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Warren Buffett runs a website… for your kids!

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Warren Buffett runs a website… for your kids!

Thursday, April 12th, 2018

As one of the most successful investors of all time and currently the third richest person in the world with a net worth of over $88 billion, it’s likely that you’ll know Warren Buffett’s name. You might even have visited his website at WarrenBuffett.com, perhaps giving particular attention to the page entitled ‘Warren’s 10 Ways To Get Rich’. What you might not know, however, is that Buffett has another website – one which is aimed not at you, but at your children and grandchildren.

The site, ‘Warren Buffett’s Secret Millionaires Club’, is based around an animated television series of the same name which ran in the US from 2011 to 2014. In the series, Buffett acted as a wise mentor to a group of four children, helping them make positive decisions about earning and investing money. Whilst the series has now finished and has never aired outside America, the site gives you access to twenty-six ‘webisodes’, all no more than five minutes long, giving your youngster the chance to get to know the characters whilst picking up some child-friendly financial advice.

The ‘Games’ section of the site is one your kids are likely to enjoy whilst also helping them hone some valuable numeracy and business skills. ‘Number Blaster’ and ‘Counting Money’ will help your child work on their addition and subtraction, whilst ‘What Do You Know About Business?’ and ‘Business-Building Brainstorm’ aim to give a basic grounding in what a business is and how someone might go about successfully setting one up.

Another page you might want to look at with your youngster is ‘Ask Warren Buffett’s Secret Millionaires Club’, which gives them the opportunity to submit a question to one of the four characters mentored by Buffett in the series in order to get some advice. Even if your child doesn’t have a question they want to ask, the page offers plenty of questions from other kids and the answers provided. Currently there are questions answered about how to start investing in the stock market, how to start up a fashion business, and why it’s a good idea to save money.

Hopefully, you’ll find something on Buffett’s site for your children or grandchildren to explore, on their own or with you. Whilst there’s no guarantee that visiting the site will be the first step to your child becoming a millionaire in the future, starting their financial education early in a way that makes it fun is always a good idea. Warren Buffett’s Secret Millionaires Club can be found at www.smckids.com.

How to approach student loans with your kids

Wednesday, April 11th, 2018

University is always going to be at least partially a financial decision both for prospective students and their parents, or whoever they rely on financially. Calculating the rising total bill for tuition fees and cost of living for a degree course can make university seem like an impossibility for some. But it’s essential that all involved carry out proper research into the cost of higher education before making a decision about the future, rather than letting sensationalist reporting in the media surrounding student debt scare them away.

Firstly, it’s crucial to remember that the cost of higher education never needs to be paid all in one go. Once a university place has been secured, tuition fees are paid automatically by the Student Loans Company for those who have taken out a student loan, and loans are also available for living costs.

Importantly, no student will need to start repaying their loan until the April after they graduate at the very earliest. Even then, only those students earning above £25,000 per year will be required to start making payments (the threshold has been increased from £21,000 to £25,000 in April 2018). Under the system, a graduate pays 9% of everything they earn annually over the £25,000 threshold. Someone earning £26,000 would therefore pay 9% of £1,000, or £90 over a whole year.

If a graduate’s earnings drop below the threshold or they find themselves out of work, the payments stop automatically. As student loan repayments are collected through your salary, you don’t have to worry about making them on time or debt collectors chasing you.

It’s important to remember that this isn’t something to feel ashamed or worried about: the system has been designed to ensure only those who can afford to pay back their student debt after graduating will be required to do so. If you still have outstanding student debt thirty years after graduating, this will be cleared no matter how much you still owe. As such, it’s expected that most graduates won’t repay their entire loan plus interest within thirty years.

A student loan is not the same as a bank loan, and as such doesn’t appear on your credit file. The amount you owe in student loan repayments will therefore not impact upon your ability to apply for other types of loans or credit cards when you graduate. The only time it may potentially come into play is in mortgage applications, where your take-home income is considered in assessing whether you can afford repayments on your home.

These are just some of the points which warrant consideration before making a decision about going to university. Each prospective student and the people they rely on financially will have individual circumstances to consider. The most important thing to remember therefore is to do your own research and make an informed decision about the financial facts and myths surrounding higher education.

What is a ‘market correction’?

Wednesday, April 4th, 2018

The start of 2018 has been an eventful time in the world of the stock market. After hitting highs at the end of January, both the Dow Jones and Standard & Poor’s 500 saw a considerable drop at the start of February, a fall from which the markets have now mostly recovered. At the time, however, this was reported as a ‘market correction’ by most media outlets. But what exactly does a correction mean in this context?

Put simply, a market correction is when the price of any security or market index declines by at least 10% after a recent high. There are a number of reasons why a correction might happen, but it’s regularly due to short-term gains being experienced despite very little changing in the market. The value increases are often down to the expectation of perceived gains within the mass psychology of investors. As the number of investors buying into the trend goes up, the price goes up too. Buying slows once the price reaches a certain height, and some of the investors lock their gains by selling. This in turn causes the price to go down again after the brief increase, which creates the market correction.

