What caught my eye this week.
A lot of water has flowed under Westminster Bridge since a UK chancellor was able to stick to their plans for a year.
Rachel Reeves didn’t even manage that.
Since her Budget last October – and contrary to previous aspirations to return to a once-a-year cadence – we’re told the numbers had already changed enough that something had to be done.
And so in the Spring Statement we learned that while years-away economic growth will now apparently be higher, this year’s forecast has been halved: to GDP growth of 1%.
As Paul Johnson of the Institute for Fiscal Studies noted:
The fact that a fairly run-of-the-mill change to the forecast forced her to cut her spending plans reflects the tiny amount of headroom she chose to leave against her targets last October.
Indeed I’d argue we’re seeing ‘iron rule theatre’, where the chancellor pretends she can micro-manage the fine margins of tax-and-spending outcomes, even as the world rages around her.
In reality there is no headroom outside of a Number 11 tweak-and-refresh in Excel:
Source: FT
Home and away
Reeves partly did this to herself.
Having tied her own hands before last year’s election by ruling out touching the big revenue-raising levers, her October Budget tax grab foolishly targeted a business sector already battered by successive waves of crisis.
The resulting National Insurance hikes will almost certainly cause employment to be lower – by making jobs more expensive from April – and it’s also hit confidence for six.
And with the OBR downgrading 2025 growth from 2% to 1%, there’s no gung-ho economy riding to the rescue.
The West Wing
On the other hand, the man in the White House and his ripping up of the rulebook is rattling markets and business leaders globally, too.
Along with his counterpart in Moscow, Trump is forcing Europe to rethink post-war norms on everything from defence spending to borrowing costs to trade partnerships – not to mention who has our back in a nuclear showdown.
Now some might say this was all predictable when Reeves rose to speak last October. A Trump victory in November’s US election looked near-certain by then.
But I’d argue that even so, all we could be sure of was a return to government by reality TV show plot twist.
And as things have turned out this season is even crazier than the last one. (Where’s Mike Pence when you need him?)
The fact is nobody viewing this drama agrees on where we’ll end up on tariffs and Ukraine – not even Trump’s acolytes – let alone factors beyond his immediate control but absolutely subject to his whims, such inflation and bond yields.
Neighbours
Perhaps Reeves’ technocratic reforms will deliver growth eventually. The construction industry seems genuinely impressed by Labour’s push on planning, for instance.
In fact across Europe a welcome side effect of the White House telling the continent it’s on its own could be a slaying of sacred cows on regulation, especially in the tech sector.
But honestly, it’s hard to see the economy catching fire anytime soon.
That’s not to say it won’t. Maybe Germany taking the brakes off spending or an end to the immediate conflict in Ukraine could revive animal spirits. Or perhaps inflation dying a speedier death than forecast, and rates falling faster.
But continuing to bump along the bottom seems the most probable outcome.
And then there’s Brexit, which everyone else has given up on mentioning.
The UK economy is £100bn to £140bn smaller than it would have been, thanks to Brexit.
Hence government tax receipts are £30-40bn lower every year as as a consequence.
Recall: the fiscal headroom Reeves is so concerned about is only £10bn.
When taxes rise again or welfare is cut, remember Brexit. It’s impact doesn’t go away just because we’re bored of it or because other stuff happened too.
Brexit is permanent grit in the UK’s economic engine.
Auf Wiedersehen, Pet
Lots of pundits are warning us to expect more tax hikes later this year.
If so, it’ll mean more stealthy stuff like freezing personal allowances for longer or cutting the ISA thresholds. Raising headline tax rates after all this would be suicidal.
But really, the cupboard is bare. Allowances for capital gains and the like have already been cut to the bone. The inheritance tax push on pensions has happened. Maybe the CGT rate could be hiked again, but that won’t raise much money.
You can see why many on the left want a wealth tax (link below) but non-doms and other wealthy types are already fleeing the UK.
Poorer people will be feeling the worse of it, but the middle-class is clearly saying enough is enough on taxes, too.
Eldorado
If I were Reeves I’d maybe cut stamp duty on housing transactions to a flat 1% and go harder and faster on home building.
There’s urgent need here, and a solid growth multiplier from an old-fashioned housing boom. If more housing availability kept the lid on house price growth, so much the better.
It’s not clever or pretty but it’s worked before. Short of rejoining the EU by Christmas, I can’t see much else delivering a speedy shot in the arm.
Reeves did announce a £13bn infrastructure package in the Spring Statement. This includes £625m to train up to 60,000 skilled construction workers.
Even so, getting 1.5m homes built anytime soon will require a wartime push to ready the missing bricklayers, carpenters, and plumbers. Such combined-arms coordination seems beyond our modern politicians.
So stagger on we must.
Look out for your own future prosperity – not least by filling your ISAs and your pensions – because you can be sure that nobody else is.
More Spring Statement bits and pieces:
- Government confirms it’s looking into reform of cash ISA allowances – Morningstar
- Five things we learned from the Spring Statement – Which
- Brace for tax rises in the autumn? [Search result] – FT
- Self-employed given harsher penalties for late tax payments – This is Money
- NS&I boosts targets in Spring Statement – This is Money
Have a great weekend!
