Category: Economics


The UK is the best place in Europe to start a business

As the UK economy has gradually recovered from the effects of the pandemic there has been the usual mixture of good and bad news. The glass could be half full, with the UK growing at the fastest rate of G20 countries, or half-empty, with worker shortages threatening to derail the recovery, both being headlines within five minutes of each other. 

But at the end of August there was one piece of undisputed good news. City AM reported that the UK had been named as the best country in Europe to start a business. The study, carried out by e-money platform Tide, also found that the UK had the lowest costs for starting a business. 

The study considered a number of factors, including the jobless rate, the ease of doing business and the number of days required to set up a business, with Ireland coming second in the rankings, ahead of Holland and Denmark. Germany, Italy and Spain didn’t feature in the top ten. 

You may have heard about the record numbers of people who set up their own business during the pandemic. A significant proportion of these will be younger entrepreneurs and another report in City AM, published earlier in the month, gave even more cause for optimism. The headline on the article based on a report published by AXA was very simple. “SMEs with young business owners saw stronger performance in the pandemic.” 

In 2020 companies run by decision makers aged between 55 and 64 saw turnover reduce by 29%. Companies run by 45 to 54 year olds didn’t fare much better. SMEs run by people between 25 and 34 saw turnover fall by just 12%. But for companies run by 18 to 24 year olds the drop in turnover was just 7%. 

For Claudio Gienal, CEO of AXA, the conclusion was obvious. “The report finds that younger entrepreneurs have brought out new services and products, listened to the needs of local clients and been faster to deploy digital solutions.” 

According to statistics from the Federation of Small Business (FSB) there were 5.94m small businesses with up to forty nine employees in the UK at the start of 2020. This made up 99.3% of total businesses in the UK with 13.3m people employed and a turnover of £1.6tn, equal to 36% of the turnover of the private sector. 

As more and more people, especially young people, decide that running their own business will give them the work/life balance they want post-pandemic, any news that is good for small businesses and business start-ups is going to be good for the overall UK economy. 

The UK economy grew at the fastest rate of all the G20 countries in the second quarter of the year, with the OECD reporting growth of 4.8%. Making the UK an attractive place to start and build a business can only consolidate that economic growth which, in the long run, will benefit us all.


Is the US recovery about to stall?

“When the US sneezes the world catches a cold.” Most of us have heard that expression, meaning that the US economy is the principal driver of global trade and economic growth. 

Clearly China in particular and the Far East in general may now dispute that claim, but the fact remains that what happens in the US does impact growth and jobs around much of the world, especially in Europe. 

So as the world recovers from the pandemic, should we be worried about conflicting economic indicators coming out of the US? Is the recovery there about to stall? Or is this just a minor bump in the road ahead? 

To start with the bad news, consumer spending, the most significant component of US Gross Domestic Product (GDP), could be showing signs of slowing down. July retail sales which include both online and offline were down 1.1% on the previous month, led by a decline in car sales. 

Hand in hand with this went a decline in consumer confidence, as US consumer confidence in August dropped to its lowest level since February. One US official commented, “Concerns about the Delta variant [and] rising gas and food prices resulted in a less favourable view of current economic conditions and short term growth prospects.” Or, as most people would say, US consumers were worried…

Most worryingly of all, perhaps, the private sector of the US economy added just 374,000 jobs in August, well below the expected figure of 613,000. There was, though, some good news coming out of the US. The manufacturing sector strengthened, largely driven by an increase in new orders. The Purchasing Managers’ Index rose from 59.5 in July to 59.9 in August. The housing sector remained strong, with one index measuring US house prices showing a 19.1% annual increase in June 2021. 

…And remember those retail sales that fell in July? In August they were up, albeit by only 0.7%. 

The simple fact is that the picture from the US,  like so many countries, is mixed. Some sectors are doing well, some are doing badly and that is quite likely to change on a month-to-month basis. There are also other, external factors at work. Sales of cars and auto parts were down by 4.5% in August, but that was caused as much by a shortage of computer chips as it was by any unwillingness to buy on the part of the American consumer. 

So is the US recovery about to stall? The simple answer is that the recovery from the pandemic will not be smooth. Different countries will recover at different rates and likewise different economic sectors within individual countries. The US is no different although, very clearly, what happens in the US will continue to affect other economies, especially those in the West. 

