Market and Budget Update

Friday 13th March 2020

We woke this morning to watch the BBC's Business Briefing with the usual pessimism about how Friday 13th will fare after yesterday's huge market falls.

Indeed it was interesting to watch the reporter's comment about the Japanese main index the Nikkei overnight "falling 10% with a slight recovery" little knowing the background screen showed it was 3.47% down, so more than a little recovery. Still not great but this reflects more optimism overnight with the US Dow Jones index expecting to open up over 400 points. Indeed as we write this the UK FTSE 100 index is up over 100 points. As we know though, where it will be by the end of the day is another question so expect continued volatility.

What is becoming clear is that Central Bank intervention (USA, Europe and today Norway all taking various actions) has had little impact and Government intervention is needed, particularly from President Trump who's announcement yesterday of closing to European airlines for 30 days led to the falls. It seems a contrast to the UK which is a more measured and pragmatic response, and as the spokesman for Cheltenham races said today only time will tell if they took the right decision to continue. The market doesn't like uncertainty which is exactly where we are currently and you have to think this time the source of the stock market falls is not the financial system itself, (as in 2008/09) but an external shock to global economic activity. Given such shocks happen far more frequently than banking crises and the financial system is more resilient following the financial crisis of 10 years ago, there appears far less stress across the financial system overall. However, it will impact certain industries and obviously travel is one of those. The extent of the impact is the issue.

Indeed we see two positives; the first being that the money being pumped into the world financial system will lead to more sustained growth over a longer period so a positive future once this is over. Secondly, if it is now down to Governments to act sensibly amid all this trouble will Europe and the UK stop the trade negotiation posturing and come to a sensible decision for both sides? We shall leave you to ponder this last one.

The Budget
Amid all this there has been the Budget, which contained little in terms of surprise. It is more appropriate to discuss specific Budget implications for each of you when we meet but the fiscal headlines for reference are below:

• A reduction in the lifetime allowance for entrepreneurs relief from £10 million to £1 million;
• Pension Annual Allowances - an increase in the threshold income and adjusted income to £200,000 and £240,000 respectively with the minimum annual allowance falling from £10,000 to £4,000;
• An increase in the Junior ISA contribution limit to £9,000 from £4,368;
• An increase in the employee's primary National Insurance threshold limit to £9,500;
• An increase in employer's National Insurance employment allowance to £4,000;
• An increase in the Capital Gains Tax annual exemption to £12,300;
• The announcement of a review to the taxation of UK funds with a view to determining whether the UK could be made more attractive as a location for funds;
• The announcement of an intention to treat non-taxpaying employees in net pay pension schemes in the same way as those who pay contributions direct and so give basic rate tax relief to both types of saver;
• A continued commitment to combat perceived aggressive tax avoidance.

Unsurprisingly, no changes were announced to tax rates, amounts of personal allowances or the maximum ISA allowance.

Surprisingly, despite considerable speculation, there was no announcement of any change to Inheritance Tax or even a review of the current system. But it can only be a question of time.
Please call with any questions as we know this is a worrying time, but our advice remains to take care, be calm and stick with your long term investment strategy at this troubled time.