A market correction isn’t the same as a crash, which is a drop of 10% or more without the preceding high. Neither is it the same as the more sustained market downturn of a bear market, which sees a decrease of at least 20%, nor the significant decline in activity across a number of months during a recession. A correction can sometimes act as a forerunner to either a bear market or a recession, however.

Whilst corrections are often reported with similar negativity to crashes and recessions, they usually don’t warrant such pessimism. Corrections are an inevitability of the market: when stock value is going up, investors want in on the profits which could be made, leading to irrational exuberance and prices going above their underlying value. A correction in the price of a stock after a high period is often indicative of the stock’s true market value; as such, the correction may in fact indicate the market’s return to stability rather than a loss in value.

In this sense, corrections are healthy for the stock market, which is relatively volatile in the short term but in the long-term has a strong track record. They provide investors with the opportunity to see how comfortable they are with market risk and adjust or maintain their portfolio accordingly. There have been corrections in the past, and there will be more corrections in the future; unless it precipitates something more severe in the months ahead, the correction experienced at the beginning of February is no cause for panic.

April market commentary

Wednesday, April 4th, 2018

Introduction
To say that March was a busy month is an understatement.

Russia went to the polls to elect a new President and, in the least surprising result of the year, Vladimir Putin won another six year term. With the Chinese Communist Party removing the rules limiting Xi Jinping to two terms in office, two of the world’s three superpowers now effectively have presidents for life. North Korean leader, Kim Jong-un, jumped on the train and headed to Beijing for talks, ahead of his meetings with Moon Jae-in, the South Korean leader, and with Donald Trump. Presumably Kim and Xi Jinping did not discuss sanctions: China is supposedly imposing harsh UN sanctions on North Korea – and yet Kim saw his economy grow by more than 3% last year. ‘Curious and curious-er’ as Alice would have said.

Talk of sanctions and trade tariffs brings us to Donald Trump, who kept one of his pre-election pledges as he imposed a 25% import tariff on foreign steel and a 10% tariff on aluminium. The world may be worrying about a trade war between the US and China – and China has recently hit back with tariffs on US imports – but Trump is sticking to his ‘America first’ policy, and figures for February showed that the US added 313,000 jobs in the month.

In the UK, we had Chancellor Philip Hammond’s first Spring Statement, and agreement was finally reached on the transition agreement with the European Union, which will last until New Year’s Eve 2020.

Unsurprisingly, talk of a trade war meant that it was a bad month for world stock markets, with all but two of the major markets we cover in this commentary falling in March.

UK
As mentioned above, March in the UK brought us the first of Philip Hammond’s Spring Statements. There was relatively good news on the UK’s debt and borrowing figures but, as George Osborne frequently reminded us, the UK is always vulnerable to economic activity in the wider world, and any optimistic figures from the Chancellor could swiftly be consigned to the bin if the threatened trade war between China and the US develops.

He did, however, give a pointer to what we might see in the Autumn Budget. The plastic tax had been widely trailed, as had yet more moves to tax multinational companies such as Google and Apple. Interestingly, he made a reference to ‘seeking views’ on encouraging businesses who want to use digital payments. And why wouldn’t he? Digital payments can be tracked and taxed and would represent a way to strike back at the black economy.

Sadly, there are rather a lot of businesses on the UK high street that would like to take any payment, digital or otherwise. Restaurant chain Prezzo announced the close of 94 branches with the loss of 1,000 jobs; Next said it was experiencing ‘the toughest trading for 25 years’ and the Bargain Booze chain admitted it was close to administration.

House price growth was the lowest for five years and the balance of payments deficit in the three months to January widened to £8.7bn as imports of fuel increased.

There was good news on inflation however, which dipped to 2.7% thanks to a fall in petrol prices, which allowed the Chancellor to comment that most people should see a rise in their real wages “by the end of the year.”

Unfortunately, it looks as though the Bank of England will have increased interest rates well before then, with some commentators expecting an increase in base rates as early as next month and the Bank saying that rises might need to be “earlier” and “by a somewhat greater extent” than they had previously thought.

Unsurprisingly, the FTSE 100 index of leading shares didn’t like the sound of this and fell 2% in March to end the month at 7,057. It is now down by 8% for the first three months of the year – its worst opening quarter since 2009, when we were mired in the financial crisis. However, it was a good month for the pound, which will at least give you some comfort if you are planning a holiday abroad. The pound was up by 2% against the dollar in March and is now trading at $1.40.

Brexit
Well, we have spent a few months in this commentary reporting ‘no real progress’ on the Brexit negotiations. Now, it seems we might finally be getting somewhere, with the UK and EU reaching an agreement over the ‘transition deal’ – the relationship and arrangement we will have with the EU after we leave, which is currently less than a year away on March 29th 2019.

