What caught my eye this week.
We’re at the point now where about the only potential tax hike that hasn’t been run past the committee of public opinion is a revival of the 200-year old window tax.
Don’t laugh! It could be a real revenue spinner in our era of skyscrapers in the City and bifold doors in the suburbs.
In the meantime, a rise in income taxes in the upcoming Budget seems to finally be – maybe – on the agenda.
Yes, those same higher income taxes that were ruled out ahead of the last election.
I have my doubts, but who knows. Perhaps Rachel Reeves and Keir Starmer believe the situation really is dire enough to warrant breaking the pledge? It’s already motived them to lift their silence on the £100bn hit to the economy – and the resulting black-hole-sized £40bn shortfall in state revenues – that Brexit has cost us.
Or maybe Labour thinks they might as well be hung for a sheep as a lamb, considering the kicking they got anyway for dancing around taxes on ‘working people’ with the last budget?
Or maybe it’s just another ill-advised attempt to scare us with a worst-case scenario so that the real medicine doesn’t taste so bad.
We’ll find out on 26 November. But hell will hath no fury like the voting public if income tax rates rise by a bald 2p in the pound without a ‘sterilising’ 2p cut in National Insurance – which would undo much of the revenue-raising potential anyway.
And cutting national insurance won’t help the legions of vote-happy pensioners…
A stitch in time
I happen to believe that from a bunch of very unpalatable options, just hiking the basic rate of income tax and getting on with it wouldn’t be the worst.
But that would be partially on the grounds that it’s such a game-changer that it could have quashed the rumours and uncertainty caused by chipping away at absolutely everything else – from pensions, ISAs, dividends, and capital gains to property and the rest – to the sidelines.
However we’ve already had another three or four months of uncertainty. It’s made people save more, spend less, dither about moving house, and thrown yet more sand into the wheels of our lacklustre economy.
Worse, we’ve already had last year’s employer’s NI hike. Which had exactly the effect everyone predicted it would on youth employment, and on the health of the hospitality sector too.
If a bandaid was going to be ripped off then 2024 was surely the better time to go for it.
Rumour treadmill
Here’s a flavour of this week’s speculation:
- Chancellor refuses to rule out manifesto-breaking tax hikes – Sky
- NIESR: hike income tax by 2-10p in the pound – This Is Money
- How much would a 2p income tax rise cost you? – Which
- Reeves also reportedly considering a 20% exit tax on UK leavers – Guardian
- Stand down! Reeves said to cool on big cash ISA reforms – City AM
- A 5% VAT cut on electricity bills in Budget will backfire, experts say – Guardian
- How wealthy is ‘wealthy’, exactly? [Paywall] – FT
But that’s just a taste. I’ve run batches of budget speculation in these links for weeks, so thick and fast and indiscriminate have they come.
Of course what’s notably missing from most of the rumour-mongering is anything about spending cuts. I’ve probably read more about the two-child benefit cap being lifted – which will obviously cost yet more money – than on any mooted plans to curb spending.
It’s true the last round of so-called austerity under George Osborne didn’t do much for the UK. And perhaps it’s senseless to look to downsize government – or at least to stop it growing further – while the economy is only limping along.
But is this a different era? Rates are taking their time to fall, and we’ve borrowed much more money. There’s a growing feeling that we’re sleepwalking into a self-fulfilling prophecy.
I used to look forward to budgets. But I honestly just want this one to be over.
Have a great weekend!
