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Optasia Updates

28/10/21 – The not-quite post-pandemic Budget

The central theme of Chancellor Rishi Sunak’s Autumn Budget was greater investment in UK PLC as part of the government’s long term economic plans and priorities. This included £11.5 billion investment in 180,000 new affordable homes, and a Levelling Up Fund that will mean £1.7 billion invested in local areas across the UK.

While some of the announcements may have seemed rather long term, Mr Sunak did provide some more immediate relief for households and businesses still fragile from the effects of the pandemic.

The previously announced freezing of tax allowances and thresholds for income tax and the introduction of the new Health and Social Care Levy are due to raise very large amounts of revenue over the next five years. These, together with the accompanying increase in dividend tax, provide a crucial backdrop to the spending increases and tax changes announced in the Autumn Budget.

In the more immediate future, there was, however, a slight loosening of the rules governing CGT: effective immediately the deadline for reporting and paying CGT after selling UK residential property will increase from 30 days to 60 days after completion.

A 6.6% increase to the national living wage to £9.50 an hour, starting on 1 April 2022, was confirmed. Young people and apprentices will also see increases in the national minimum wage rates.

And, as the country grapples with petrol prices at their highest level for eight years, a planned rise in fuel duty was cancelled again, the 12th time in a row.

In welcome news for drinkers, a fall in tax on their favourite tipple is likely, as long as it’s at the softer end. Reform of the levy on alcoholic drinks will see tax pegged to alcohol content, with higher strengths incurring proportionately more duty. All tax categories (e.g. beer, wine) will move to a standardised set of bands, with reduced rates for products below 3.5% ABV.

Businesses in the retail, hospitality and leisure sectors received particular sympathy from the Chancellor. Still reeling from months of Covid-enforced shut down, they were recognised as needing ongoing support, with a 50% cut in business rates in 2022/23. The business rates multiplier will also be frozen for 2022/23. From 2023, no business will face higher rates bills for 12 months after making eligible improvements to an occupied property.

How the Chancellor’s plans play out against a backdrop of potentially rising inflation and no let up in the calls on the public purse should make for a lively run up to the new tax year.

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  • The #Budget2021 showpieces were big investments to boost the Government’s long term economic plans, with some sweeteners to soften Covid’s blow. Read our Summary at
  • A 6.6% increase in the national living wage to £9.50 p/hr from 1 April 2022 confirmed. Young people and apprentices will also see higher national minimum wage rates. #Budget2021 #NLW #NMW
  • The Chancellor announced £11.5 bn to build 180,000 new affordable homes, and a £1.7bn Levelling Up Fund invested in areas across the UK #Budget2021 #housing #levellingup
  • Tax free allowances frozen again. Chancellor expects an extra £985m from #IHT, £990m more from the #LifetimeAllowance, £65m from CGT #Budget2021 #taxplanning
  • Deadline for reporting and paying CGT after selling UK residential property will increase from 30 to 60 days after completion #Budget2021 #CGT
  • A 50% cut in business rates in 2022/23 for hospitality, retail and leisure. Business rates multiplier frozen for 2022/23 so bills are 3% lower #Budget2021 #business rates
  • From 2023, no business will face higher rates bills for 12 months after making eligible improvements to an occupied property #Budget2021 #businessrates
  • With petrol prices at their highest level for eight years, a planned rise in fuel duty was cancelled again, the 12th time in a row #Budget2021 #fuelduty
  • Drinks will be taxed by alcohol content, with higher strengths incurring more duty #Budget2021 #beertax

12/02/21 – Negative Interest Rates

Last week, there was a lot of focus on the Bank of England’s decision to keep interest rates unchanged.  This was because they warned that interest rates could go negative in six months’ time.  It was reported that the Bank of England has been looking into whether negative rates are even possible to help the economy recovery from the impact of the coronavirus pandemic and has now asked banks and building societies to prepare for their introduction.

Whether such action will be taken largely depends on how the UK economy will naturally recover later in the year, helped along by the vaccination rollout.  The Bank of England’s view is that much of the cash savings we have been collectively hoarding (more than £125 billion was added to cash savings accounts last year!) will be “released” in a flurry of spending activity, when we are allowed!

The economic concern is that a survey by the Bank of England found that 70% of people who used the pandemic as an opportunity to top-up their savings plan to hang onto the cash, at least for now.

So, what do we mean for negative interest rates and what could be their impact?

Well, it is fair to say that, as with all elements of economic policy, there will be winners and losers from negative interest rates.

Before we consider the winners and losers, it is worth noting that negative interest rates have been a feature of global markets since the 2008 Financial Crisis.  Until now, the Bank of England has kept interest rates in positive territory, if only by the smallest of margins.  The last interest rate cut to 0.1% was in March 2020.  The interest rate we are referring to is the Bank of England base rate and this is the level of interest that the Bank of England pays to commercial banks on their deposits.  It is important because lots of banks price their loans from the base rate.  A loan’s interest rate is usually said to be “base rate plus x%”, so if the base rate falls so does the interest rate on these loans.  Existing borrowers will then be a winner!

Negative rates also mean rather than receiving interest on their deposits at the Bank of England, commercial banks would have to pay to leave money there.  Having to pay to leave money in a bank seems strange, and certainly makes saving less attractive.  The idea is to encourage banks to take cash out of the central bank and lend it to businesses and consumers, which should stimulate the economy.

For borrowers, access to cheaper debt encourages companies to borrow money and invest in new factories, tools, machinery, etc. sparking growth in the economy.  So new borrowers could be a winner too!

What is true for banks is also true for companies and individuals.  If you are being paid less interest, there is less incentive to save and you’re more likely to invest the money or spend it.  You are unlikely to leave savings in a bank account if you have to pay for the privilege!  Existing savers are a potential loser.

When UK interest rates are low (or even negative) that negatively affects the value of the pound.  Because international investors receive less interest on their sterling holdings, the pound’s value will fall relative to other currencies.  That can cause problems for companies that sell imported products in the UK, electrical retailers for example, since the price of stock increases.  It can also drive short-term increases in inflation, making consumer goods more expensive and restricting spending.  Such companies could also be a loser.

When it comes to investing, it is always important to stick to our investment principles – trust your Attitude to Risk, stay invested and invest in a multi-asset diversified fund or portfolio.