We should also make one final, important point. All the figures were correct at the time of writing: clearly, in today’s fast-moving, interconnected world, they may have been updated by the time you read the article. Does that make the comments above invalid? Far from it, it simply emphasises that financial planning is a journey.


Is there any reason to worry about inflation?

If you’re the sort of person who likes their glass half-empty then there will be plenty of opportunities to find something to worry about at the moment. The recovery from the pandemic, global tensions and all the staff shortages in the news can turn anyone into a pessimist. 

On top of that, some are suggesting that we need to start worrying about a word that has hardly been on anyone’s lips for the last few years – inflation.  There are even fears that the policymakers could “choke off” the economic recovery because of worries about inflation. 

In the recent past, most economies have been worrying not about inflation, but about deflation – which can cause economies to stagnate. Seemingly suddenly, the effects of Covid are causing prices to rise, and we’re hearing more and more about supply chain inflation. Simply put, manufacturers are having to pay more for raw materials because of delays and disruption caused by the pandemic. That cost carries down the line, and inevitably, this will result in higher prices to consumers. 

The Bank of England’s departing chief economist Andy Haldane has warned that inflation is “rising fast” and could reach nearly 4% this year – well above the Bank’s target rate of 2% (which was exceeded in May, when inflation reached 2.1%). 

The Bank’s Monetary Policy Committee is slightly less hawkish, saying that it expects inflation to go above 3% “for a temporary period.” The Resolution Foundation, a well-known think tank, sides with Mr Haldane, arguing that as the economy opens up and consumers start to spend the savings they accumulated during lockdown inflation will be driven up. 

Concerns are also being voiced in Europe – which has suffered from too little inflation for almost the last decade – and in the US, with the Wall Street Journal forcibly making the point that it is supply problems causing the rise in prices, not an increase in consumer demand. 

Whoever is right, inflation is something worth keeping an eye on. Inflation has the potential to impact the value of savings and investments, and interest rates paid on deposit accounts remain at, or very close to, historic lows. If inflation does reach 4% then a deposit account paying less than 1% is going to look remarkably unattractive. 

It’s not all doom and gloom, as with most things, a little planning goes a long way. Regular contact with your financial professionals and regular reviews of portfolios is as important as ever.


Could a shortage of staff de-rail a recovery?

Older readers may remember the TV drama Boys from the Blackstuff and, in particular, the catchphrase uttered by Yosser Hughes. “Gizza job. Go on, gizza job. I can do that.”

Forty years later could we be about to see a complete role reversal? Could employers be standing plaintively outside their shop, office or factory saying, “Want a job? Come on, mate, you can do this.”

As the pandemic unwound we heard plenty of tales of woe from the hospitality sector. Pubs, bars and restaurants were ready to reopen but were unable to do so. They simply couldn’t find enough staff, with widespread reports that up to 20% of workers had left the sector. 

With “Freedom Day” now having arrived there are stories of yet more staff shortages. There are pictures of empty supermarket shelves in all the papers, apparently caused by a shortage of delivery drivers. There are warnings of cancelled operations and missed diagnoses because of a lack of NHS staff. 

The recent culprit was the “pingdemic”, the results of the Government’s test and trace app forcing so many people to self-isolate. That, presumably, will be sorted out, but is there a longer term problem? Could a shortage of staff – and, in particular – skilled staff, de-rail our economic recovery? 

In the manufacturing sector 38% of manufacturers reported problems finding staff with the right skills before the pandemic: that figure has now risen to 65%. Problems also remain in the service sector: while the latest Purchasing Managers’ Index shows a high level of optimism, small firms are struggling to meet demand because of staff shortages.

This seems unlikely to change any time soon. The pandemic has made people increasingly aware of their work/life balance and the long hours, night-time and weekend working that much of the service sector demands is simply no longer seen as attractive. 

Research by Broadbean Technology, the world’s largest network of jobs boards, showed that overall job applications in the UK fell 24% between May and June of this year. This came despite vacancies being up 10% in the same period, illustrating the mismatch between the supply and demand for workers. 

However many incentives, grants or support packages the Chancellor unveils businesses can do nothing without staff. Employers will need to be more creative with remuneration packages and embrace flexible and home working much more than they have previously done. We as consumers may need to modify our behaviour as well, accepting that things we may previously have taken for granted are no longer available. Want to eat out at 10pm? It may mean sitting in the car with a takeaway…


Are we right to be optimistic about the UK economy?