From Monevator
Defensive asset allocation beyond the 60/40 portfolio – Monevator
Yes, you can eat risk-adjusted returns – Monevator [Mogul members]
From the archive-ator: How to choose a bond fund – Monevator
News
Bank of England holds its key rate at 4% – BBC
UK economic growth forecast downgraded for 2025 – Yahoo Finance
Construction sector suffers worst downturn since 2020 – This Is Money
Fixing Britain’s ‘worklessness’ crisis would cost business £6bn a year – Guardian
Motor finance backlash mounts, with calls to pull £4bn from lenders – City AM
UK children to get mortgage and budgeting lessons in school – This Is Money
Savills’ five-year forecast for house prices – This Is Money
AI-washing and the massive job cuts hitting the US economy – CNBC
Firm founded by winner of The Apprentice Harpreet Kaur collapses – City AM
The rise of a new American oligarchy – Oxfam
Products and services
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Nationwide cuts mortgage rates to 3.64%, cheapest since 2022 – This Is Money
HSBC increase mortgage limit to 6.5x income for richest customers – This Is Money
A review of Chip’s £500,000 prize savings account – Be Clever With Your Cash
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
Nationwide offers interest-only mortgages to first-time buyers – What Mortgage
Why are workers abandoning their Nest pensions? – MoneyWeek
Where to price match when you purchase to save cash – Be Clever With Your Cash
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
How Experian has rejigged its credit scoring system – Which
Enjoy Apple CarPlay while you still can – The Atlantic
Homes for sale near a cycle route, in pictures – Guardian
Comment and opinion
A wistful farewell to Warren Buffett’s annual letters… – FA Mag
…and literacy as your investing edge – A Teachable Moment
How to fix wealth taxes [Podcast] – IFS
Should you buy at all-time highs? – Of Dollars and Data
A history of private equity [Podcast] – A Long Time In Finance via Spotify
Zen and the art of moat maintenance – 3652 Days
“Can I make more money working for myself?” [Paywall] – FT
The benefits of bubbles – Stratechery
Is now the time to go all-in on tech stocks? – A Wealth of Common Sense
Funds-of-funds really layer up those fees – Basis Pointing
Just buy stocks until you die? – Wall Street Journal [h/t Abnormal Returns]
Howard Mark’s famous memos anthologised [PDF] – Oaktree Capital
Deutsche Bank long-term asset study / data dump – DB Research
Naughty corner: Active antics
Cockroaches in the coal mine – Howard Marks
Cash hoarded by Buffett’s Berkshire Hathaway hits $381bn – CNBC
Growth stocks aren’t the only route to riches – Morningstar
Currency valuations – Verdad
Which Trump trades paid off? – Morningstar
Kindle book bargains
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
The Man Who Solved the Market by Gregory Zuckerman – £0.99 on Kindle
Chip War by Chris Miller – £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
Climate models show the 1.5°C goal is dead… [Paywall] – The Economist
…with three hottest years in a row putting the nail in the coffin – Guardian
Does installing a heat pump deliver savings after one year? – MoneyWeek
Climate action is the best way to ensure long-term growth – Observer
Government touts new forests from £1bn tree-planting programme – GOV.UK
How bird flu has decimated the elephant seal population – BBC
Pearls of the ocean that might return to British shores – Guardian
A pumping station and WW2 pillbox converted for bats – BBC
Robot overlord roundup
OpenAI’s planned $1 trillion infrastructure spend – Tom Tunguz
The double bind of the AI bubble means we’re screwed either way – Vanity Fair
Google plans to put data centres in space to meet AI demand – BBC
French philosopher Baudrillard predicted AI 30 years ago – The Conversation
AI’s exciting until companies want to use it: Rightmove edition [Paywall] – FT
Why do people love or hate AI? The answer is in our brains – The Conversation
Too much social media gives AI chatbots ‘brain rot’ [Research] – Nature
Not at the dinner table
Will Rachel Reeves repeat Denis Healey’s nightmare 1975 budget? – Sky
What a UK government led by Reform would really look like – BBC
Britain’s fiscal reality check – New Statesman
Stupidology – N+1
BBC has questions to answer over edited Trump speech, MPs say – BBC
Trump says he has “no idea” who he just pardoned – Citation Needed
Tensions rise in UK’s asylum and refuge hotspot – Guardian
Off our beat
Why is Argentina poor? – Uncharted Territories
The world’s most militarised economies by three metrics – Visual Capitalist
Everyone is a strategist. No one is a writer – Gen Zero
Scientists excited by gel to repair tooth enamel – BBC
Adaptability – We Are Gonna Get Those Bastards
This physicist says we don’t take Covid seriously enough – The Tyee
Celebrity chefs urge Britons to bang in some beans – Guardian
The lucrative economics of being an expert witness – The Hustle
Tails, things, and stuff – Permanent Equity
And finally…
“When you sell in desperation, you always sell cheap.”
