Some good reads from around the Web.
When I were a lad, budgets were budgets. Grown men would tremble before The Chancellor’s red box, wondering if he was about to tax their golf clubs out of existence, or cry “Loadsamoney!” and do the opposite.
In 1988 Nigel Lawson slashed the top rate of income tax from 60% to 40%, where it stayed for more than 20 years. In the 1970s Denis Healey soaked the rich with unapologetic redistribution – at least until he was forced to call in the IMF to bail out Britain.
And now? Making the headlines from this week’s budget was a 5% cut in what everyone agreed at the time was a temporary tax rate, a tiny freeze on the largesse the State shows to pensioners, and a welcome but for most relatively tiny hike in the personal allowance.
Put it through a budget impact calculator, and it isn’t likely to add up to more than few takeaway curries for the majority of Monevator readers.
Not so much class warfare as inter-generational tiddlywinks!
That’s not to say there aren’t real losers. The poorest are seeing their income fall under this government, but that’s because of benefit cuts.
Unfortunately we’re in a situation where many (including me) are less than confident those benefits were always well-targeted and helpful.
Instinctively I prefer the new emphasis on rewarding low-paid work, and removing the disincentives – with an appropriate safety net for the fallen and generous provision for the relatively few who truly can’t help themselves. (I don’t begrudge almost any amount of money being spent on quadriplegics or a soldier whose hands are blown off defusing a bomb).
At the other end of the ‘need’ scale, I’m losing out because as a childless person I’m still going to have to subsidise middle-class children in a world that has too many people in it, thanks to the fiddly new child benefit rules.
If you’re on the other side of that divide – you have kids – then make sure you read up on the new ‘cliff edge’, and calculate if it’s worth taking action.
But away from the stamp duty dodging enclaves of Chelsea and the estates without earners, it’s smokers, drinkers, drivers, and (thanks to a change in what’s classed as VAT-rated hot food) the eaters of Gregg’s pies who will feel most pain.
This ratcheting up of duty is a brilliant example of compound interest in action.
What about the investors?
The budget didn’t have much of consequence in it for private investors.
There were a few tweaks to VCT and EIS rules that won’t be relevant to many readers, although I have some of the former.
There were no big changes to mainstream concerns like capital gains tax, dividends, ISAs, and pensions.
The annual scare stories about the abolition of higher-rate tax relief also came to nothing – as usual.
Every year I get emails from worried readers about a supposed imminent end to higher rate tax relief, along with press releases from financial firms saying all higher rate taxpayers should put their life savings (/£50,000) into pensions before higher rate relief is abolished.
Why don’t I write about it, they ask? Because it might happen one day, but I don’t expect it under this government. I expect to keep hearing about how it’s coming!
(If you are lucky enough to be paying the 50p tax rate, then it could be worth getting tax relief at 50% while you can).
A few of the non-personal finance details might have consequences for investors:
- Speeding up planning could be good for housebuilders.
- Lower corporation taxes may mean more money retained for reinvestment or dividends.
- There were some new reliefs for North Sea oil companies.
- There is also tax relief for TV productions and video games and animation studios, which might conceivably help some investments. (ITV shares rose slightly on the news).
The crackdown on stamp duty avoidance on £1-2 million+ properties also has an investing dimension.
Could it finally cause a wobble at the top of the London property market? Prime London has some of the signs of bubble conditions, so I wouldn’t rule it out.
2012 budget roundups from around the web
As for what we did get, here’s some useful Budget 2012 roundups and tools:
- BBC: Budget 2012 at a glance
- BBC: Complete budget 2012 archive
- BBC budget calculator with sensible emphasis on booze and drink
- The Guardian’s top 10 changes
- Telegraph’s take on the winners and losers
- Even The Guardian can see 20-somethings are worse off than Grannies
- Budget 2012: A big splash with a little cash – The Economist
- Institute of Fiscal Studies’ number crunching slides [PDF]
- A crackly discussion from accountants Deloitte [Podcast]
- HM Treasury’s archive of Budget 2012 documents
- Inexact estimates justify 50p to 45p rate cut – Stumbling & Mumbling
Finally, I was disappointed that we didn’t see some Keynesian response to very high youth unemployment, which isn’t even producing the great music of the 1980s as a by-product.
Getting them into debt at university is an unpleasant stop-gap solution!
Did I miss any important issuance from George Osborne? Let us know below, or just share your thoughts on the budget if you like. A good rant helps, sometimes.