Your view of the transition deal will very much depend on your initial stance of Brexit: but let us try and summarise the main points as impartially as possible:

  • The transition period will end on New Year’s Eve 2020 – three months earlier than had been predicted
  • The UK will be able to negotiate, sign and ratify trade deals – for example, with the USA – during the transition period
  • Existing international agreements and EU trade deals will continue during the transition period
  • The financial settlement we have already agreed is locked in, and both sides are committed to ‘acting in good faith’ during the period
  • It is less good news for the UK’s fishermen: the UK can only ‘consult’ on fishing during the transition period
  • New EU citizens arriving in the UK during the transition period will have the same rights as those EU citizens already here
  • And nothing has so far been agreed regarding the border between Northern Ireland and the Republic of Ireland.

It has been repeatedly said of the EU negotiations that ‘nothing is agreed until everything is agreed’ – but you have to think that the above will be the basis of our relationship with the EU for the 21 months after March next year.

Those in favour of Brexit generally see greater control of trade policy and the agreement to act in good faith as ‘wins’. They are less keen on the extension of free movement and the fisheries policy. Those in favour of staying in the EU see it all as a mistake – but we are moving inexorably towards March 2019 and the UK will be leaving the EU.

Europe
The beginning of March brought the Italian election and – to no-one’s surprise – no clear result. The Eurosceptic, populist Five Star Movement was the biggest single party with a third of the vote, but Matteo Salvini, leader of the anti-immigrant League was also claiming the right to run the country as part of a right-wing coalition with former Prime Minister Silvio Berlusconi’s Forza Italia party. Inevitably, forming a coalition could take weeks of negotiation and horse-trading.

Much of the attention elsewhere in Europe focused on the Brexit deal, although French leader Emmanuel Macron will see his resolve tested this week by a series of rail and airline strikes as the transport unions begin a series of planned strikes in protest at his reform agenda.

The two major European stock markets both drifted down by 3% on the worries about a global trade war. The German DAX index was down to 12,097 while the French stock market closed the month at 5,167.

US
It is a testament to the newsworthiness of its President that we now accumulate as many notes for the US section of this commentary as we do for the UK.

As above, Donald Trump slapped tariffs on imports of steel and aluminium, with China responding over Easter by imposing tariffs on a number of US imports, including wine. There has been much wailing in the California wine regions – but the state is staunchly Democratic and the President is teetotal, so he is unlikely to lose any sleep. With 313,000 new jobs added, there are plenty of Americans who approve of what the President is doing.

Trump’s ‘America First’ policy and concerns for national security were further evidenced as he blocked the takeover of chipmaker Qualcomm by Singapore-based rival Broadcom.

At $140bn (£100bn) the deal would have been the biggest technology sector takeover on record, but there was “credible evidence” that it threatened US security, with fears that it could have put China ahead – or further ahead – in the development of 5G wireless technology.

If March was a good month for jobs and for national security, it was a dreadful month for Facebook. The company had $58bn (£41bn) wiped off its value after the Cambridge Analytica data breach scandal, leaving CEO and founder Mark Zuckerberg with a lot of apologising and explaining to do.

Nor was it a good month for Wall Street with the Dow Jones index inevitably falling amid worries about a trade war. It closed March down 4% at 24,103.

Far East
After the death of Mao Zedong in 1976 the Chinese Communist Party introduced a ‘two term limit,’ intended to ensure that a cult of personality could not re-emerge and that no-one could ‘rule for life’. But in March the ‘two sessions’ – the annual meetings of the national legislature and the top political advisory body – did what had widely been expected and scrapped the rule, effectively opening the way for Xi Jinping to rule indefinitely.

One of the first appointments the new ruler-for-life would have rubber-stamped was that of US-educated economist, Yi Gang, as the next governor of China’s central bank. It is an appointment seen as an attempt to ensure continuity, as China continues to try and rein in growing debt and risky financial practices.

No doubt, the cautious new central banker would have approved of China’s growth target for 2018, now confirmed as 6.5%. This is below the growth of 6.9% reported for 2017 (the first time in seven years that the pace of growth had picked up) and unquestionably reflects the country’s commitment to less risky economic policies and lending.

As mentioned above, the month ended with Kim Jong-un visiting China – seen as a necessary prequel to his meetings with Moon Jae-in and Donald Trump. The visit received a cautious welcome in South Korea, which wants to see the end of nuclear weapons in the Korean peninsula.

There was good news for Samsung in South Korea as the company launched its new S9 and S9+ phones at the World Mobile Congress: the company seems to have regained much of the ground lost when its phones recently took to rather inconveniently exploding…

Unsurprisingly, three of the four major Far Eastern markets were down in March, reflecting concerns over a possible trade war between China and the USA (with China responding by imposing tariffs on US imports over the Easter weekend). China’s Shanghai Composite index fell back 3% to 3,169. The Japanese market was down by a similar amount to close the month at 21,454 while the Hong Kong index was down just 2% to 30,093. The one market to buck the trend and manage a gain during the month – albeit only by 1% – was South Korea. Buoyed by hopes of positive talks with the North the market rose 1% to end the month at 2,446.