Is the glass half full or half empty? It’s one of the oldest questions (and clichés) there is. But right now you could be forgiven for thinking that as far as the UK economy goes the glass is not just half full, it’s completely full. 

The last few weeks have brought us a steady stream of good news. Post-Brexit the UK has agreed – or is very close to agreeing – trade deals with Norway, Iceland and Australia. According to recent reports International Trade Secretary Liz Truss is aiming to sign a free trade deal with New Zealand ‘by August.’ 

Manufacturing growth is at a 30 year high and even car sales – which were hit so hard by the pandemic – have recovered. The UK “optimism index” is at a six year high, and recent figures showed the average price of a house in the UK rising to record levels. 

Optimistic forecasts abound, with the CBI predicting that the UK economy will grow by 8.2% this year, up from a previous forecast of 6% and taking the economy back to pre-Covid levels. The economy will grow by a further 6.1% in 2022, the CBI forecasts, up from a previous figure of 5.2%. 

Still not convinced? The UK is now officially home to 100 “unicorns” – new tech firms with a valuation of more than $1bn (£721m). Tractable, an artificial intelligence start-up building computer vision tools became the latest, joining companies such as Skyscanner (from Scotland), Durham-based challenger bank Atom Bank and Darktrace, based in Cambridge, which uses AI to develop cyber-security solutions.

There are, of course, areas for concern. All is looking up, apart from the fact that ‘Freedom Day’ – originally scheduled for June 21st – has been pushed back. Apart from the fact that the UK could well face a third wave of the virus as the seemingly more infectious Delta variant holds sway. Apart from the fact that many UK businesses – especially in the hospitality sector – are struggling to re-open because of a shortage of staff.

The simple fact is that there is likely to be a mixture of good and bad news for the foreseeable future. This good and bad news will be reflected in stock markets, not just in the UK but around the world. So the only certainty is that regular contact with your financial advisers will be essential – and that your financial planning will need to be flexible and regularly reviewed. 

Yes, there is an increasing amount of good news but no economy – either in the UK or anywhere else – is out of the woods. We will continue to keep you up to date with developments and keep your financial plans under regular review. 


Who will pay the bill for Covid-19?

Government borrowing is at its highest level since the Second World War. According to the Office for National Statistics it reached £303.1bn in the year to March – nearly £250bn higher than in the previous year. Borrowing in March was £28bn – the latest month to set an unwelcome record. Borrowing in the year to March was 14.5% of Gross Domestic Product: at the end of the War it was 15.2%. 

Many pundits are expecting a spending boom: depending on which article you read, we “accidentally saved” between £100bn and £125bn during lockdown. Nationwide, for example, have reported that customers’ savings “more than doubled” to £10.6bn during the pandemic. 

With the lockdowns now easing, surely this money will be spent, kick-starting the economy and fulfilling various predictions of the fastest growth since the Second World War? 

Perhaps not: a recent survey suggested that the army of accidental savers lockdown created has plans to stay prudent. As the BBC report put it, consumers are likely to “play it safe” as the UK emerges from lockdown. Neither can the Chancellor expect a windfall from Corporation Tax: with the pandemic having hit the profits of many, many companies’ tax receipts from business are certain to be reduced. 

But at some point the Chancellor has to start paying the money back. So just who will pay the bill for Covid? And how long will they be paying the bill for? 

It hardly sounds like a prudent way to run a country but perhaps the UK will never pay back the debt. In the last 100 years the UK has never not been in debt: in the last financial year (before Covid struck) the Government was planning to borrow £160bn – of which £100bn was to pay back old debt. 

Some of you – brought up with a strict understanding that debt must be repaid – will recoil in horror, but Government borrowing is not like a credit card: the debt (at least according to the experts) does not need to be paid down as quickly as possible. 

Borrowing is cheap at the moment, with interest rates at historic lows – so low that last year the Government issued negative-yield bonds. Effectively, institutions that bought the bonds were paying the Government to look after their money. 

What the Chancellor really needs is a healthy dose of inflation. In years gone by, when annual inflation was in double digits, that very quickly reduced the “real” amount of Government debt. But even though inflation increased to 1.5% in April, a sustained period of high inflation looks very unlikely. 