From Monevator
Should you keep your NS&I Index-linked Savings Certificates? – Monevator
The pain game – Monevator [Mogul members]
From the archive-ator: Reasons to buy a house instead of renting – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Inflation eases to 2.8% in February, but big leap lurks – Sky
UK board members brace for a wave of takeover bids – CityAM
Financial Conduct Authority’s new five-year strategy ‘to support growth’ – FCA
UK fintech investors sharpen focus on likely winners – FT
Mortgage-free homeowners on the rise as cash-rich pay off loans – This is Money
Why London’s property market is broken – The Standard
“I could lose £100K despite Woodford redress scheme” – BBC
Steel billionaire Lakshmi Mittal to ditch UK after non-dom crackdown – CityAM
The case for alternatives in an uncertain world – Trustnet [Related: Larry Swedroe]
Products and services
Buyers’ market as a deluge of homes listed for sale – This Is Money
Monzo launches bill-splitting feature – Which
You can get up to £3,000 cashback when you transfer your pension to Interactive Investor. Terms and fees apply. – Interactive Investor
UK energy bill payers vulnerable to another crisis, watchdog warns – Guardian
Cash compensation coming for smart meters that go dumb – This Is Money
Should you set up a company for your buy-to-let portfolio? – Which
Get up to £4,000 when you transfer your ISA to InvestEngine our link. (Minimum deposit of £100, other T&Cs apply. Capital at risk) – InvestEngine
Cocoa inflation leads shoppers to shell out on smaller Easter eggs – Guardian
11 ways to protect your savings from smartphone thieves – Be Clever With Your Cash
Get up to £1,500 cashback when you transfer your cash and/or investments through this link. Terms apply – Charles Stanley
DNA testing site 23andMe files for bankruptcy protection… – BBC
…so here’s how to delete all your data and records with it – NPR
Homes for sale in foodie towns in England, in pictures – Guardian
Comment and opinion
Do you know the muffin man? – Fortunes & Frictions
Beautiful versus practical advice – Morgan Housel
The disease of more – Life After the Daily Grind
Would Gary Stevenson’s wealth tax really work? – This Is Money
Best investments to own during a recession – Morningstar
Inflation in the UK: a deep dive – Simple Living in Somerset
Nobody works… – We’re Gonna Get Those Bastards
…not even some successful 9-5 work-hustle influencers – Jenny Zhang
Retiring? It’s not too late to de-risk your portfolio – Morningstar
US un-exceptionalism mini-special
The stock market is always changing – A Wealth of Common Sense
Swedroe: how sustainable is US exceptionalism? – Morningstar
Currency risk is one big reason to diversify internationally – Cullen Roche
Naughty corner: Active antics
Ten best US value stocks for the long-term – Morningstar
Why trend following is harder than it looks – Of Dollars and Data
Stagflation looks unlikely in the US – Carson
People aren’t exactly flocking to invest in athletes – Sportico
Are you getting your money’s worth from your hedge fund…? – CAIA
…probably not, but these highest-earning managers certainly are – I.I.
Anti-dividend investing – Alpha Architect
Kindle book bargains
Beijing Rules by Bethany Allen – £0.99 on Kindle
Poor Charlie’s Almanack by Charlie Munger – £0.99 on Kindle
How to Run Britain by Robert Peston and Kishan Koria – £0.99 on Kindle
Invisible Women by Caroline Criado Perez – £0.99 on Kindle
…or grab one of the all-time investing classics – Monevator shop
Environmental factors
Understanding solar energy… – Construction Physics
…and how see-through panels could turn skyscrapers into power stations – Independent
Millions of UK tyres meant for recycling sent to furnaces in India – BBC
Insects for dinner? Adjust your disgust – Aeon
A new fund could support nature while easing building delays – The Conversation
UK carbon emissions fell 4% in 2024, official figures show – Guardian
Crypt-o-crypto
Trump Media partnering with Crypto.com to launch ‘Made in America’ ETFs – CNBC
UCL finds just 438 ‘masterminds’ are responsible for about $3.2tn in pump-and-dump crypto schemes – TechXplore [h/t Sherwood]
Strategy surpasses 500,000 BTC stashed after latest buy… – The Block
…while Solana’s Memecoin cabals take shine off crypto frontier – Bloomberg via MSN
Robot overlord roundup
Reid Hoffman: “Start using AI. It is a huge intelligence amplifier” – Guardian
Why hasn’t AI taken your job yet? [Search result] – FT
AI’s impact on translators and foreign language skills – CEPR
A white-collar world without juniors? [Search result] – FT
Not at the dinner table
Rise up, Europe! – Uncharted Territories
Drill baby drill? Even US energy execs are non-plussed – Dallas Fed
Fighting Russia with renewable energy – Klement on Investing
Six ways to understand DOGE and predict its future behaviour – Cato
Fukuyama: to make government efficient, empower the bureaucracy – Noema
Greenland’s new government has its own plans – The Conversation
Happy talk mini-special
The anatomy of marital happiness [Easy-to-read research, PDF] – SSRN
Happiness isn’t everything – Klement on Investing
Markets lack a final destination – A Teachable Moment
Off our beat
No, everything doesn’t have to suck – Pathless
China is suffering its own ‘China Shock’ [Search result] – FT
The media platforms that just won’t die – Axios
Inside the hot girl economy – Steph
Spiral in the night sky was likely from SpaceX launch – BBC
And finally…
“Intensity is the price of excellence.”
– Warren Buffett, The Snowball
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