Emerging Markets
As we mentioned in the introduction, Vladimir Putin secured another six year term as Russian President, winning 76% of the vote, with his main rival, Alexei Navalny, barred from contesting the election. This came hot on the heels of the tit-for-tat expulsions of ‘diplomats’ after the alleged poisoning of former spy, Sergei Skripal in Salisbury, but that was never going to affect the result of the election. Putin’s share of the vote was up from the 64% he won in 2012. Asked if he would run again in 2024 (by which time he will be 72), Putin replied, “What you are saying is a bit funny. Do you think I will stay here until I am 100 years old? No!” So that confirms it then…

With the West supposedly imposing sanctions, the Russian stock market is more immune than some to threats of a global trade war, and the stock market was down just 1% in March to 2,271. The Indian stock market was hit much harder and fell 4% to end the month at 32,969. The Brazilian market was the only other market of those we cover not to fall in the month, closing up just 12 points at 85,366.

And finally…
There is news that the Church of England will now accept contactless transactions through Apple and Google Pay, albeit only for weddings, christenings and church fetes. Donations via contactless to the collection plate are still being trialled. “It may take too long,” said a Church spokesman. “The old ways could still be the best.”

…A sentiment that was probably echoed by Kentucky Fried Chicken. We wrote about the problems of KFC last month: how the bargain bucket became the empty bucket after they jilted long time food delivery partner Bidvest for the sultry charms of DHL.

Like a middle-aged man admitting the truth after a mid-life crisis, KFC have now repented their error and begged Bidvest for forgiveness. A new agreement has been reached and at least 350 of KFC’s 900 restaurants can look forward to what Bidvest promise will be a “seamless return.”

Rather less seamless may be the foreheads of Apple engineers at their new $5bn (£3.6bn) headquarters in Cupertino. Apple had a problem: according to Reuters, “if engineers had to adjust their gait when entering the new building they risked distraction from their work.”

The solution at the 175,000 acre campus, which is home to 13,000 employees, was doors with completely flat thresholds and massive glass windows with extra transparency and whiteness. So transparent and white that “when the walls have been cleaned you can’t even tell they are there.”

Which was bad news for Apple’s super-intelligent engineers as they walked along lost in thought. Several Apple employees have been left bloody and concussed after walking into the transparent doors and windows. The San Francisco Chronicle has published transcripts of three 911 calls made after Apple employees injured themselves in this way. “We did recognise that this could be a problem, especially after the doors and windows had been cleaned,” said an Apple spokesman.

If only Apple had shown the insight of the Church of England…

Spring Statement – March 2018 Overview

Wednesday, March 21st, 2018

Introduction

In 2016 Britain voted to leave the EU and new Prime Minister Theresa May invited George Osborne to consider an alternative career and replaced him as Chancellor with Philip Hammond, the MP for Runnymede and Weybridge nicknamed ‘Spreadsheet Phil’ by his Commons colleagues.

Five months later, Hammond stood up to deliver his first Autumn Statement and immediately announced it would be his last. “No other major economy,” he said, “has two financial statements in a year.” Thus the Budget was moved to Autumn and, from 2018, the Spring Budget would become the Spring Statement.

And here we are… Eighteen months on from Mr. Hammond’s first announcement, the UK continues along its road towards Brexit and the Chancellor – who seems secure in his job for now – continues to be a man who will “choose our course and stick to it” (or words to that effect).

The Economic Background

Expectations for the speech were not high among journalists and commentators: ‘Don’t expect Hammond to pull a rabbit – or even a March hare – out of the hat’ was the general consensus.

Nevertheless, the Chancellor would have some good news on public finances to deliver in his speech. Borrowing has reduced significantly and was expected to be around £45bn for this year as opposed to the forecast £50bn, with day-to-day public spending finally in surplus for the first time since 2002/2003. However, the UK’s total national debt currently stands at £1.8 trillion, equal to 86% of the country’s annual economic output.

Would this mean the Chancellor announcing an end to austerity? After all, some local councils are claiming that they are effectively bankrupt and the NHS has seen spending increase by just 1.1% in real terms since 2010. But the Chancellor will not be changing course: speaking on the BBC’s Andrew Marr Show on the Sunday before the Statement, he said: “This (austerity) isn’t about some ideological issue. It’s about making sure we have the capacity to respond to any future shock in the economy.”

This view was backed up by Liz Truss, Chief Secretary to the Treasury, who wrote in The Times, “There will be no red box, no rabbits out of the hat and no tax changes. Our message is simple. Let’s keep on course, keep our economy strong and focus on the opportunities ahead of us. We want to keep taxes low so that the weekly budget goes further.”

With the OECD predicting that the UK economy would grow at the slowest pace of all the G20 countries this year, what could we look forward to in the speech? The rumours suggested there would be more details of taxing the tech giants such as Facebook and Google, consultations on taxing and discouraging the sale of single-use plastics and even the possibility of a tax on chewing gum to pay for cleaning up the mess it makes.

The Speech

As is now traditional, the Chancellor began his speech with a joke at the expense of Labour Shadow Chancellor, John McDonnell. “I won’t be producing a red book, Mr. Speaker,” he said. “But I can’t speak for the Shadow Chancellor,” – a reference to McDonnell brandishing ‘The Thoughts of Chairman Mao’ in the Commons chamber.