Your grandmother would not approve, but for now it looks like the Chancellor’s emphasis will be on servicing the debt, rather than paying it back – and on keeping his fingers crossed the predicted rebound in the economy really does happen, finally starting to swell his tax coffers.

Can the British high street be saved?

Back in 2018 Mike Ashley, owner of Sports Direct and other high street brands, famously declared that ‘the British high street will be dead by 2030.’ The targets of his anger were MPs in general and the then-Chancellor Philip Hammond in particular. Any more taxes on the high street, Ashley argued, and it would collapse in the face of increasing competition from online retailers. 

In particular, Ashley and many other high street chains had business rates in their sights. Many shops were paying more in business rates than they were paying in rent. Unless the system was reformed, they argued, that would be it for the national high street. 

That was in 2018, well before coronavirus and well before lockdown. Anyone who has been into a town centre lately will know the devastating effects lockdown has had. 

The second round of lockdown measures were reported to have ‘battered’ footfall in the run-up to Christmas, with Bonmarché becoming the latest chain to collapse into administration. 

Figures for Boxing Day, traditionally one of the busiest shopping days of the year, suggested that footfall was down 60%. 2020 was reported to be the worst year for retail job losses for 25 years. 

Now we are in the third lockdown and Chancellor Rishi Sunak is extending the furlough scheme into the summer. 

Politicians are talking about there being ‘no guarantees’ of lockdown being lifted by the spring. Meanwhile we go on Amazon and buy everyday items we would previously have bought in our local shops…

One day all this will come to an end. Life will go back to ‘normal.’ But will that be too late for the British high street? Will we have become so used to working from home that, to take just one example, ‘the commuter economy’ will never recover? 

If the national high street is to be saved there has got to be some new ideas and an acceptance that the high street does not just equal retail. 

Local councils will need to become proactive and high streets will need to become a mix of retail, leisure and public space. In short, the best way to save our high streets may be to stop thinking of them as traditional high streets…


Spelling out the Chancellor’s Spending Review

Last month Chancellor Rishi Sunak delivered his Spending Review for next year to the House of Commons. In the absence of an Autumn Budget, the statement to the Commons set out the Government’s spending commitments for 2021/22. 

The Chancellor had announced some time ago that there would not be a formal Budget this autumn, because of the current economic uncertainty. Instead, the rather less formal Spending Review took centre stage. 

The overall theme of the speech was “jobs, businesses and the public services” as Sunak promised a “once in a generation investment in infrastructure, creating jobs, growing the economy and increasing pride in the places we call home.” 

What were the pundits expecting? 

The Treasury had trailed beforehand that the Chancellor will spend £4.3bn on new unemployment programmes, including a new Restart scheme to help people find work. Almost 1m people have lost their jobs in the pandemic, a figure which is expected to rise dramatically as the furlough scheme winds down. 

There was expected to be a £3bn package to support the NHS, with £1.5bn allocated to ease existing pressures, £1bn to allow the NHS to address the backlog of scans, checks and operations, and a further £500m to support mental health services. However, many commentators also expected a public sector pay freeze, with public sector pay having outstripped that in the private sector over the last year. 

It was widely expected that there would be at least £100bn for the National Infrastructure Project, including a tranche of road, housing and green energy projects as the Chancellor sought to ‘level up’ the Midlands and the North. 

‘Spooks’ could, apparently, look forward to ‘tens of millions’ going into a ‘world leading’ counter terrorism operation bringing together intelligence agencies and senior police officers. Another measure that had been widely trailed, not least by Conservative MPs, was a reduction in the foreign aid budget from 0.7% of GDP to 0.5%. 

The Economic Background 

Clearly, the pandemic has left the UK poorer. By the end of this year the economy is expected to be at least 10% smaller than it was before the pandemic. Alongside the Spending Review, the Chancellor was due to disclose the latest forecasts for the economy and the public finances from the Office for Budget Responsibility. 

Earlier this year the OBR had been forecasting a 13% contraction in GDP. It is now not expected to be that bad, but the reduction is still likely to be in double digits, with government borrowing topping £350bn – a level never before seen in peacetime. 

The Chancellor was slightly hamstrung by the spending commitments, for example to the NHS, already made. Would the remaining money be enough to go round? The Institute for Fiscal Studies thought the answer was ‘no,’ suggesting that courts, prisons and local government are likely to face cuts, as well as the widely trailed overseas aid budget. 