On the investing blogs
- When ‘buy what you know’ makes sense – Canadian Couch Potato
- How to make your spouse love frugality – Mr Money Mustache
- Focus on the total cost of ownership – Lazy Man and Money
- Craving a high: Trading on dopamine – The Psy-fi blog
- Thinking defensively – iii blog
- Five plausible nightmare hypotheses – Graeme’s blog
- Ping pong veteran blasts Goldman Sachs – Investing Caffeine
- Deja Vu all over again [Fund manager’s PDF] – Oaktree Capital
- Using an investment checklist to value Shell – UK Value Investor
- The post-modern Ponzi scheme (Internet HYIPs) – Academic PDF
Book of the week: A Motley Fool podcast with the author of Free Capital
Mainstream media money
- Apple’s share price: iRational? – The Economist
- How to become an ISA millionaire [Podcast] – Motley Fool
- It makes no difference what the economy does – Fool.com
- Swedroe: The best fund managers don’t stay on top or cover costs – CBS
- Burton Malkiel: Bonds at 2.25% a sure loser, stocks a safer choice – WSJ
- Interest-only mortgages to become niche – FT
- Merryn: Fairness would be ultimate tax incentive – FT
- SERPs payers could lose out from £140-a-week pension – Telegraph
- Buy-to-let landlords sitting on ‘tax timebomb’? – Telegraph
- Dampier: Time the FSA made charges clearer – Independent
- Third-party solar panels can cause mortgage difficulties – Guardian
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Comments on this entry are closed.
The world may have too many people in it, but the UK (like many countries) will have too few people in it – specifically too few people of working age.
@Graeme — True, but I’m dubious of that as a reason to encourage more children. Pursued to the logical conclusion, it’s a mandate for limitless population growth in all countries, and we know that’s not sustainable at some point, at least until we get off this one planet.
I think developed countries should be investing surplus income into developing countries with better demographics as a way of bridging this gap for now, as opposed to growing the population even further.
“I was disappointed that we didn’t see some Keynesian response to very high youth unemployment”
I quite like the idea of forcing them to work at Tesco. It them out of bed, it instils a work ethic, it builds work skills and confidence and it promotes the idea that nothing is for free and that if you want to get paid (benefits) you have to work for it.
Dunno what the price of a curry is in Brick Lane these days but out in the sticks £200 buys you a fair few curries. This is curry tomorrow, however, as the change is for 2013/14 ISTR.
I’m all for the raising of this lower threshold. Anything to get rid of/weaken the case for the infernal tax credit system is A Good Thing in my book.
The cumulative effect of all these threshold raises is very welcome, too. £6475 was a ridiculously low personal allowance in a world where the full-time minimum wage is about 12k. There’s a case to be made that everyone, even the minimum waged, should pay some tax to have skin in the game and not vote for boondoggles. but paying 32% on nearly half their income was a bit rough.
@ermine — I agree. I just think most people reading this site make more decisions in a mere week that outweigh the impact of this. Think of the acreage of coverage, and compare it to the ignorance about and impact of fund charges, for example.
Good round up of the news there. I agree the majority of “us” (those at the “PF blogging” level of personal finance, will probably at most be a couple of curries better off this year.
The benefits saga is another post altogether. You might be interested in a little post I made the other day about the fraud side of the system and how it just doesn’t work, and nobody seems to care! I’ve blogged about it because I see little else left open to me, options wise.
http://www.fivepencepiece.com/2012/03/benefit-fraud-is-apparently-acceptable/
A benefit scheme that redistributes money according to the number of children you have needs to come to an end, there has to be fairer ways than that. However, people can hardly complain about losing pension money, by the time I’m done with work there won’t be such things as state pensions.
@UKVI – I’d always hoped that in return for certain benefits (i.e. not disability) people could do useful jobs that are only ever done by volunteers, that need doing. I think there are already those who volunteer whilst claiming benefits, because they can’t hold down a proper job, but don’t just want to sponge off the state.
I notice that they lowered tax to 45% but made no promises regards when it might drop back to 40%. I’m also pretty sure that the £50k annual pension cap is here to stay, even when the top rate tax that prompted them to introduce it is on the wane.
Regards the personal allowance, my wife doesn’t work so uses very little of hers, and I don’t get one. Still, it’ll be nice in retirement, assuming the rules don’t change another 12 times by then …
Although I have never subscribed to the more extreme ‘jilted generation’ analysis, I do think the freezing of the age-related allowances is a good thing, especially in view of the increases in the OAP. Consequently, I find the incipient knee-jerk tabloid campaign on this really disappointing.
As a new (private) pensioner myself, I’ve already had tax reliefs on contributions. Why should I get extra when I turn 65 (fortunately, still a good way off). On the other hand, the general uprating of personal allowances got my thumbs up, of course.
Slightly shame-facedly, I have to admit that I’ve had a very good budget.
1. That Dampier article on fund charges in ‘The Independent’: where to start?
2. He berates the FSA [Financial Services Authority] for failing to address the issue of more transparent fund charges – while his company, Hargreaves Lansdown (HL), has built a hugely profitable, FTSE 100 business around ‘hidden’ commission on funds.
3. Yes, HL is now changing its business model for funds – but only because the FSA’s Retail Distribution Review forced its hand. Oh, the irony.
