Sex Toys, iPhones & Jeans

(No, it’s not a new Bob Dylan song!)

 

If we can take one thing from Trump’s inauguration speech it’s that America will buy American and there will be strict financial penalties and taxes for those who don’t. Or to put that another way……he announced a trade war with China.

 

Trump is somebody that has been far from consistent with any of his political messages, with one exception……China. As he has declared, China is “raping our country” and "stealing American jobs". He has promised to slap 45% tax on Chinese imports if Beijing doesn't start playing fair……a move that has led to concerns over a US - China trade war. Watching the two largest economies in the world squaring up to each other is not for the faint hearted……and there will be casualties along the way.

 

Whilst some will admire his stance on putting the US first, it seems at face value a flawed stance. Firstly, American consumers would end up paying more for Chinese made goods (sex toys, iphones, jeans, laptops, refrigerators, etc.) and will have less money to buy American made goods. Secondly, many US firms have manufacturing bases in China and would be hit by any kind of import tariffs as well.

 

So Mr Trump, it’s not as simple as ripping your shirt open, thumping your chest, shouting “American or else”……you could end up stabbing yourself in the back.

 

China's President Xi Jinping summarised the Trump chest thumping perfectly……”Nobody wins in a trade war".

 

And if history is anything to go by, then he is right.

 

Interesting times.

Buoyant Brexit?

 

6 months have passed since the UK voted to leave the EU. Whilst it is not as simple as choosing what we want (there is the small matter of the remaining EU members that want what’s right for them……damn them for not making it easier), things became a lot clearer yesterday in Theresa May’s 12 point battle cry plan:

 

(1) Certainty & Clarity

“The first objective is crucial. We will provide certainty wherever we can.”

 

(2) Control Our Own Laws

“We will take back control of our laws and bring an end to the jurisdiction of the European Court of Justice in Britain”.

 

(3) Strengthen The Union

“A stronger Britain demands that we strengthen the precious union between the four nations of the United Kingdom”.

 

(4) Maintain The Common Travel Area With Ireland

'We cannot forget that, as we leave, the United Kingdom will share a land border with the EU. Maintaining that Common Travel Area with the Republic of Ireland will be an important priority for the UK”.

 

(5) Control of Immigration

“We need to build a fairer Britain. That means ensuring it is fair to everyone who lives and works in this country. And that is why we will ensure we can control immigration to Britain from Europe”.

 

(6) Rights For EU Nationals In Britain / British Nationals In The EU

“Fairness demands that we deal with another issue - we want to guarantee the rights of EU citizens who are already living in Britain and the rights of British nationals in other member states”.

 

(7) Protect Worker Rights

“As we translate the body of European law into our domestic regulations, we will ensure that worker rights are fully protected and maintained.”

 

(8) Free Trade With European Markets

“As a priority, we will pursue a bold and ambitious Free Trade Agreement with the European Union. This agreement should allow for the freest possible trade in goods and services between Britain and the EU’s member states.”

 

(9) New Trade Agreements With Other Countries

“But it is not just trade with the EU we should be interested in. A Global Britain must be free to strike trade agreements with countries from outside the European Union too. It is clear that the UK needs to increase significantly its trade with the fastest growing export markets in the world.”

 

(10) The Best Place For Science & Innovation

“A global Britain must also be a country that looks to the future. That means being one of the best places in the world for science and innovation.”

 

(11) Cooperation In The Fight Against Crime & Terrorism

“A Global Britain will continue to cooperate with its European partners in important areas such as crime, terrorism and foreign affairs.”

 

(12) A Smooth, Orderly Brexit

“These are our objectives for the negotiation ahead – objectives that will help to realise our ambition of shaping that stronger, fairer, global Britain that we want to see.”

 

The 12 point plan is certainly ambitious. Very ambitious. But then again, if it wasn’t we would have been disappointed and misrepresented.

 

Like it or not, Theresa May is the chosen one to pull the trigger shortly on the required 2 years notice to leave the EU and she will negotiate on our behalf. There will be winners. There will be losers. Let’s hope she sticks to her pledge when negotiating that “it is better to have no deal than a bad deal”.

 

That is ultimately what she will be judged on.

The Big 2017 Survey

 

 

 

Economists are a funny breed…….on the one hand they keep the cardigan section of M&S in business……yet on the other hand so many cling on to every word they have to say.