The Chancellor’s Speech 

Getting to his feet in a very socially distanced House of Commons, the Prime Minister answered the weekly PMQs via a video link from 10 Downing Street and the Chancellor immediately set out the scale of the problem. “The health emergency is not yet over,” he said. “The economic emergency has only just begun,” 

Nevertheless, ‘spending was the key word.’ There was no mention within his address of the fact that all of this must, at some point, be paid for, with the Chancellor seemingly happy to defer any hint of tax changes until the March Budget. Surprisingly, with just over a month to go to the end of the transition period, there was no mention of Brexit either. 

He stated that total spending on Coronavirus to date amounted to £280bn, with an expectation that public services funding to tackle the pandemic next year will be £55bn. 

Rishi Sunak said that he wanted to prioritise “jobs, businesses and the public services.” But there was no mention of any further support packages for business: you feel that once the current measures wind down, that will be that. As he has said many times, ‘we cannot protect every job and every business.’ 

The Numbers 

It wouldn’t be a set piece speech from the Chancellor without him giving us the numbers on growth and borrowing. If you are nervous you should, perhaps, look away now. 

The Office for Budget Responsibility (OBR) has forecast that the UK economy will contract by 11.3% this year – the worst performance for more than 300 years. It is expected to recover by 5.5% next year and 6.6% in 2022 but, said the Chancellor, the economy will not be back to its pre-Covid level until the fourth quarter of 2022. 

Even by 2025, by when we’ll have had another General Election, the economy will be 3% smaller than forecast in the March Budget. “The economic damage is likely to be lasting. [There will be] long-term scarring,” said the Chancellor. 

Government borrowing will be £394bn this year, that is equal to 19% of GDP and is the highest figure recorded in peacetime, before falling to £164bn next year and £105bn in 2022/23. It will then ‘hover around £100bn for the remainder of the forecast’ with underlying debt as a percentage of GDP rising 97.5% in 2025/26. 

Rishi Sunak said that this debt was “unsustainable in the medium term” but this was an “economic emergency.” The government had a “responsibility” to cut spending at some point, which rather translates into tax rises for you and me. 

The OBR had said the UK’s response to the pandemic had been good, with business insolvencies down and our unemployment rate comparing favourably with other major economies. 

Despite pledging £3.5bn to help people back into work, the Chancellor accepted that by the second quarter of next year the unemployment rate would reach 7.5% with approximately 2.6m people out of work before it started to fall, hopefully dropping to 4.4% by the end of 2024. 

The Specific Measures 

Public Sector pay

“Coronavirus had,” said the Chancellor, “deepened the pay divide between the public and private sectors.” While pay in the private sector was, on average, down by 1%, that in the public sector had risen by 4%. “I therefore cannot justify an increase in public sector pay across the board” said Sunak, which is exactly what most people had been expecting. 

Instead there were to be pay increases for doctors, nurses and other NHS staff, but other pay rises in the public sector would be ‘paused.’ However, there would be a pay rise, worth up to £250 per year, for the 2.1m people in the public sector earning less than £24,000 per year. 

Hand in hand with this went an increase in the National Living Wage to £8.91 an hour for everyone aged 23 and above. This increase will benefit 2.2m people, giving them a pay rise of £345 per annum. 

Departmental and Devolved Spending 

This was the section of the speech where we were expecting some reductions. But no, the Chancellor continued to spend, saying that he was ‘looking beyond’ the current crisis.

Total government departmental spending will rise by 3.8% next year, the biggest increase for 14 years and taking it to £540bn. There will be £2.4bn of extra spending for Scotland, £1.3bn for Wales and £900m for Northern Ireland to help those areas battle the effects of the virus. 

However, in some post-speech analysis, the Institute for Fiscal Studies did point out that if you strip out spending on Coronavirus then the Chancellor has actually reduced departmental budgets by £10bn. 

The Health Budget and other spending 

Rishi Sunak announced that the ‘core health budget’ was to rise by £6.6bn next year – enough to build 40 new hospitals and upgrade 70 existing ones. Simple maths suggests that cannot possibly be right, so it is presumably a continuing commitment, following on from the election pledge, to build more hospitals and recruit more nurses. 

There would be more money for local government and social care, and more for schools, with a commitment that year on year funding would see a 2% increase for each pupil. 

There would also be more money for the social justice system. “More police and more prisons,” declared the Chancellor, before moving on to commit to an extra £24bn investment in defence and diplomacy. 