Even more traditionally, he spent the next few minutes outlining what had gone right as the Government, “made solid progress building an economy that works for everyone.” But eventually, the chamber ‘rapport’ was put aside and Philip Hammond turned to what he does best: reading out lists of figures…

The Numbers

The Chancellor began with the forecast growth figures for the UK economy, which the Office for Budget Responsibility (OBR) has increased for this year, now forecasting growth of 1.5% in 2018. That will be followed by growth of 1.3% in 2019 and 2020, then 1.4% in 2021 and 1.5% in 2022. These forecasts are up in the short term and down in the long term, presumably reflecting some uncertainty over the impact of Brexit.

Employment and Inflation

The Chancellor pointed out that the number in work had increased by 3 million since 2010, the equivalent of 1,000 people finding work every day. The unemployment rate is close to a 40 year low and the OBR is predicting that there will be 500,000 more people in work by 2022.

Equally importantly, it is expected that inflation will start to fall over the next 12 months, “closer to the target rate of 2%” which should see most working people start to enjoy real growth in their wages again.

Public Finances

“Borrowing has fallen by three-quarters since 2010,” said the Chancellor and – as we noted in the introduction – this means that the amount the Government spends on servicing the national debt has reduced significantly. The UK now borrows £1 in every £18 it spends, compared to £1 in every £4 in 2010. The Chancellor also confirmed that debt as a percentage of Gross Domestic Product will also fall, from 85.6% of GDP in 2017/2018 to 78.3% in 2021/22.

He confirmed that borrowing would be £45.2bn for this year, £4.7bn lower than had been forecast in the Autumn Budget. “And,” he announced proudly, “£108bn lower than in 2010.” Borrowing would be 2.2% of GDP this year and would gradually fall to 0.9% in 2022/2023.

Progress since the Autumn Budget of 2017

Despite it only being five months since the Autumn Budget, the Chancellor was keen to summarise a list of achievements. There was nothing new in this section: rather it was a re-statement of the commitments made in the Autumn and a confirmation – at least in the Chancellor’s eyes – that the country is on track.

The Autumn Budget contained a pledge to increase the supply of homes to 300,000 a year by the mid-2020s, via an investment programme of £44bn over 5 years and the Chancellor confirmed that the Government was working with 44 areas throughout the UK to bring this about. In addition, London will receive a further £1.67bn to start building 27,000 affordable homes by 2021/22 and the Housing Growth Partnership, which provides additional finance for small builders, was more than doubled to £220 million.

To loud cheers from the backbenches behind him, Philip Hammond announced that an estimated 60,000 first time buyers had already benefited from the abolition of stamp duty announced in the Autumn Budget.

To some muted jeers, though – quite possibly from some of his own Eurosceptic backbenchers – the Chancellor said that “substantial progress” had been made in the Brexit talks. He looked forward to “another step forward” at the forthcoming EU summit and confirmed that the Treasury would be publishing information about how the initial £1.5bn of the £3bn set aside for Brexit planning would be allocated to Government departments.

Wages and Taxation

In the lead up to the speech, the Chancellor had worked hard to set expectations that there would be little by way of new tax or policy announcements. As it turned out, the Chancellor did mention some previously announced changes, but he was also true to his word when it came to brand new announcements or significant new initiatives.

What The National Living Wage will rise to £7.83 per hour
When From April 2018
Comment All the other minimum rates will rise in line with the increase in the headline rate, with the youth rate seeing the largest increase for 10 years. In total, around 2 million people are expected to benefit from the increases.
What The tax free personal allowance will increase to £11,850
When From April 2018
Comment This will mean that a typical taxpayer will be paying £1,075 less income tax than in 2010/11. The threshold for higher rate tax will also increase to £46,350 from April (or £43,431 in Scotland).

Business

What The next revaluation of business rates will be brought forward
When Moved forward to 2021, instead of next being revisited in 2022
Comment This will be welcomed by businesses, especially those in retail and catering/hospitality which have been hit hard by the high level of business rates. Revaluations will also now take place three yearly rather than five yearly, meaning that there will now be reviews in 2021 and 2024.

Other business measures

In the Autumn Budget, £1.7bn was announced for measures to improve transport in English cities. Half of this was given to cities with mayors, but bids are now being invited from other cities across the UK for the remaining £840m.

Hand in hand with this went the Government’s commitment to improve digital connectivity across the UK. In total, £190m was allocated to this and we will now see the first wave of funding, with £95m allocated to 13 areas across the UK.

There will also be £50m made available to help employers prepare for the new T-levels, the technical qualification the Government is introducing.

The Chancellor also discussed three consultations that may impact businesses, though the detail behind these was missing from the summary published on the government website.

Productivity

A long-standing topic in the Chancellor’s speeches (and his predecessor’s), productivity made it on to the formal agenda again, with the Chancellor promising “to understand how best we can help the UK’s least productive businesses to learn from, and catch up with, the most productive.”

