What caught my eye this week.
Like many people, my immediate reaction to this week’s budget was a sense of relief.
Not just on a personal level. Rather, given the litany of potential clangers leaked beforehand – and Rachel Reeves’ form with her hike in employer NICs last year – I was pleased to see nothing too destabilising for the economy.
I don’t even mind that the revenue-raising piece of the budget was backloaded, with the extended freeze on income tax thresholds.
Yes, as I wrote on Wednesday there is a case for being bolder upfront. This might have brought gilt yields – and hence borrowing costs – down faster.
And personally I’d have preferred to see a small rise in basic rate income tax than endless fiddling with pensions, salaries, allowances, ISAs, and all the rest – with the triple-underlined proviso that this should have meant none of the animal spirit-suffocating speculation we saw beforehand, too.
But I can see the other side.
Economic growth is already feeble. Upfront tax hikes could have made things worse, even if gilt yields did dip.
At least by freezing income tax thresholds we just boil the frog some more – meanwhile hoping things can heat up in the rest of the kitchen.
Making ISAs grate again
As the week moved on though, my relief has given way to frustration.
Reading various pundits’ takes on the Budget, it all seemed a lot of fuss about nothing in terms of most of the measures.
Just compare what we saw announced on Wednesday with the cacophony of briefings, counter-briefings, and speculation we endured since summer.
Was it worth coshing the economy back into its box – by delaying investments, hiring, home moving, or just splashing out – for this?
Then there is the measure that’s caused the most fuss about these parts: the move to restrict the annual cash ISA allowance to £12,000.
A pointless priority
On the positive side of the ledger, the one thing that economists, businesses, the media, and even the IMF agreed before the Budget was that we needed to jolt Britain out of its doom loop by faffing about with a popular savings product that people actually understand and use.
Only kidding. Nobody said that. Everyone called for capital investments, or growth initiatives, or spending cuts. Ho hum.
When I wrote back in summer that instead of grasping the enormity of the challenge facing aging, entitled post-Brexit Britain, we’d been reduced to squabbling over what we’ve got, this is exactly what I meant.
Big picture, restricting cash ISA savings will achieve nothing.
For individuals it will mean confusion. Platforms will have to spend millions implementing extra checks on what you’re investing where. And the authorities will need to spend millions to make sure you follow the rules.
Many people thought they’d never touch cash ISAs. Alas I thought they might, which was why I kept running the rumours over the past 18 months.
That’s because I’ve realised we’re watching more a theatre of governance than its reality in Western politics today.
And Britain’s equivalent of, say, extrajudicially blowing up boats in the Caribbean is messing around with the tax shelters of Little England.
Do this, do that, and hope the electorate is distracted. (To be clear I blame the voters for most of this, in part driven by the ills of social media.)
Kerching!
Some savvy Monevator readers laughed in the face of a cash ISA cap.
“I’ll just hold money market funds or gilts,” they said.
But I warned in my piece that there would likely be rules against that sort of thing. And sure enough, we’ve had official word there will be measures to stop you sneakily rigging up your shares ISA as a cash ISA proxy.
My best guess is the platforms will not enable you to buy anything cash-like in a shares ISA unless it has more than five years (or similar) to run. You’ll probably be allowed to hold what you’ve already got. That’s how it worked last time, from memory.
But the HMRC note talks about a ‘charge’. So maybe they’ll even apply some kind of levy to existing or ongoing cash-like holdings?
If you’re thinking “surely not, what a faff” then you’ve missed out the extra word “pointless”.
I’ve been writing about ISAs for 20 years and I guarantee this change is just going to confuse people.
It might make a handful more people invest a few more quid at the margin, but there must be better ways to achieve the same result.
It’s worse than they’re saying
Of course the right-wing press is up in arms about the Budget. They would have been whatever it contained.
The attack vector du jour is that Reeves lied beforehand about the state of the UK economy, when she hinted earlier of potential income tax rises.
The truth is Reeves and other politicians are if anything not gloomy enough.
Let me remind you of this recent graph:
Britain is in a state. Whether Reeves muddled around the edges of her self-imposed ‘headroom’ is neither here nor there.
Of course I’m inclined to give this government more slack than, say, The Telegraph does because I’m able to admit that 90% of this problem is not of Labour’s making. It inherited a crock.
To be clear, that blame percentage is going down as they add their blunders (the NIC hike) or dithering (pre-Budget speculation) to the mix.
But as it is, I’m prepared, say, to actually read and digest the swathes of research that shows the hit to the UK economy from Brexit is costing the UK state at least £60bn a year in lost tax revenues.