The Overseas Aid Budget 

It had been widely predicted that the overseas aid budget would be cut. The Chancellor duly cut it from 0.7% of GDP to 0.5% – in fairness, still leaving the UK as the 2nd highest donor in the G7. In the short term this should save around £10bn a year, with the Chancellor giving a commitment that the budget would go back to its previous level “when the economy allows.” 

A Record Investment in Infrastructure 

The Chancellor outlined a spend of £100bn next year on a “once in a generation” investment in the national infrastructure. This will include a £7.1bn national housing fund (in addition to the £12.2bn affordable homes programme), investments in roads, railways and cycle lanes. There would be investment in broadband and money to turn the UK into a ‘scientific superpower’ with £15bn of funding for research and development. 

Alongside the new National Infrastructure Strategy there would be a new National Infrastructure Bank, which would work with the private sector to oversee new investment projects. 

Rather than a general commitment to the environment, Rishi Sunak made it more specific and local. There would be a new £4bn ‘levelling up’ fund for “the places people call home.” Money would go to local projects that “improve the infrastructure of everyday life.”

Inflation and the Impact on Pensions

Rishi Sunak had insisted that now is not the time to impose tax hikes “in the fog of enormous economic uncertainty.” Nevertheless, there is a growing acceptance that all the Coronavirus support measures will need to be paid for, and with the fine print in the Chancellor’s accompanying documents revealed, we get our first look at where the money might come from. 

A change in the methodology behind measuring inflation looks likely to emerge, with an impact on certain pensions. Where increases to defined benefit pension schemes are currently tied to the Retail Prices Index (RPI), from 2030 they are set to be aligned with the Consumer Price Index plus housing cost (CPIH) which generally runs between 0.5% and 1% lower than the RPI. This would result in savings on the side of the Government in exchange for cuts on the side of pensioners and investors. State pensions will be unaffected, and will rise by 2.5% in April in line with the Government’s triple-lock promise. 


The Chancellor finished his speech by saying that although he had announced huge levels of investment, “numbers ring hollow.” While the Government had set the direction, it was up to individuals and communities to “build a better country.” 

It is fair to say the analysts did not greet his speech with much enthusiasm. Those on the left were understandably critical of the public sector pay freeze and the cut to the overseas aid budget. 

For now the Chancellor seems prepared to spend his way to recovery, but the Centre for Policy Studies summed up much of the criticism: 

But ultimately it will be the private sector, not the public, which digs us out of this economic hole – so as the pandemic recedes we urge the Chancellor to embrace pro-growth, pro-enterprise stimulus measures, such as tax incentives to encourage business to hire and invest. 

The Institute for Economic Affairs was even harsher, criticising the Chancellor’s decision to spend much of his £3.5bn jobs package on apprentices and extra work coaches as a ‘retro policy drawn from dusty files last seen in the 1980s.’ They added: 

Recovery from the recessions of the 1980s and 90s was not the result of extra government spending, but was rather associated with deregulation and freeing up markets. There was no sign of this in today’s announcement. Government intervention, however justified by health concerns, has created the current situation. The answer is not yet more intervention, but rather to allow businesses the maximum freedom to reorient and rebuild. 

Before commending his statement to the House, the Chancellor said that in order to “Build a better country” he was putting his faith in the “courage, wisdom, creativity and kindness” of the British people. 

How those courageous, wise, creative and kind people will pay for it all was largely deferred until March.

Guido Fawkes:

Reaction from commentators:

Spending review key points:

Government document:

Guardian key points and analysis:

Politico article:

The Chancellor’s Winter Economic Plan

In December 2019, the Conservatives won an 80 seat majority in the General Election and three months later, new Chancellor Rishi Sunak presented his first Budget. But by then there was a large cloud on the horizon – the outbreak of Covid-19. 

The Chancellor used his Budget speech in March to present a raft of measures to support businesses and jobs, promising to do “whatever it takes.” A week later he was back with more emergency measures and on Monday 23rd March, the UK went into full lockdown. 

Six months on from lockdown, the Treasury announced that the Chancellor’s traditional Budget speech had been cancelled for this year and instead a Winter Economic Plan was presented on Thursday 24th September.  

What has happened in the last six months? 