Late payments

The Chancellor also promised, if not action, then at least the promise of action, on what he called “the continuing scourge of late payments”. Small businesses everywhere will doubtless be very keen to see what the Chancellor comes up with on this topic.

“Human capital”

A slightly odd choice of phrase, but the Chancellor surmised that the government and business currently know more about measuring the value of investing in infrastructure than they do about measuring investments in “human capital”. For this reason, he said, he had “asked the ONS to work with us on developing a more sophisticated measure.”

There was then a further consultation announced via the treasury website on the same day as the Chancellor’s speech, though Mr Hammond did not refer to it directly.

Enterprise Investment Scheme

Aimed at the current range of venture capital schemes (including the Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts), this consultation is ultimately aimed at attracting more investment into innovative firms. The consultation is considering “additional incentives to attract investment” but, as with many other announcements from the Spring Statement, we will have to wait to see whether that promise comes to fruition.

What might we see in the future?

The pundits had speculated that the Chancellor would only speak for 20 minutes or so. 20 minutes came and went and MPs who had planned on a decent lunch started looking nervously at their watches. But in some senses, this last section of the speech was the most interesting, as it gave a clear indication of the measures we might see in future Budgets, depending on the outcome of various consultations.

The plastic tax

This has been widely trailed – it is also referred to as the ‘litter levy’ – and the Government will use the tax system to ‘encourage the responsible use of plastic throughout the supply chain.’ This will include items such as coffee cups, plastic cutlery and foam takeaway trays. The Chancellor did not mention chewing gum specifically but the rumours are that it will also be included in the measures. “Some of the money raised from any tax changes,” for which you can read, ‘there will be tax changes’ – will be used to encourage the creation of newer, greener products, while £20m will also be given to businesses and universities to fund research into ways of reducing the impact of plastic on the environment.

Taxing the tech giants

What would a Budget speech – or a Spring Statement – be without an attack on the tech giants who are “not paying their fair share of tax?” The Government will once again be considering ways in which to tighten up on Facebook, Amazon, Google and friends: looking 10 years down the line it may also need to consider the impact of the Chinese tech giants such as Alibaba, Tencent and JD.com.

White van man goes green?

At the moment there is tax relief given for agricultural diesel but the Chancellor said he would “call for evidence” on whether this is contributing to air pollution. And in the days when every delivery from Amazon arrives in a white van, he announced that he would consult on tax cuts for low-emissions vans.

Giving people the skills they need

Clearly, improving skills benefits not just the individuals concerned but the wider UK economy, and the Chancellor gave a clear hint that he will offer tax relief to both employees and the self-employed who fund their own training.

Goodbye to cash?

Far more of us now use digital payments rather than cash – although the UK has some way to go to catch up with some countries (such as Sweden) where cash has all but disappeared. The Chancellor is ‘seeking views’ on encouraging business who want to use digital payments. And why wouldn’t he? Digital payments can be tracked and taxed and would represent a way to strike back at the black economy.

Conclusion

The Chancellor’s final point may have read as something of a warning to those up and down the country who currently deal heavily in cash (think hairdressers and window cleaners), but he was determined to finish on a high for all, repeating a message that his party has long promoted. He was keeping the UK on course to be, “an outward-looking, free-trading nation, confident that its best days lie ahead.”

The detail of exactly how he plans to make that happen, though, may well have to wait until the Autumn Budget, where many of the Chancellor’s plans will be made clearer.
For now, however, the new, slimmed down Spring Statement acted as a useful summary of our current economic outlook and an interesting trailer of both things to come and plans being made.

Taxes set to rise for baby boomers?

Wednesday, March 14th, 2018

Recent research has suggested that those in the baby-boomer generation should be prepared to pay higher wealth taxes in order to pay for healthcare costs likely to climb steeply in the near future. According to think tank the Resolution Foundation, this could signal the end of the tax cuts in Britain, a development which may have less impact on those of you at or approaching retirement, but significant impact on your children’s generation.

According to the research, by 2030, health, education and social security spending are predicted to rise by £20 billion a year in today’s money, climbing to £60 billion a year by 2040. Thanks to spending cuts for a number of departments, the UK government’s budget deficit has gradually been brought down since it stood at 10% of economic output in 2010.

However, as the number of easy cuts able to be made runs out, the government is coming under increasing pressure to raise funds through increased taxation. Whilst the chancellor, Philip Hammond, has managed to cut the country’s financial deficit faster than had been forecast over the past financial year, the Resolution Foundation’s report suggests that increased public spending in the coming years will give the government no other option but to raise taxes.

“The time has come when we boomers are going to have to reach into our own pockets,” said the chair of the Resolution Foundation and former Conservative government minister, David Willetts, in response to the report. “The alternative could be an extra 15 pence on the basic rate of tax, paid largely by our kids.”

Aside from the rising cost of healthcare, the think tank also highlighted another key reason why baby-boomers will need to take on more of the tax burden in the future: later generations will simply not be able to afford to do so. Millennials, born between 1981 and 2000, are spending more of their income on housing costs than any other generation of the twentieth century.