 

So it is no surprise that the Financial Times annual 2017 survey of the 122 leading UK economists is always a ‘must read’ (I have no idea why 122 by the way before you ask!!!!).

 

The major headlines to come out of it are:

 

- UK economic growth will slow markedly in 2017 (which to be fair the Chancellor confirmed in his Autumn Statement).

 

- Household incomes will be squeezed tightly by higher inflation eroding wages in real terms.

 

- Businesses will hold back on investment decisions because of uncertainty about Brexit.

 

- There are more downside risks than upward risks.

 

Perhaps the most concerning headline is that most economists predict the rise in inflation will put pressure on household income and this will hold back consumer spending……which has been the engine of economic growth in the UK in recent years.

 

Economists do get predictions wrong……but they are paid to get it right and they are on the money more often than not. We shall see.

 

It will be interesting to see how 2017 plays out.    

2017 – The Big Issues

 

 

Before I started to write this, I listed some of the things that could derail investment markets in 2017. The list was a long one. Interestingly, the various risks are interconnected and broadly fall under political, economic or financial concerns. Economic events will drive politics in 2017 and vice versa.

 

Political Risks

A Brexit vote, Trump election and the Italians rejecting the constitutional reforms proposed by the Prime Minister are unprecedented events that have left commentators struggling to interpret the ‘events’ of 2016. Voters, it seems, have decided old school politics for the elite need replacing and have voiced this belief to devastating effect at the ballot box.

 

No one can say whether the anti-establishment backlash has peaked or has further to run. The General Elections to be held in Germany and France in 2017 will provide further evidence.

 

One thing is for sure, the reality of both Brexit and Trump will unravel in Quarter 1 of 2017 and the direction of travel will become clearer.

 

Financial Risks

Stock markets tend to make the news but the bond markets are arguably of more interest currently. Bond prices and yields set the benchmark for global borrowing costs and asset prices more generally. So the timing of any interest rate rises in America is important for investors around the world. They will make cash more attractive relative to bonds and shares, putting pressure on prices.

 

The UK faces a special challenge though – looming inflation in response to Brexit. This will not be good for bonds as their yield is likely to be well below the rate of inflation (thus offering a negative return).

 

The key driver of stock markets, along with returns on competing assets such as bonds, is corporate profitability. Company earnings have been becalmed in the UK and US, while share prices are at, or near, record highs. So at some stage, investors may take fright.

 

 

If 2016 saw unprecedented political events, the theme of 2017 is how these will unravel.

 

2017 will be a very interesting journey full of twists and turns that’s for sure.

Stressful Banking

 

In the aftermath of the banking collapse of 2008 (you remember that right?), new rules were imposed by the Bank of England on UK banks to ensure that they had sufficient in reserve to withstand any major financial shock again (rather than taxpayer bailouts).

 

An annual stress test then gauges the financial reserves, strength and resilience of the UK's seven major lenders - Lloyds Banking Group, HSBC, Barclays, Royal Bank of Scotland (RBS), Santander, Standard Chartered and Nationwide Building Society. The stress test involves testing against a doomsday scenario which would see economic growth plunge to levels seen during the financial crisis of 2008.

 

UK house prices fall by 31%

UK GDP falls by 4.3%

UK unemployment rises to 9.5%

Global GDP falls to 2%

China enters recession with -0.5% growth

US and Eurozone GDP falls by 3%

Oil drops to $20 a barrel

 

The 2016 annual stress test results have just been published and it is not pretty reading……RBS, Barclays and Standard Chartered all performed poorly and failed to meet the stress test minimum standards.    

 

On the one hand……all three financial institutions have now put plans in place to bring them up to a level to meet the stress test minimum requirements.

 

On the other hand……eight years on from the financial crisis and taxpayer-owned RBS is still short of the money it needs to survive another one. So is Barclays. So is Standard Chartered. RBS came bottom of the class by some way.

 

A financial crisis does not give notice when it is going to pay a visit and there is no time to get your house in order. Now add to that the rapid increase in debt in China and the world looks like a dangerous place - not for the first time.

 

RBS has been found vulnerable……and we own 73% of vulnerable RBS.

 

A little worrying.

Autumn Statement 2016

 

 

Introduction

 

The Autumn Statement 2016 was made by the Chancellor of the Exchequer, Philip Hammond on Wednesday 23 November. The Autumn Statement in full is published on HM Treasury’s website but a summary of the key points are as follows:

 

 

 

Economy

 

The Office for Budget Responsibility (OBR) has forecast growth to slow and inflation to rise over the next two years.