The last six months for the UK economy can perhaps be summarised in two words: ‘recession’ and ‘redundancies’. Figures released for the second quarter of the year – April to June – showed that the UK economy had shrunk by 20.4%. Early hopes of a ‘V-shaped recovery’ from the downturn quickly vanished.

The pandemic has unquestionably accelerated trends that may otherwise have taken 20 or 30 years to arrive. We may well all have been working from home by 2050 however, the Prime Minister has told office workers to do it for perhaps the next six months. That will surely have serious consequences for many town centres and the ‘commuter economy’. 

These changes have, inevitably, meant widespread redundancies. Figures recently released suggest that UK payrolls shrank by 695,000 in August as the Chancellor’s furlough scheme started to wind down. 

The Chancellor’s Speech 

The Chancellor, Rishi Sunak, was at pains to stress that he’d consulted both sides of industry on the measures he was going to introduce. He was photographed before the speech with Carolyn Fairbairn of the CBI, and Frances O’Grady of the TUC. 

He rose to his feet in a suitably socially-distanced House of Commons and stated that his aim was to protect jobs and the economy as winter approached, and to try and “strike a balance between the virus and the economy.” We were, he said, “in a fundamentally different position to March.” 

Rishi Sunak said that the UK had enjoyed “three months of growth” and that “millions of people” had come off the furlough scheme and returned to work. While ‘three months of growth’ is undoubtedly true, we must remember that the economy shrank by 20.4% in the second quarter. According to the Office for National Statistics, the economy grew by 6.6% in July – but it has only recovered just over half the activity lost because of the pandemic. 

The primary goal, the Chancellor stated, was “nurturing jobs through the winter” as we all faced up to the “new normal.” He conceded, though, that not all jobs could be protected and that people could not be kept in jobs that “only exist in furlough.” 

So what measures did the Chancellor propose? 

Emphasising that he could not protect “every business and every job” the Chancellor conceded that businesses faced uncertainty and reduced demand. In a bid to protect jobs through this period, the first measure he introduced was: 

The Job Support Scheme

  • This is a six month scheme, starting on 1st November 2020
  • To be eligible, employees must work a minimum of 33% of their normal hours 
  • For remaining hours not worked, the Government and the employer will each pay one third of the employee’s wages 
  • This means employees working at least 33% of their hours will receive at least 77% of their pay 
  • The Chancellor also announced that he was extending the support scheme for the self-employed on “similar terms” to the Job Support Scheme 

Pay as you Grow 

After ‘eat out to help out’, we now have the Chancellor’s next catchy slogan: pay as you grow. 

  • Businesses which took loans guaranteed by the Government during the crisis will now be able to extend those loans from six years to ten years, “nearly halving the average monthly repayment,” said the Chancellor. 
  • There is also the option to move to interest only payments, or to suspend payments for six months if the business “is in real trouble,” with no impact on the business’s credit rating. 
  • Coronavirus Business Interruption Loans (CBILS), taken out by a reported 60,000 SMEs, can now also be extended to 10 years.
  • The Chancellor also promised a new government-backed loan scheme, to be introduced in January.

VAT Deferral 

  • Businesses who deferred their VAT during the crisis will no longer have to pay a lump sum at the end of March next year. 
  • They will have the option of splitting it into smaller, interest free payments during the 2021-2022 financial year. “This will benefit up to half a million businesses,” claimed the Chancellor. 

Income tax is deferred – but it still needs to be paid 

As we all know, death and taxes are inevitable. The Chancellor did at least delay one of them for many people…

  • He announced extra support to allow people to delay their income tax bill, which should benefit millions of the self-employed. 
  • Those with a debt of up to £30,000 will be able to go online and set up a repayment plan to January 2022.
  • Those with a debt over £30,000 should contact HMRC and set up a plan over the phone. 

The planned VAT increase is postponed 

  • The Chancellor’s final move was to give direct, targeted help to the tourism and hospitality sectors. 
  • These two sectors had benefitted from a lower VAT rate of 5%. This lower rate was due to end in January, but will now remain in force until 31st March 2021. 

What was the reaction to the speech? 

As with all Budget speeches, the reaction was mixed. Carolyn Fairbairn of the CBI praised the Chancellor for “bold steps which will save hundreds of thousands of viable jobs this winter.” 

Manufacturing group Make UK said the Chancellor ‘deserved credit’ for looking at action taken in other countries such as Germany and France and copying their successful ideas. 