That sum that dwarfs the tax rises that Labour has forced onto a weak economy that you’d rather we were investing in to stimulate.
But I know… (half a dozen of) you don’t want to hear me rant about Brexit again.
Luckily I don’t have to.
A Brexiteer recants
This week saw Ryan Bourne – one of the so-called ‘Economists for Brexit’, a crew plentiful enough to squeeze into an Uber to the Leave victory party – concede that Brexit has been an economic disaster.
In a piece entitled – pinch me, I’m dreaming – We Brexiteers Must Acknowledge The Costs of Leaving Europe in The Times [paywalled], Bourne admits:
The microeconomic, firm-level data is crystal clear that Brexit has had a significant, depressive impact.
The authors [of recent research] use the Bank of England’s decision-maker panel — about 7,000 firms surveyed — to show that the more EU-exposed a company was, the more likely it cut investment and slowed hiring after the referendum.
By 2023, average business investment was 12 per cent lower than otherwise. Productivity within firms was 3 to 4 per cent weaker.
Roughly half of firms listed Brexit as a top source of uncertainty for years after the vote. Yes, remainer foot-dragging in parliament exacerbated this uncertainty. But wherever you ascribe blame, managers devoted hours each week to planning for new post-Brexit customs arrangements, regulation and precautionary stockpiles. This displacement activity weakened innovation, delayed investment and distracted managers from core business.
Such evidence cannot be dismissed as Project Fear. It is data.
Hallelujah.
Some have scorned Bourne’s nine-year overdue revelation. They suggest that if he wants to remain a respected chap at the Cato Institute and widely-quoted in the media, he must, you know, show a grasp of economics.
Hence they see a desperate recantation to save his credibility and career.
I’m less harsh. It’s true I’m just a humble blogger who said this would happen with Brexit and it’s happened, yet I still await my fellowship or chairman role at any leading economy bodies.
But as for Bourne, I say let people change their minds.
Who among us didn’t do something silly in their youth? The first album I ever bought was The Return of Bruno by Bruce Willis. You won’t see that on my musical C.V.
If every Leaver admitted Brexit was economic folly then we’d be down to the minority of sovereignty diehards (a respectable position), nativists (not my bag but fine), or worse (you decide).
Farage would not be electable, and we could accelerate the inevitable rejoining of the EU. That would by no means solve any or even most of our problems, but it would be good for tens of billions of economic “Hooya!” upfront.
Most leading Brexiteers won’t recant though, let alone everyday Leave voters who can wave their hands and talk about how Remainers (who were literally ejected from the Tory party) ruined Brexit (which was actually implemented by Boris Johnson, the leading figure of the Leave campaign).
Fantasy footballs
But this is the make believe world we’re in today. Too many people don’t think about what they believe. And they often don’t believe what they say.
(And of course if you believe you see someone saying something, you have to check that it wasn’t AI…)
To return to Reeves and Labour, does anything underline this phoney state more than their definition of ‘working people’ that doesn’t include the workers who generate the bulk of the income tax receipts, let alone GDP?
My taxes are going up again – not least with the dividend hike – so I guess I was deluding myself that I’ve been working. I suppose it’s all just been some neoliberal play acting on my part, and my computer is made of cheese.
The resurgent blogger 3652 Days went big on this in a great post this week.
Check out his glossary of political terms, which begins:
- Balanced Approach – More tax. Balanced chiefly on your wallet.
- Brexit’s Impact on the Economy – See: “global factors”, “challenging headwinds”, and “please stop asking”.
- Broad Shoulders – Anyone who has ever received a tax bill that induces mild nausea.
- Challenging Headwinds – Meteorological phenomenon occurring whenever GDP numbers flatline. Typically used in place of the more accurate “we did something extremely stupid and would quite like you to stop bringing it up”.
- Civic Duty – Paying more tax with a serene facial expression.
There’s much more. Enjoy, and have a great weekend.