 

OBR forecasts growth at 2.1% this year (higher than the previous forecast of 2%) but for it to slow down to 1.4% next year (down from the previous forecast of 2.2%) and then recover to 1.7% in 2018, 2.1% in 2019 and 2020 and 2% in 2021. The OBR have also highlighted that there is a higher than usual degree of uncertainty in these Forecasts (due to the increased uncertainty surrounding Brexit).

 

Mr Hammond announced that the Government will no longer seek to deliver a budget surplus in 2019/2020 given growth slowdown and that it will introduce three new fiscal rules:

 

-               Returning public finances to balance as soon as possible in the next Parliament

-               Debt as a proportion of GDP must be falling by the end of this Parliament

-               A cap on welfare spending monitored by the OBR

 

 

 

Income Tax

 

Income Tax Rates & Thresholds

The main rates of income tax for the 2017/2018 tax year will remain at 20% for basic rate taxpayers, 40% for higher rate taxpayers and 45% for additional rate tax payers.

 

As originally announced in the March 2016 Budget, from 6 April 2017 the personal allowance will increase to £11,500 and the basic rate limit will increase to £33,500. The threshold above which additional rate tax becomes payable will remain unchanged at £150,000.

 

For individuals with a full personal allowance this means that the 40% higher rate will apply to income above £45,000.

 

The Chancellor also reaffirmed the Government pledge to increase the personal allowance to £12,500 and the threshold above which people pay higher rate tax to £50,000 by the end of this parliament.

 

Personal Savings Allowance

This will remain unchanged at £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. There will continue to be no personal savings allowance for additional rate taxpayers.

 

Dividend Allowance

This will also remain unchanged at £5,000 in 2017/2018 with any dividends in excess of this allowance continuing to be taxed at the following rates depending on which tax band they fall in:

 

Basic rate - 7.5%

Higher rate - 32.5%

Additional rate - 38.1%

 

National Insurance

 

As recommended by the Office of Tax Simplification (OTS), the National Insurance secondary (employer) threshold and the National Insurance primary (employee) threshold will be aligned from April 2017. This will mean that both employees and employers will start paying National Insurance on weekly earnings above £157.

 

As originally announced in the March 2016 Budget, Class 2 NICs for the self-employed will also be abolished from April 2018. Following the abolition of Class 2 NICs, the Autumn Statement confirms that the self-employed contributory benefit entitlement will instead be accessed through the payment of Class 3 and Class 4 NICs.

 

 

 

Capital Gains Tax

 

Employee Shareholder Status (ESS)

The tax advantages linked to shares awarded under ESS will be abolished for arrangements entered into on, or after, 1 December 2016. The status itself will be closed to new arrangements at the next legislative opportunity. This is in response to evidence suggesting that the status is primarily being used for tax planning instead of supporting a more flexible workforce.

 

Offshore Funds

UK taxpayers invested in offshore reporting funds pay tax on their share of a fund’s reportable income, and Capital Gains Tax (CGT) on any gain on disposal of their shares or units. The Government will legislate to ensure that performance fees incurred by such funds, and which are calculated by reference to any increase in the funds value, are not deductible against reportable income from April 2017 and instead reduce any tax payable on disposal gains. This equalises the tax treatment between onshore and offshore funds.

 

 

 

Inheritance Tax

 

From April 2017, Inheritance Tax will be charged on UK residential property when it is held indirectly by a non-domiciled individual through an offshore structure (such as a company or a trust). This closes a loophole that has been used by non-domiciled individuals to avoid paying inheritance tax on their UK residential property.

 

 

 

Corporation Tax

 

The chancellor has reaffirmed the Government’s intention to reduce the rate of corporation tax to 17% by April 2020.

 

 

 

Indirect Tax

 

Insurance Premium Tax (IPT)

To fund commitments made in the Autumn Statement, Insurance Premium Tax will rise from 10% to 12% in June 2017. IPT is a tax on insurers and any impact on premiums to consumers depends on insurers’ commercial decisions. However, as with previous increases (from 5% to 10%), it is likely that the increase in IPT will be passed on to consumers by way of higher premiums for insurance. 

 

 

 

 

 

 

 

Pensions

 

Money Purchase Annual Allowance

The Money Purchase Annual Allowance will be reduced from £10,000 to £4,000 from 6 April 2017. The Government will consult on the detail in due course. This impacts the over 55’s who are drawing benefits from their pensions.

