The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
Budget 2018: The good, the bad and the questionable
Budget 2018 racked up a couple of interesting statistics. With a duration of 72 minutes, it was the longest in 20 years. It was also the first Budget speech to take place on a Monday since 1962. But the statistic that matters most is the fact that Chancellor Philip Hammond has loosened the purse strings to the tune of an estimated £100bn over the next five years, triumphantly declaring that austerity is “finally coming to an end”.
You won’t be surprised to learn that, in the immediate aftermath, Hammond’s marathon monologue at the despatch box has been met with mixed reviews. Such is the nature of his job that pleasing everyone is an impossible task. Yet, with a bonanza of spending increases and tax cuts, it would appear that he has made a pretty good go of it. From our side, we certainly believe there was much to cheer, particularly in terms of support for enterprise.
Of the many talking points, we’ve called out a handful which caught our eye, and rated them as good, bad, or somewhere in between…
Wages and employment
It may have confirmed what we already knew, but great heart can be taken from the fact that wages growth has reached its highest level for nearly a decade, with the Office for Budget Responsibility (OBR) forecasting sustained real wage growth over the next five years. After a relentless earnings squeeze since the 2008 financial crisis, this represents welcome relief for households. Additionally, the marvel that is Britain’s job machine looks set to continue to take unemployment to new record lows, with 800,000 more jobs forecast to be created by 2022.
Public finances on the mend
Again, more confirmation than news, but hugely encouraging to see public borrowing for 2018 coming in nearly £12bn lower than had been forecast in March’s Spring Statement – making for a total of 1.2 per cent of GDP. And although this is set to rise to 1.4 per cent of GDP in 2019, total annual borrowing will decline from just under £32bn to £19.8bn over the course of the next five years.
Pension tax relief lives to fight another day
One commentator describes it as a “cat with nine lives”, but it was good to see pension relief remain untouched, despite the Chancellor’s comments a few weeks ago that, at a cost to the Treasury of £39bn, it had become “eye-wateringly expensive”. We wrote last week that an assault on this form of relief would essentially amount to a double taxation, given that withdrawals are subject to income tax. And while we accept the argument that the benefits of pension tax relief could be better distributed among high and low-earners, this is an argument for another day, and we are pleased to see some much need continuity for those planning for retirement.
Investing in an AI future
We applaud the Chancellor for allocating fresh money to the tune of £1.6bn towards science and innovation, with R&D investment set to reach 2.4 per cent of GDP over the next decade. Artificial Intelligence (AI) was singled out as one of the key beneficiaries, with £50m allocated towards luring the finest researchers in the world to the Turing AI fellowship programme. We’d like to see further funding aimed at AI – not only in terms of elevating the UK as a global leader, but also better integrating it across our flourishing tech sector. We believe the benefits AI can bring will be plentiful, and we hope to see it given a higher profile in the coming years. But, for now, we’ll chalk up Budget 2018 as a good start.
Hammond announced that the National Productivity Investment Fund is to rise to more than £38bn by 2023/24, making for total public investment growth of 30% over the next five years. Digital infrastructure, particularly broadband, will enjoy a significant boost as a result. It is an area where the UK, by comparison to its G20 competitors, has fallen behind, and this is a much-needed shot in the arm for our ailing levels of productivity.
Small business given a helping hand
Firms with a rateable value of £51,000 or less were given some much-needed good news, as the Chancellor confirmed that their business rates will be reduced by a third over the next two years. Furthermore, entrepreneurs and SMEs will have been pleased to note a package of helpful measures; among them that the Annual Investment Allowance will soar from £200,000 to £1m, the extension of the British Business Bank’s start-up loan programme until 2021, and the reduction of the apprenticeship levy from 10 per cent to five per cent for small companies.
Growth for 2018 has been revised downwards (1.3 per cent from 1.5 per cent in March), and although it is set to bounce back to 1.6 per cent in 2019, that is as good as it is going to get until at least 2023 if the OBR has it right. Forecasts are merely that: forecasts. But there is no doubt that these numbers look rather anaemic, and the fear is that the economic cycle could even take a downturn over this period.
Nothing doing for savers
Savers have enjoyed a small uptick in recent months, with easy access rates edging upwards, bond rates becoming more competitive, and inflation holding steady. But the reality is that this remains an utterly dismal period for savers, and there was nothing at all to write home about in terms of assistance from Budget 2018. In fact, the continued freeze on annual ISA limits (£20,000) for a third successive year is the longest since they came into being in 1999.
The menace of stamp duty
While we are pleased that first-time buyers in the market for shared equity homes valued at under £500,000 will now be exempt from stamp duty, we are disappointed the Chancellor didn’t go further in redressing this regressive form of tax. The punishing increases in stamp duty over recent years have led to a clogged property market, and mixed success in terms of generating Treasury revenues. We believe Hammond has missed a golden opportunity on this occasion.
A digital tax
Many would argue that the pitiful levels of tax paid by global tech giants in recent times is a scandal. While they cunningly keep their profits in check to avoid corporation tax, the likes of Amazon, Google and Facebook generate stupendous levels of revenue from the UK market, and it is right that they should pay more. Indeed, the new 2 per cent digital services tax – calculated on UK revenues for firms with global turnover of £500m+, and taking effect from 2020 - appears to be appropriately targeted. But in the absence of other countries following our lead, the possibility that these companies will relocate more of their business elsewhere exists. Time will tell.
Income tax thresholds
Winston Churchill once said: “For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” In principle, we agree, and on that basis, the decision to raise the personal allowance (to £12,500) and the higher-rate income tax threshold (to £50,000) in April looks to be a good one. However, this means the Tories will be fulfilling a manifesto pledge a year earlier than promised, and while it is a definite vote winner which will benefit 32m people, it is estimated that it will cost the Treasury roughly £9bn over the next five years. Had the original plan been stuck to, no one would have complained, and the public purse would have had a few more pennies to its credit. Is this just an indulgence?
Where is it all coming from?
We urged the Chancellor last week to respect the deficit, and while there is much in the way of sensible (and much-needed) investment across the board, we do wonder how this ‘post-austerity’ spending spree will be financed. The Chancellor also announced that he reserved the right to convert the 2019 Spring Statement into a new Budget should there be failure to negotiate a Brexit deal. Much uncertainty lingers – let’s hope the return of spiralling national debt isn’t one of the resultant outcomes.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
There is barely a week to go until the conclusion of the 2017/18 financial year, which means that, as ISA season begins to hot up, time is running out to take advantage of your ISA allowance.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.