Banking

Weekend reading: I wouldn’t start from here if I were you – Monevator

What caught my eye this week.

There is a great discussion going on in the comments to yesterday’s mini budget article. I’d strongly suggest readers with something to say add their thoughts there.

However some seem bemused by what they see as my sudden support for the new administration.

So I’d like to clarify my position this morning. Feel free to skip to the links if (understandably) you couldn’t give two hoots!

Made in Britain

Yesterday’s article was my best shot at fairly considering what was being presented in the mini budget – and why – given where the UK is today.

I felt I’d made clear it was a break with the past, for good or ill, and a gamble.

There are pros and cons and I tried to reflect that.

But it is 2022 and we are where we are.

I didn’t vote for Brexit. I didn’t nail on a 0.25% to 0.5% annual hit to GDP from less favourable trade conditions on leaving the EU. My concerns about Tory populism and mendacity – as well as rising inequality – even had me vote for Corbyn. I’ve lost valued readers to my blog by stating all that over the years.

As I replied in a comment yesterday, my first choice would have been the centrism of Blair or Cameron continuing and the UK sliding into comfortable second-tier nation status. One befitting our demographics and our resources, rather than delusions of grandeur.

Instead of the past six fruitless years of self-harm, we might have been concentrating on building a green energy grid or tackling some other actually important challenge.

I don’t think we should have had a referendum, especially not they way we did.

My second choice would have been a second referendum on the reality of Brexit, not the fantasies.

Even now my third choice would be to re-enter the EU on the less favourable terms we’d get.

Once you get to fourth choices, however, nothing is super appealing.

As I wrote yesterday the UK economy has a huge productivity problem. We also have more than one Brexit problems, including a smaller GDP than otherwise and a consequent hit to funding and borrowing.

And politically we’ve walked a way down the populist path. History shows it can be difficult getting off that without something breaking first.

So now we have the (mega) mini budget – which is a direct result of post-Brexit politics and economics.

Is it the height of prudence? No, as I said yesterday it’s a risky gamble.

The approach could backfire in various ways – which the markets are already worried about with the pound sliding another 3% and gilts spiking, as I mentioned yesterday.

The ‘tails’ of potential outcomes have fattened. The risk of something very bad occurring – like a run on the pound or a confidence crisis in the debt markets – have increased.

However another of those fattened tails is that this is indeed a first step to a faster-growing economy. It’s definitely not a certainty.

The only certainty is this approach will produce some ugly by-products alongside any improvements in growth. But much of that is a political not an economic issue.

There has been a push back against what’s seen as a return to ‘trickle down’ economics. It’s above my pay grade to dissect all that here.

However I would say policies that didn’t work in one era may have more use in another.

Hail the invisible hand

Again, I don’t believe the rich paying too much tax is a big problem for the UK.

But I do understand that trying to make Britain a more entrepreneurial and dynamic economy has a logic to it, especially post-Brexit – if that is indeed the aim.

Much of the criticism I’ve read smacks me more as opposition to capitalism.

Comfortable on its bounty, a certain large swathe of the population seems to believe – to quote a populist – that we can have our cake and eat it. That we can levy indefinitely higher taxes and spout an anti-success rhetoric whilst still enjoying fast economic growth and expanding a state that is already bigger than at almost any time in history.

But I am an unabashed capitalist. All things equal I prefer people to keep more of their own money and save or spend it as they see fit.

Not just for their benefit, but because I still believe it leads to a more prosperous economy overall.

Now all things are not equal – not ability, not education, not family connections, not luck, and not outcomes – which is why I also believe in a pretty strong State to do the things capitalism can’t (e.g. the army) or the things it won’t (e.g. universal affordable healthcare).

But I see that as redressing the inequalities produced by the wonder of free enterprise.

As opposed to people somehow sneaking off and making larcenous profits in some hidden corner of a communist utopia.

Taxing matters

For instance, contrary to much of the commentary yesterday, the highest-earners already pay a huge amount of income tax.