From Monevator
First take on the big bits of the 2025 Budget – Monevator
Bear market recovery: how long does it really take? – Monevator
From the archive-ator: Watching financial TV stresses you out – Monevator
News
No 10 denies Reeves misled public in run up to Budget – BBC
No tax for state pensioners who have no other income [quadruple lock!] – BBC
House prices fall in South-East for first time in 18 months – This Is Money
Revolut now valued at £57bn ($75bn) after secondary share sale – Standard
Nearly $1 trillion of fine art could change hands during the ‘Great Wealth Transfer’ – Fortune
A ‘UK premium’ baked into markets – Mohammed El-Erian via Facebook / FT
Budget 2025 mini-special
HMRC confirms ‘test’ and ‘charge’ to head-off cash-like investments in share ISAs – GOV.UK
Business left asking: what happened to growth? – BBC
Mansion tax valuation appeals will flood the government’s agency [Paywall] – FT
Dividend tax hiked in blow to investors – Which
VCT relief cut to 20% – Trustnet
More on those income tax hikes for landlords – This Is Money
Freeze on student loan repayment threshold will hurt, warns NUS – Guardian
How the chancellor just took a chunk of your future pay… – BBC
…see how much with the budget tax threshold freeze calculator – Sky News
Budget winners and losers – Be Clever With Your Cash
Another run through the Budget, with Dan Neidel – Tax Policy Associates
“There is no reason to start a business in Britain” – This Is Money
Britons response to the budget: polls – YouGov
Products and services
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Lifetime ISA rates hiked as high as 4.69% – This Is Money
PayPal’s new debit and credit cards offer up to 1.5% cashback – Which
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
How to check the price history of online wares – Be Clever With Your Cash
Kraken launches a debit card that enables you to spend crypto – This Is Money
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
Santander switch: £200 + £25 Amazon voucher – Be Clever With Your Cash
Homes for down-sizers, in pictures – Guardian
Comment and opinion
How can investors ‘follow the evidence’? – Behavioural Investment
Avoiding money worries in your relationship – Guardian
Get rich and die giving – The Root of All
No one is above getting scammed – Abnormal Returns
How to have a happy retirement – Barking Up the Wrong Tree
Do we need a long bear market? – A Wealth of Common Sense
The joy of doing nothing in retirement – Wall Street Journal [via A.R.]
The gap between living and living well – The Retirement Manifesto
Retired investors trade more and have worse returns [Research] – via SSRN
Another AI bubble mini-special
Boom, bubble, bust, boom – Crazy Stupid Tech
Rational Exuberance – The Big Picture
Bull markets don’t last forever – Morningstar
Firms are the smart money – Arcadian
Conduit debt financing: is this how the bubble pops? – Of Dollars and Data
The railway bubble remembered – A Wealth of Common Sense
Naughty corner: Active antics
Why it’s harder to tell gambling from investing nowadays – Bloomberg
Investors struggle to stick with trend and other oddball funds – Morningstar
Thinking about 2026 in the markets – Carlson Group
Digital asset treasury companies are running out of steam – Citation Needed
Academics underline the case for the momentum factor [Research] – Alpha Architect
Kindle book bargains
Nudge by Richard Thaler – £0.99 on Kindle
I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle
Oil: A Beginner’s Guide by Vaclav Smil – £0.99 on Kindle
Meltdown: The Collapse of Credit Suisse by Duncan Mavin – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Environmental factors
The facts on the climate crisis speak for themselves – Guardian
The government is seeking input on its Feed-in-Tariff indexing changes. Worth reading up on if you’ve an older solar panel deal linked to RPI-inflation – GOV.UK
UK species at risk of extinction named in new report – BBC
Octopus one-stop solar panels review, with costs – Independent
The countries that gained the most forest: 2015-2025 [Infographic] – Visual Capitalist
How a 30-foot sea cow was hunted to extinction – National Geographic
Robot overlord roundup
Kicking robots – Harpers
OpenAI founder says scaling is not enough to advance AI – Business Insider
Benedict Evan’s latest ‘AI is eating the world’ deck [Slideshow] – Ben Evans
Autonomous driving: who has the wheel? – Sherwood
How ASML got EUV [Tangentially related!] – Construction Physics
Not at the dinner table
Has the UK become an economic colony thanks to the tech giants? – Guardian
How Silicon Valley enabled China’s digital police state – A.P. News
T.S. Eliot’s The Hollow Men: poetry and populism – The Conversation
American democracy is alive, if not entirely well – Marginal Revolution
The Reith lectures: A time of monsters [Podcast] – BBC
X’s new feature exposes social media’s bad actors, in all senses – Tech Dirt
The life and limbo of a UK asylum seeker – Guardian
Off our beat
Saying goodbye to the things that made us who we are – The Art of Wandering
Brain has five ‘eras’, scientists say. Adult mode doesn’t start until 30s – Guardian
The future of war is the future of society – Noahpinion
How a giant glass pyramid saved UK cinema – BBC
The realities of being a pop star – Charli XCX
Boy with rare symptom amazes doctors after gene therapy in Manchester – BBC
A requiem for early blogging – Elizabeth Spiers
Having more friends make you happier than having kids – Klement on Investing
Why are screen villains always drinking milk? – The Conversation
And finally…
“Focus on being productive instead of busy.”
– Tim Ferris, The 4-Hour Work Week
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