 

Foreign Pensions

The tax treatment of foreign pensions will be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents (to the same extent as domestic ones).

 

Ban On Cold Callers

A consultation before Christmas will look at ways to tackle pension scams, including banning businesses from cold calling someone about their pension. This includes scammers targeting people who inadvertently ‘opt-in’ to receive third party communications.

 

State Pension

Despite some pressure to reform the ‘triple lock’ on the State Pension, the Government has pledged to keep it. This pledge will see the state Pension rise each April (until 2020) at a rate of inflation, average earnings or 2.5% (whichever the greater).

 

 

Salary Sacrifice

 

Following consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017 except for arrangements relating to pensions (including advice), childcare, Cycle to Work and ultra-low emission cars.

 

This will mean that employees swapping salary for benefits will pay the same tax as the vast majority of individuals who buy them out of their post-tax income. Arrangements in place before April 2017 will be protected until April 2018 and arrangements for cars, accommodation and school fees will be protected until April 2021.

 

 

 

Investments

 

Individual Savings Accounts

From 6 April 2017, the ISA subscription limit will increase from £15,240 to £20,000 and the Junior ISA and Child Trust Fund limits will increase from £4,080 to £4,128.

 

As announced in the March 2016 Budget, the new Lifetime ISA will be available in April 2017. It will provide those aged 18-40 with a new way to save for their retirement or to buy their first home. Every £4 saved into the Lifetime ISA will receive a £1 top-up from the Government.

 

NS&I

In order to support savers, National Savings & Investments (NS&I) will offer a new three-year Investment Bond with an indicative rate of 2.2% from spring 2017. The bond will offer the flexibility to put away between £100 and £3,000.

 

 

 

Property Investment

 

The Government have announced that letting agents will no longer be able to charge renters fees (for example when they sign a new tenancy agreement) which will stop tenants being hit with fees averaging £223 per tenancy. The Government will consult on this in due course.

 

 

 

Venture Capital Schemes

 

In the Finance Bill 2017 the Government will amend the requirements for the tax-advantaged venture capital schemes – the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs).

 

 

 

Non-Domiciles

 

As previously announced, from April 2017 non-domiciled individuals will be deemed UK-domiciled for tax purposes if they have been UK resident for 15 of the past 20 years or if they were born in the UK with a UK domicile of origin. Non-domiciled individuals, who have a non-UK resident trust set up before they become deemed-domiciled in the UK will not be taxed on income and gains arising outside the UK that are retained in the trust.

 

 

 

Tax Avoidance

 

A new penalty will be introduced for those helping someone else to use a tax avoidance scheme. Tax avoiders are to be hit with significant bills when HMRC defeats their avoidance scheme and this new penalty will ensure that those who help them will also face the consequences.

 

Tax avoiders will also not be able to claim as a defence against penalties that relying on non-independent tax advice is taking reasonable care.

 

 

 

National Living Wage

 

Following the recommendations of the independent Low Pay Commission, the Government will increase the National Living Wage (NLW) for those aged 25 or over by 4.2% from £7.20 to £7.50 from April 2017. It is estimated this will result in a pay increase for over a million workers.

 

For younger workers, the NLW will also be increased from 6 April 2017 as follows:

21 to 24 year olds: An increase from £6.95 to £7.05 per hour

18 to 20 year olds: An increase from £5.55 to £5.60 per hour

16 to 17 year olds: An increase from £4.00 to £4.05 per hour

 

 

 

Other

 

Fuel Duty

Fuel duty will remain frozen for the seventh consecutive year, with planned rises for 2017 removed.

 

New Childcare Schemes

Working families will be entitled to 30 hours of free childcare per week for all 3 and 4 year olds from September 2017.

 

Future Autumn Statements To Be Abolished

The Autumn Statement is to be abolished immediately and the 2017 Spring Budget will be the last. Instead, the UK will have annual budgets from Autumn 2017 and from 2018 there will be a Spring fiscal statement that responds to the latest OBR forecasts.

 

 

 

 

Disclaimer   Every care has been taken to ensure that this information is correct and in accordance with law and HM Revenue & Customs practice, which may change. However, independent confirmation should be obtained before acting or refraining from acting in reliance upon the information given. This information is based on announcements made in the March 2016 Budget and November 2016 Autumn Statement which may change before becoming law.