Opinion Piece: Mini Budgets with Mega Consequences – Autumnal Commentary

This piece has been written by Fintuity’s Head of Strategy – Ed Downpatrick & all opinions are reflective of the author

From all the positivity, national unity, global outpouring of love and admiration for our late sovereign and to no small degree, our noble archipelago, the politicians have wasted no time thumping us back down to a middling earth. Of all the candidates for the Tory leadership I thought Truss among the more unelectable, judging by her speeches and reputation as a serial strayer. I wonder whether the Tory kingmakers have installed her in perilous times just to see her fail and have Bojo roped back to deliver victory at the next General Election. I was willing to give the new PM the benefit of the doubt after a friend in Whitehall said she was actually detail-oriented and properly understood her brief, but her Chancellor’s cavalier splash at Reaganomics when the UK does not possess the world’s reserve currency nor anything close to the premier sovereign debt, at a time of social unease and economic fragility wherein cooler heads should prevail, smacks of the kind of dizzy-eyed, disconnected naivety of someone trying to launch their first company, something the PM has never done, save that the company is not a start-up, it is a G7 nation, and the potential ramifications are titanic. You are not a blast of deregulation away from American levels of entrepreneurial clout, Prime Minister. Sadly, you do not sit on anything close to King Dollar.

We’re not entirely out of the wild-thicketed woods of Covid and we are yet to establish ourselves outside the relative security of the EU trade block, the next closest thing to the federal system of the transatlantic neighbours this half-cogitated, two-dimensional mini-budget has sought to emulate. If any of that sounds hyperbolic then I hope the £65 billion intervention by the Bank of England will lend it substance. Not to mention the fact the pound is at nigh parity with the dollar, government debt is barely worth the pixels on which it flashes, and that over half of Tory voters are already calling, however reactionarily, for Truss and Kwarteng to resign. How on earth do Sir Keir and his band of sickle-wielding picketers suddenly look electable?

After ten days of turbulence, No.10 and 11’s decision to unwind the 45p tax cut to assuage markets and prevent the pound sinking further has done only little to both. The bodies most influential over rates and market sentiment have declared that they maintain their negative outlook for the UK. What effectively now amounts to a bluff has further damaged market and international confidence in the country, its leadership, and corporations. What the Chancellor hoped to achieve, as has been done before both in this country and abroad, is to attract wealthy people and their assets into the UK. 40% tax on a greater number of >£150,000 earners is, assuming enough of them, better than 45% tax on the same or a decreasing amount of them. In theory, the coffers get replenished, the housing market gets a boost, and the UK again becomes worthy of investment. If that’s the dance, merry or otherwise, on which you were hoping to lead us all… well, the jig’s up, at least for now.

The prospects for the energy sector and most importantly for our bills, are a mixed bag, but onshoring more of our energy, whether via renewables or fracking for natural gas (and remember, natural gas burns cleanly), strips away some expense, be it via acquisition or production. The Chancellor has lifted the ban on onshore windfarms, a clean and comparatively cheap way of producing electricity which is supported by 70% of voters but granted 100 new licences to oil and gas producers in the North Sea, which experts believe will do nothing to bring down people’s bills given the cost of extraction. Many across the political spectrum will have hoped for taxes to be levied on the, arguably grotesque, profits of the UK’s energy providers. No such luck. 4% of our energy dependency is on Russian gas, not a patch on France and even more significantly Germany, whose dependency dwarfs ours, but conversely, haven’t seen their energy bills rise by nearly as much as the UK. If we cannot blame the war in Ukraine then the energy companies and beyond them, the government, must be held to account. The 1p reduction in basic tax from April 2023, a mere £74 return to the pocket, is at best token.

These tax cuts should have benefited the lower-paid. We had, given the economic backdrop, a fairly meaningless reduction which would have only benefitted the already affluent, and a mortgage crisis which has left many homeowners in negative equity. Does anyone remember the great financial crash of 2008? If you don’t, watch The Big Short, and even you do, watch it anyway – excellent film. The state of play is as follows – unless you inherited enough to own a debt-free property or have been on the receiving end of a corporate windfall to do the same, you are in something of a pickle. For would-be home owners the news does not improve as I’m afraid the changes to stamp duty won’t do an enormous amount to help those who aren’t high earners or inheritors.

40% of mortgage products had been pulled from the shelves as of the last day of September. If you are struggling to pay your mortgage, speak to your lender or to an independent adviser, and see if you can get a temporary payment holiday, lengthen the term of your mortgage to cut your monthly instalments or switch temporarily to interest-only repayments. If coming to the end of your fixed-term deal, now is the time to shop around, though you won’t find bargain-busting, headline-grabbing rates just now – if they existed the banks in question would be inundated. In times such as these the banks tend to cluster their rates in tighter bands, but that does not mean a better deal is beyond you. You can normally secure a new mortgage six months before the end of your current one – doing so before rates get even higher would be prudent.

Beyond that, the government and the banks are going to have to react with winged alacrity, but think Daedalus not Icarus, to prevent mass foreclosures and the ensuing tragedy of people losing their homes. Speaking to an adviser, rather than combing through the internet to the tune of overwhelming and often contradictory advice, gives you a direct-lined inside track to the best informed people in the business. As ever, a holistic wealth perspective allows us to make the best decisions for ourselves and our families.

I’ll remind readers that an initial consultation with Fintuity is free and that the professional, significantly more affordable vs rest of market advice you’ll receive could save considerable bacon.

A note on inflation – all major central banks are going after it with rate hikes whilst aware of the damaging effects on growth. Fuel prices have come down markedly over the last two months and look set to continue that trend.

Where to invest in times such as these? In periods of volatility, opportunities abound, but with the severity of economic headwinds currently faced, a judicious approach is essential and success is not a certainty. Some investors are betting on a UK recovery, or may have been until recently, thanks to a lower tax and higher energy production environment. The German industrial powerhouse, without cheap energy, is limp. The Germans were highly dependent on Russian gas and began decommissioning their nuclear plants thanks to an unholy pact between the SPD (socialist party) and the Greens. There are select opportunities in European and US markets but they require an expert eye. Emerging markets look stable but from a returns profile, unglamorous. Titans of the investment community see limited market upside up to as late as June 2023. Sage advice at this time would be to add selectively to portfolio exposures and favour defensives (well-established utilities, consumer staples, healthcare companies), quality income (reliable dividend), and value stocks (those which the market is currently rating beneath the sums of their parts).