Money Matters

Budget Give and Takeaway

One of the last things that I expected to be writing about in this issue was a Budget! I thought that I had seen the back of Government tinkering until the Autumn. Silly me. If I had been thinking rationally, instead of having a head full of Summer thoughts, I should have known that the Chancellor – having found himself in the first Conservative majority government since 1997 – would grab an early opportunity of doing a little of the good cop, bad cop routine (albeit, as a single-hander). The Government, in this respect, like the Lord, ‘both giveth and taketh away’.

I shall not dwell on the subject but will outline a couple of points that may not have received a huge amount of press. Clearly, the introduction of the National Living Wage from April 2016 was the ‘rabbit out of a hat’ moment, and the cuts to the welfare budget were widely expected, but there were some other sneaky inclusions that were pulled from the Chancellor’s red box. One which many thought was a dirty trick was the 58% increase in Insurance Premium Tax (from 6% to 9.5%). Almost all of us will be affected, in some way or another, by this. Every class of insurance, apart from travel insurance which already had the IPT increased to 20%, will bear this burden, from a vet’s policy for Tiddles the cat, through all our motor and household policies, to those insuring the liabilities of, and material losses to, the nation’s largest companies.

On another tack, many Directors of smaller businesses, and Sole Directors of service companies, elect to pay themselves a small salary, and then take dividends. The taxation of these dividends is changing too. A new £5,000 allowance is being introduced for the tax year 2016/17, but the rates of taxation are being hiked substantially. Overall, the changes are expected to raise some £2.5 billion for the Exchequer. Changes to the National Insurance system will also affect us, but more of them in a future issue.

It is difficult to gauge exactly what the markets thought of the initial announcements, or of the devil in the detail, as at the same time the long-running Greek Tragedy was playing out, with the referendum effectively telling the EU, IMF, and Co. their fortune. A last-minute agreement has seemed to halt complete financial meltdown in Greece with their Government agreeing to a package of strict financial reforms in return for the bailout. Suffice to say since my last comment about the healthy look of the FTSE100 at around 7100, it was down at one point to 6400 – having lost some 10% – but at my last look, it was at 6775.

My views on the volatility of markets, and the benefits of long-term holding of stocks, are well known here. But if one had a little cash to spare, and invested when the worst of the news was coming out, there would have been a 5% profit (not allowing for any charges) over the last few weeks at a time when we are lucky to get about 1% per year on the High Street. This, I know, is an over-simplification as there is clearly a substantially increased risk factor involved in investing rather than saving.

On that, I shall away to bask in what remains of the sunshine, with a small glass of something tasty and chilled. Enjoy your Summer, I’m back in the Autumn.

David Foot

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