Despite this, the level of home ownership has decreased significantly in the UK over the past two decades as young adults have felt the effects of increased pension payments and poor wage growth following the financial crisis. This has further and further skewed wealth towards the older generations.

Willetts feels that there may now be no other choice than to increase wealth taxation. “Unless we act, at some point we will face a choice between changing our approach to taxation, or cutting access to the NHS and letting social care get into an even deeper crisis,” he warns. “We can’t delay that debate any longer.”

Talk about your Will – don’t be one of the 93%

Thursday, March 8th, 2018

A national saving and investment survey has shown only 7% of people have spoken to their parents about inheritance. One of the most important parts of planning to leave an inheritance is to talk about it. This is obviously not an easy topic and it may be a good idea to set aside some specific family time to have this discussion. This could help avoid any family disputes before and after you are gone.

The most efficient way to prepare for this discussion is planning. Take some time to think about your priorities for your money after you are gone. This could include things like making sure your partner or spouse is provided for, donating to a charity that is important to you, caring for a relative that is ill or has a disability, or making sure your grandchildren have the best possible opportunity of a good education. It may help to write down these priorities so that you have a basic draft of the will you want to leave. This will help a discussion with your family go more smoothly than if you don’t have a clear idea of what you are looking to achieve.

Remember that your inheritance wishes are solely your decision and no one else can tell you what to put in your will. During the meeting with your family, try to outline what you want to achieve and your reasons, rather than the exact sums involved. This will help your family understand your specific goals and could reduce any potential disagreement. They may also have some relevant input into the management of your estate and it is worth taking on board their expectations and opinions with regard to your assets and possessions.

You can also reassure them that nothing is set in stone as many things could happen between this discussion and the end of your life, and you can amend your will to reflect this. This conversation can give you the foundation to adequately prepare your will knowing you have taken your loved ones’ wishes and expectations on board.

As part of your inheritance planning, ensure you talk to your financial advisor about Inheritance Tax Mitigation. Mitigation ensures you have done everything you can legally to pay the minimum amount of tax. There are a number of ways of reducing tax on your inheritance which include making a gift to your partner or giving money to your family and friends. There are also options like trusts or leaving money to charity which can reduce your overall inheritance tax bill.

But still the most important aspect of this difficult subject is to a have an honest, open dialogue with the people that are important to you to help prepare them as best you can for the future after you are gone.

Hints that interest rates could rise

Wednesday, February 14th, 2018

Figures released at the end of January revealed that the final quarter of 2017 saw the economy expand by 0.5%. The Bank of England has now indicated that the pace of interest rate rises could speed up if the outlook remains positive.

Although Mark Carney and his colleagues voted to keep interest rates on hold at 0.5% at their latest meeting, they did indicate that the rates will need to rise “earlier” and by “a somewhat greater extent” than previously thought. As a result of the Bank’s comments, the value of the pound jumped by about 1% against both the dollar and the euro.

When the Bank put the rates up for the first time in ten years last November, it hinted there could be two more increases of 0.25% over three years, but it now appears there could be a third one and sooner than expected. There is speculation the next rise could come as soon as May.

As well as the growth in the economy, the growing numbers of people in employment have contributed to this belief. 32.2 million people were in work in the three months to November 2017, marking the highest total since 1971 when records began and a joint high record employment rate of 75.3%. Whilst average earnings increased 2.5% in the year to November, the growth of pay was below the rate of inflation for the tenth month in a row. The Bank does now think, however, that wages will start to increase.

If interest rates are increased, this will undoubtedly affect those households who currently have a standard variable rate or tracker rate. Of the 8.1 million households in the UK, approximately 50% are thought to be on this type of mortgage and interest rates would be likely to increase to match the Bank of England rates.

On the plus side, however, an increase rate rise would be welcome for savers as the High Street banks would generally follow suit.

Due to the boost in the UK economy, the Bank has raised its growth forecast 1.7% this year from the previous figure of 1.5%. It is worth noting, however, that this forecast is based on a “smooth” adjustment to Britain’s departure from the European Union. In the meantime, we wait to see what the Bank will actually do regarding interest rates in May.

Who owns your bank?

Wednesday, February 14th, 2018

Following the financial crisis of 2008 when a number of big British banks came close to collapsing, the Financial Services Compensation Scheme (FSCS) was strengthened by the government. As such, the FSCS 100% guarantees the first £85,000 of a person’s cash savings per banking licence in total, including interest. This means that a couple with a joint account holding up to £170,000 will have every penny of this covered.

But what does ‘per banking licence’ mean? Simply put, one banking licence can cover a number of different banks, building societies or brands. It’s important therefore to spread your cash across more than one provider, as it could mean some of your hard-earned money isn’t as safe as you think in the event of a future collapse.

With that in mind, below is a list of the biggest banks and building societies in the UK and all the brands which fall under their banking licence. That means if you hold more than £85,000 across different brands but under the same licence, you could be in a position to lose out should the worst happen.