– Peter Lynch, One Up On Wall Street
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Fully agree with this take on both the tax and spending side. It’s the uncertainty that’s the killer. Just get it over and done with.
The most depressing thing is how bad politicians seem to have become at being politicians.
What a drab uninspiring crew.
No wonder the door is open for ‘big personality’ types like Johnson.
Re: robot overlords, I found this article rather informative (and balanced):
https://www.deloitte.com/uk/en/blogs/monday-briefing/bubbles-good-and-bad.html
I enjoy reading the links to previous budget write ups. It’s worth remembering that Govt debt to GDP in 2008 was a mere 48%. It’s now double that. We’re still living with that seismic event and the Covid lockdown and their policy responses.
Globalisation has resulted in a concentration of wealth in developed democracies where the vast majority of voters have no real skin in the tax game. Where this goes I have no idea….but I’m happy with my gold investments.
“a revival of the 200-year old window tax.” They’ll tax you on not having solar panels on your roof – if not this time then after Weird Ed has replaced Sir Cur.
Then on not having a heat pump. Then on not burning witches. (Awfully sustainable and renewable, witches.)
People blame the press for 6 months of speculation but these policies are being deliberately leaked. The income tax hike details released in the last few days do seem specific enough to be something they might actually go through with given how close we are to budget day.
2% added to basic, higher and additional rates. 2% employee NI reduction to sell it to Labours definition of “working people”. The problem here, as TI states, is that corresponding NI drop negates much of the additional potential revenue and discriminates against pensioners.
A pensioner on £50k pa income would be hit for an extra £750 pa, or an extra £500 pa if on a £36k income.
For those still working, anyone on over £50k will notice as there will be no employee NI reduction for any earnings over £50k.
A marginal tax rate of 44% inc employee NI for these strivers.
As for those on £100k+ the marginal tax rate will be 64%.
Meanwhile the super rich will side step it all.
The doubling of council tax on band G and H also seems very specific and easily implemented.
The combined effects would hammer some affluent boomers, and possibly compress house prices into a narrower range.
I can see nice band F and under houses going up in value as multiple generations (upsizers and downsizers) compete for them while houses in higher bands drop.
I just hope they don’t meddle with salary sacrifice pensions, the only thing making decently paid work worthwhile.
“I used to look forward to budgets. But I honestly just want this one to be over.” – Me too! – if I read one more speculative headline of Reeves says this or that, I just might explode. And it’s another THREE weeks 🙁 🙁
Labour really do not seem to know how to do politics – perhaps all those years of watching crap Tories do it – no good example to learn from.
Re – the literacy article. I do feel sorry for children and young people now. I love reading, it’s always been my main hobby – but even I struggle to put down the mobile and the distractions of YouTube to pick up a book. And I have the maturity to know that it’s not good for me and I will be happier after the book than the YT video. It’s hard. So how are those who have never had a chance to form a reading habit going to do it?
Couldn’t agree more with the comment on income tax – just do it, it’s the least worst option.
The Times is reporting that Reeves is considering applying employee and employer NI to pension contributions.
Way to blow up pensions.
Income tax rising by 2p is political suicide and so unlikely. 1p a possibility. More likely withdrawal of more the various generous pension reliefs and tinkering…bank reserve income, gambling, extra council tax bands etc
My sense is that RR will want a bond market friendly budget. The problem is that much of that will counter growth. But future lower borrowing costs will trump growth.
Expect a hung parliament in 3 years.
Not to be a bore but, as a Scottish taxpayer, I feel the need to point out the anomaly that Income Tax rates and bands in Scotland (other than the Personal Allowance) are devolved i.e. decided by the Scottish Government and not Rachel Reeves. However, National Insurance rates and bands are decided by the UK Treasury. Therefore, Scottish taxpayers (who already pay higher rates at lower thresholds) would not be penalised by a rise in UK Income Tax but would benefit from a cut in NIC. The block grant paid to Scotland by the Treasury would be cut however so not all good news north of the border. I may say that I have long favoured moving to a federal system where we could have state and federal taxes on a sensible basis.