The Adam Smith Institute was more cautious: the Chancellor’s plans were “sensible – but not costless.” Matthew Lesh, head of research at the free-market think tank said, “The Government must resist becoming addicted to spending. Temporary spending is sensible to keep struggling businesses afloat, but in the longer run we are going to have to get the national accounts in order.” 

There was, though, plenty of criticism, especially from the retail sector. Lord Wolfson, boss of Next, warned that ‘hundreds of thousands’ of retail jobs may now become ‘unviable’ in the wake of the crisis. “I wouldn’t want to underestimate the difficulty,” he said, “I think it is going to be very uncomfortable.” 

Where do we go from here? 

As we have commented above, six months, roughly to the end of March, now seems to be the accepted next phase of the fight against the pandemic. As people worry about whether they’ll be able to see their families over Christmas, many will also be worrying about their jobs.

In his speech, the Chancellor more than once stressed that he could not save ‘every job and every business’ and a sharp rise in unemployment through the winter seems inevitable, which will lead to more Government spending on benefits and lower tax receipts. 

The Treasury is already facing a significant shortfall and the Winter Economic Plan, although the level of Government support has been sharply scaled back, will only add to that. At some point, all the support will need to be paid for, either by increased taxes or more optimistically, a resurgent economy. 

What does this mean for my savings and investments? 

Many world stock markets have proved remarkably resilient to the pandemic and are showing gains this year. Unfortunately, the UK’s FTSE-100 index is not one of them: it ended 2019 at 7,542 and closed March as the country went into lockdown at 5,672. As we write this commentary (Friday morning), it is standing at 5,823, up 2.66% on the end of March. 

As we have stressed many times, saving and investing is a long-term commitment and, while there will undoubtedly be plenty of bumps in the road ahead, Governments and central banks around the world remain committed to an eventual economic recovery. Yes, the pandemic has accelerated trends and certain sectors of both the UK and world economies have suffered serious damage; but as we never tire of saying, new companies will find new ways to bring new products to new markets. 

We can, in the long term, still face the future with confidence but we appreciate that some clients may have understandable short term concerns. 

If you have any questions on this report, or on any aspect of the current situation, please do not hesitate to get in touch with us. 

The Chancellor has, we think, taken sensible and prudent action. As he said, “life can no longer be put on hold” and let us hope that economic activity in the UK – and the wider world – quickly reflects that. 


is the Bitcoin bubble close to bursting?

You may have seen Curtis “50 Cent” Jackson make the news at the end of January after becoming a Bitcoin millionaire. The rapper, actor and businessman made his 2014 album, Animal Ambition, available for purchase for a fraction of a Bitcoin upon release, making around 700 Bitcoin from sales. 50 Cent has admitted that he had forgotten about the earnings, which have sat untouched since 2014 and are now reportedly worth somewhere between £5 million and £6 million thanks to the meteoric rise of the cryptocurrency’s value in recent months.

Despite 50 Cent’s good fortune, those in the financial sector continue to warn against Bitcoin and other cryptocurrencies as a sound investment. Alex Weber, chairman of global financial services company, UBS, is one of the latest figures to lend his voice to these warnings, describing cryptocurrencies as ‘not an investment we would advise.’

There have also been warnings from consultancy firms that initial coin offerings (ICOs), which raise funds by providing cryptocurrency tokens, are prime targets for cybercriminals. Ernst & Young analysed 372 ICOs which had raised $3.7 billion in total and found that hackers were taking as much as $1.5 million in proceeds from these each month with approximately $400 million stolen in total.

The announcements from governments worldwide that cryptocurrencies will soon be regulated has resulted in huge price fluctuations, with Bitcoin dropping from its high point of almost $20,000 in December 2017 to around half that towards the end of January 2018. The steep drop is due in part to the announcement by the government of South Korea, the third largest cryptocurrency market in the world, that its planned ban on the use of anonymous bank accounts in cryptocurrency trading would be implemented from 30th January.

Another concern surrounding cryptocurrency technology is the continued hype surrounding it, with companies taking advantage of investor buzz. The US Securities and Exchange Commission has warned that companies will be scrutinised over name and business model changes which have been made to capitalise on the hype.

Due to these developments in recent months, many economists are now predicting the cryptocurrency bubble could be about to burst. When, or if, this will happen remains to be seen, but the risks surrounding these relatively new forms of investment continue to be a worrying reality.