HBOS (Halifax/Bank of Scotland group):

  • AA
  • Bank of Scotland
  • Birmingham Midshires
  • Halifax
  • Intelligent Finance
  • Saga

Lloyds Banking Group*:

  • Cheltenham and Gloucester
  • Lloyds Bank

*HBOS was acquired by Lloyds Bank, but both HBOS and Lloyds Banking Group have continued to operate under separate banking licences.

TSB:

  • TSB

Barclays:

  • Barclays
  • Barclays Direct (formerly ING Direct)
  • Standard Life
  • Woolwich

HSBC:

  • First Direct
  • HSBC

Royal Bank of Scotland (RBS)**:

  • RBS

NatWest:

  • NatWest

Ulster Bank:

  • Ulster Bank

Coutts & Co:

  • Coutts

**NatWest, Ulster Bank and Coutts are all subsidiaries of RBS, but have their own separate banking licences. As such, someone with accounts in each of these banks would be covered for up to £85,000 in each bank.

Santander UK:

  • Cahoot
  • Santander

The Co-operative Bank:

  • Britannia BS
  • Smile
  • The Co-operative Bank

Bank of Ireland UK:

  • Bank of Ireland UK
  • Post Office

Clydesdale Bank PLC:

  • Clydesdale Bank
  • Yorkshire Bank

Sainsbury’s Bank:

  • Sainsbury’s Bank

Tesco Bank:

  • Tesco Bank

Virgin Money:

  • Virgin Money

Nationwide BS:

  • Cheshire BS
  • Derbyshire BS
  • Dunfermline BS
  • Nationwide BS

Yorkshire BS:

  • Barnsley BS
  • Chelsea BS
  • Egg
  • Norwich and Peterborough BS
  • Yorkshire BS

Coventry BS:

  • Coventry BS
  • Stroud and Swindon BS

Skipton BS:

  • Chesham BS (renamed Skipton BS)
  • Scarborough BS (renamed Skipton BS)
  • Skipton BS

So, what about banks outside the UK? Whilst most banks which accept British savings are not covered by the FSCS, some within the European Economic Area are covered by their home country’s compensation scheme through the ‘savings passport’ scheme. One of the most prominent examples is Triodos Bank in the Netherlands, which is covered by the Dutch equivalent of the FSCS up to €100,000 per person. There are also some international banks which are covered by the FSCS, including:

  • Axis Bank UK
  • ICICI Bank UK
  • State Bank of India UK

National Savings & Investments (NS&I) is also covered by the FSCS – but as it’s owned by the government, the expectation is that all deposits into NS&I (both up to and over £85,000) would be covered apart from in the most extreme financial circumstances.

The Harley Owners Group VAT battle

Thursday, February 8th, 2018

The new year has brought with it reports of another victory for taxpayers in a mixed supply case. The case involves the VAT liable on membership fees paid to Harley-Davidson Europe Ltd by members of the Harley Owners Group (HOG).

HOG was not a conventional distinct legal entity, society or club, but rather a business unit of Harley-Davidson Europe Ltd. For the £55 annual subscription for full membership of HOG, members received a membership card; a hard copy magazine four times a year; a leather wallet; a touring map, including a guide to events; access to a number of websites, including the ability to publish photos; and opportunities for discounts at hotels and other businesses. The £55 payment was wholly standard rated as a supply of membership according to HMRC. However, the taxpayer argued that each specific benefit should be considered for individual VAT liability. For example, as printed matter, the magazines members received should be zero-rated.

Whilst cases such as these continue to be a grey area for VAT, each mixed supply case has four questions which need to be addressed:

  • Firstly, is each benefit or supply distinct and independent from the others?
  • Secondly, what does the typical customer consider he/she is buying?
  • Thirdly, is there a main supply, with other benefits being supplemental to this principal element?
  • Fourthly, are some supplies a way of enhancing the enjoyment of the main supply, or is each supply an aim in itself?

A good example to understand what this means is to compare a cheap flight during which the passengers are given complimentary tea or coffee, with a four course meal with wine on the Orient Express. The hot drinks are a way of helping passengers to enjoy their zero-rated flight, rather than a supply of standard rated catering. In contrast, a customer would rightfully complain if they didn’t receive their food and drink on the train journey, as they expect to experience both the journey and fine dining experience. As such, the flight and beverages are a single supply, whereas the Orient Express excursion and meal are clearly a mixed supply.

In the case of the HOG membership fee, the tribunal concluded that ‘the typical member… places real value on the tangible items’, meaning that the individual items received were more important than the esteem of the link to the Harley Davidson name. Additionally, the company carried out a survey of its members where 89% described the quarterly magazine as ‘somewhat or very important’, backing up the conclusion of the tribunal.

It’s also worth noting that, had Harley-Davidson Europe Ltc been a ‘not for profit’ organisation, the case would not have reached the tribunal as the magazine could have been zero-rated without issue. This is because of a concession which exists for splitting different VAT rates for benefits packages for members of such organisations, which include charities and members’ golf clubs.