4. Note: HL still refuses to disclose ALL the commission it receives from fund managers for hosting funds on its ‘execution-only’ platform. This is simply unacceptable. Credit to journalist Jeff Prestridge for his persistence in directly challenging HL on this – and bringing it to wider attention via the influential ‘Financial Mail’ and associated website, thisismoney.co.uk. It’s not all poison in the ‘Daily Mail’, then…
Your Generation
Written by Thomas Paign, 2012
Performed by TBD, 2012
U People will try to keep us d-down (Talkin’ ’bout your generation)
While U work us into the ground (Talkin’ ’bout your generation)
To support a future that’s already been s-s-sold (Talkin’ ’bout your generation)
I hope U die before U get old (Talkin’ ’bout your generation)
This is your generation
This is your generation, Granny
Why don’t U all f-fade away (Talkin’ ’bout your generation)
U better listen to what we all s-s-say (Talkin’ ’bout your generation)
We are trying to cause a big s-s-sensation (Talkin’ ’bout your generation)
To defend our future from your g-g-g-generation (Talkin’ ’bout your generation)
This is your generation
This is your generation, Granny
Why don’t you all f-fade away (Talkin’ ’bout your generation)
And don’t try to s-steal our p-pay-day (Talkin’ ’bout your generation)
I am trying to cause a b-big s-s-sensation (Talkin’ ’bout your generation)
I’m takin’ this message to the entire n-n-nation (Talkin’ ’bout your generation)
This is your generation
This is your generation, Granny
Pop your boner pills and p-play away (Talkin’ ’bout your generation)
Kick the can again our w-w-way (Talkin’ ’bout your generation)
We’ll no longer do what we’ve been t-t-told (Talkin’ ’bout your generation)
Gotta steal our future back from the o-o-old (Talkin’ ’bout your generation)
This is your generation
This is your generation, Granny
U People will try to keep us d-down (Talkin’ ’bout your generation)
While U work us into the ground (Talkin’ ’bout your generation)
To support a future that’s already been s-s-sold (Talkin’ ’bout your generation)
Yeah, I hope U die before U get old (Talkin’ ’bout your generation)
This is your generation
This is your generation, Granny
Delighted to see that, according to one budget calculator, I will be slightly better off but I suspect that will be more than offset by the addition of VAT to the price of a Cornish pasty.
The whole idea of taxing people and then returning some of it in the form of benefits would be inefficient in anyone’s hands, let alone HMG’s – perhaps instead the tax rate could be reduced or the personal allowance raised for those with children or disabilities, for example. This might be unworkable in practice but owe it to ourselves to regularly examine the status quo – every wasted pound could be better spent on the disadvantaged.
However, on that point, it seems ludicrous to me that households with a wage earner on 50-60k can be in receipt of benefits – that’s a damn sight more than I earn and I object to supporting the lifestyles of people who are earning more and living better than I am!
Best regards,
Guy
PS. Thanks Monevator for this regular update – it’s my most eagerly awaited blog
What do you guys think of HSBC’s world index portfolio funds and how do they compare to the lifestrategy funds of Vanguard?
Loving the site BTW!
@PUJ — Thanks! We’re looking at the HSBC smorgasbord currently, at will hopefully have some views up in a couple of week’s time.
@Guy — Agree entirely. This is where the State has slowly transformed from a safety net that I’d fully support with knobs on, to politicians handing out oranges and trying to buy voters, and general social engineering. Totally ridiculous. Probably the net result of higher rate child benefit is middle-class houses near nice schools are that bit more expensive. So I’m bidding up house prices (which I’m currently sitting out as too expensive) too! 🙁
@TPaign — Glad you didn’t reach for St Winifred’s choir in this instance! 🙂
@Alex — Have to admit I forwarded the Dampier article to a friend who is bullishly long on HL shares, as I thought perhaps the runes could be read to discover how it intends to keep getting money out of clients post RDR. Could be some interesting poacher turned gamekeeper insights. I have to say though that a lot of financial companies are way way higher in my ‘up against the wall’ list than HL.
@Salis — Nice to hear from you, especially with your usual honest thoughts. 🙂
@Gadgetmind — Alas, what the Chancellor gives with one hand, your non-working spouse spends in the shops with the other, eh? 😉
@Rob — Yes, and the key thing to realise is that they didn’t actually build up these pension pots. It’s a myth. We’ll have to buy ours. The Guardian of all places has even noticed this: http://www.guardian.co.uk/money/blog/2012/mar/23/is-granny-tax-unfair
@Lee — Nice to see you’re still around!
@UKValueInvestor — Re: Tesco, I’d like to see them working, but I don’t see why they should be doing it free at Tesco (although I expect in reality their economic input nets out at less than zero). As a taxpayer I’d rather see them cleaning the beaches or tidying up motorways or what have you. The argument generally advanced against that though is somebody already does that for a job… But I think we can all find enough scruffy parts of the UK — untouched by the waged — where they could lend a hand.
Hargreaves Lansdown… TV doesn’t come cheap don’t you know?
http://www.hl.co.uk/tv
Ah, yes, now HL can use the ultimate endorsement: “as seen on TV” 🙂