 11:59), she resigned after failing to disclose her brother worked at Barclays and broke the Bank of England's Code of Conduct by failing to reveal the potential conflict of interest.

 

Which leads me to question a few things……

 

1. What due diligence is actually being carried out on employees by the Bank of England given they are supposed to be holding the Banking Sector to account?

 

2. Why is there no independent body responsible for the Governance of the Bank of England’s Code of Conduct? (who is regulating the regulator?)

 

3. How can a Harvard educated individual ‘forget’ to disclose on four separate occasions that they have a family member working in the banking industry……when she was the person responsible for including the question in the Code of Conduct in the first place (“Do you have a family member working in the banking industry”).

 

4. Is it possible to make the following question any simpler and easier to answer……“Do you have a family member working in the banking industry”? (I didn’t think so either).

 

This all leaves a nasty taste in the mouth. Standards not being followed and a ‘jobs for the boys / girls’ culture in an agency that is meant to be setting the highest standards. Everything you need to understand about the attitude of Government towards the banking sector and how intertwined / overlapped they are in one simple story.

 

The press in this country can be the devil’s work far too often……but if they hadn’t unearthed this then we would never have known.

 

Shameful stuff.  

Bonkers Budget

There has been a dramatic u-turn from the Chancellor just 7 days after the Budget announcements. The plans to increase National Insurance levels for self-employed people have been dropped, probably due to the fact that it would break a 2015 manifesto pledge that no National Insurances rises would take place if the Conservatives were elected.

 

The second most powerful position in the UK has a political antennae that has gone incredibly wonky. How could Foolish Phil not be aware of the manifesto pledge? It should be tattooed on his forearm……it’s the go to political guide. How could his huge team of advisers not have raised the issue?

 

Simply crazy on every level.

 

As a consequence of dropping the National Insurance rise, the Chancellor needs to find around £600 million in the Autumn Budget to replace the income this would have created in 2018. In fact, Flaky Phil now has to find around £2 billion extra by 2022 to fill the void.

 

Income tax, National Insurance contributions and VAT raise 65% of the Government's tax income. If you pledge not to raise any of them, your room for manoeuvre is severely limited. It will be intriguing to see how he will find the £2 billion……but then he’ll probably change his mind anyway.   

 

Having closely followed and written about Budgets for 20 years, I am wracking my brains whether I can ever remember such a rapid u-turn on the central element of any previous budget.

 

It is a big mess and Chancellor Philip Hammond is looking significantly weaker politically. Perhaps the bigger issue is that when a Government is so overwhelmed by the burdens of exiting the EU and keeping Scotland in the UK, big accidents will happen. They have happened.

 

Such an avoidable mess.

Necessary Evil

Car insurance is set to rise in cost across the board this year and we are powerless to prevent it. It is has nothing to do with an increase in claims or insurance providers being greedy. I can’t even blame ambulance chasing solicitors that promise the earth on a ‘no win no fee’ basis. Damn it……not even Trump can be blamed for this one.

 

The blame lies at the door of the Government……the Ministry of Justice to be precise.

 

Here’s the background bit……

 

A new formula for calculating compensation payments for those who suffer long-term injuries has been announced by the Ministry of Justice.

 

Accident victims are paid compensation in a single lump sum, which in serious cases is supposed to support them for the rest of their lives. But someone who receives that lump sum can actually increase that amount by investing it, and getting a cash return. So to be fair to insurance companies, the payout is reduced accordingly.

 

For the past 16 years the ‘discount rate’ has been set at a typical rate of 2.5% - making the payout that much smaller. Now the Ministry of Justice has decided to reduce the discount rate from 2.5% to minus 0.75%. That will result in more money for the victim, but a higher cost for the insurer......which is being passed on to drivers.

 

The basis the Ministry of Justice has decided to reduce the discount rate from 2.5% to minus 0.75% was because the formula assumes the victim were to invest his or her money in Government Bonds. By the time inflation is taken into account, real returns on such bonds have become negative.

 

Huw Evans, director-general of the Association of British Insurers (ABI) summed things up perfectly……"Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK. A crazy decision.”

 

A crazy decision in deed.

Pre Brexit Budget

At face value, today’s Budget was small change in comparison to some that have gone before. There were only 28 policy changes in comparison to 77 last year. Having said that, there will no doubt be journalists looking to spin headlines. Expect them to be dominated by National Insurance, Public Debt, Social Care and Tax.

 

 

National Insurance

At the General Election in 2015, the Conservatives promised no increases in National Insurance Contributions. Today, saw a u-turn on this and announced an increase in National Insurance Contributions for the self-employed from 2018. A clear breach of the Conservative election manifesto. Politicians not keeping their promise……who’d have thought it!

 

In fact, for those that are not employed in the UK, there was little to cheer as there was also a kick in the shins for shareholders of Limited Companies who will see the Dividend Allowance reduce from £5,000 to £2,000 from 2018.

 

On the one hand, it is not right that the tax paid on an average employed salary by an employer and employee is 3 times that of a self-employed person earning the same. However, on the other hand, there needs to be recognition of the risk to be self-employed the jobs that are created. I am not sure that the measures announced really address either side of the argument.

 

Regardless, the actions proposed will make things “fairer” apparently and bring greater tax revenues into the public coffers.

 

 

Public Debt

Another big headline grabber was the increase in public borrowing as it will be significantly lower at £51.7 billion than the predicted £68 billion. Don’t get me wrong, this is still huge borrowing figures of course but better than forecast. Before you get too excited though, the national debt will peak at a colossal £1.7 trillion in 2017 / 2018 before starting to reduce (hopefully). I appreciate that £1.7 trillion is a figure beyond most people’s comprehension, so let me put it another way……that’s £62,000 of debt per household in the UK. My particular favourite is the interest payment on the debt alone……£50 billion per annum. You could do a lot of good with that.

  

Box Office Phil said “we will not saddle future generations with debt” as he saddled future generations with record debt. Errrr……a little confused there Mr Chancellor.

 

Social Care

There are some very scary figures on the rising age of the UK’s population. We now have 500,000 more over 75’s than we did in 2010. This increase will rise to 2 million by 2020. That is staggering growth in pensioners and as a consequence the social care system is creaking at the seams.

 

The Chancellor announced £2 billion of additional funds for social care that typically is needed to support those aged over 75. The devil was in the detail though, as the funds are to be released over a 3 year period. It felt more like a positive headline grabber and sticking plaster than a long term solution. It’s a start I guess.

 

 

Tax 

In short, you should be better off than you were……assuming you aren’t self-employed or a shareholder of a limited company. 

 

There were no changes to income tax, VAT or other National Insurance categories. Personal tax-free allowance is to rise as planned to £11,500 this year and to £12,500 by 2020. There were no increases in alcohol or tobacco duties on top of those previously announced.

 

 

So there you have it……a bit of a dull Budget. Apparently, the Budget provides a "strong, stable platform for Brexit" according to the Chancellor but he didn’t explain how it does. In his defence, Chancellor’s never explain their statements. However, I’m not sure how it can provide a platform of stability when our negotiations haven’t started. Nice try though Phil.

 

In summary, if you are employed then it’s ‘as you were’. If you are not, you might swear a little more this week……but not much more. It could have been better. It could have been worse. The UK ship continues to sale reasonably safely……for now at least prior to heading into European waters. Brexit choices dwarf Budget 2017 choices.

 

It is always worth remembering that today's Budget is merely a step along a financial lifetime journey and it’s never good to measure the distance between your home and work with a 12 inch ruler!

 

But don’t let that stop journalist sensationalism!