The top 10% pay 60% of income tax receipts.

Yet even ignoring the specifics of the tax system, I have had conversations with intelligent university graduates who are initially thrown when I point out that 40% taxation on £1m is £400,000 whereas 40% on £50,000 is £20,000.

That is, the higher-earner contributes far more in tax.

How did we end up in a situation where reasonable people can be shocked when presented with those facts?

And why is it ‘fairer’ to make the higher-rate band 45% and have the the million earner pay £450,000 instead of £400,000?

Perhaps it is – maybe you want to redistribute more heavily, or you believe high-earners are effectively rent-seekers or similar – but start from the position, again, that the top 10% of earners already fund 60% of income tax receipts. Not the rhetoric that they’re somehow paying less.

I don’t have high hopes for this Truss administration. But I will keep saying it as I see it, which will be waffle-y and full of caveats and maybe more nuanced than some would like.

Perhaps to that end it’s only fitting that I seem to have ruffled a few feathers among our left-of-centre readers.

I’ve included a few more articles about the mini budget below. But ideally comments on this article will be about other money and investing links. That way we can keep the mini budget response to fruitfully expanding the existing discussion.

Have a great weekend everyone!

From Monevator

The cheapest stocks and shares ISA on the market – Monevator

Push me pull you with the 2022 mini budget – Monevator

From the archive-ator: are you wasting money on memories? – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!

Mini Budget bits and pieces

At-a-glance: what’s in the mini budget? – BBC

What does the government’s mini budget mean for your money? – Which

Gilts and sterling hammered as Chancellor spooks investors – ThisIsMoney

Half of Kwarteng’s cuts to personal tax will go to richest 5%, say experts – Guardian

Top earners urged to boost pensions before tax cuts [Search result]FT

Stamp duty calculator: what will you pay to move under new rates? – ThisIsMoney

Will the stamp duty rate cut push up interest rates? – ThisIsMoney

Martin Wolf: Kwasi Kwarteng is risking serious economic instability [Search result]FT

Marina Hyde: if you are poor, have you thought of simply being rich? – Guardian

Other news

UK interest rates raised by 0.5% to 2.25%, highest since 2008 – Sky News

Treasury refuses to publish OBR’s latest economic forecasts – BBC

Rail workers to strike again on 8 October – BBC

Students face a £439 monthly shortfall between income and outgoings, survey finds – Save The Student

Can Britain’s endangered department stores be saved? – Bloomberg

Russia arrests over 1,300 after anti-war protests – CNBC

Higher inflation, higher interest rates, and higher education – Bond Vigilantes

Products and services

Castle Trust launches a best buy one-year fixed savings account paying 3.47%… – ThisIsMoney

…and savers can now earn 4% with a two-year fix from Atom Bank – ThisIsMoney

Only one week left to use paper £20 and £50 notes as legal tender – Which

Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor

Soaring bond yields set to lift UK mortgage rates [Search result]FT

How to earn cashback on your bills – Be Clever With Your Cash

Fund managers pitch ‘alts’ to retail investors as institutions max out [Search result]FT

Thatched cottages for sale, in pictures – Guardian

Comment and opinion

Learning to be a good investor is hard – Behavioural Investment

How our children shape our thoughts around money – The Ramp Report

Why market predictions are best ignored – The Evidence-based Investor

Right you lazy 50-something layabouts, Britain needs YOU – S.L.I.S.

Spending without regrets – Of Dollars and Data

Don’t take financial advice from Kanye West – A Wealth of Common Sense

It’s time to rethink retirement – Darius Foroux

Turns out bosses like four-day workweeks, too – Fortune

Financial bloodletting: don’t let it happen to you – Mantaro Money

Asset-liability matching and your portfolio – Humble Dollar

Inflation is best explained by this theory of money – Advisor Perspectives

Beware the Winner’s Curse at auctions – Humble Dollar

How much should you give to charity? – Flow FP

Crypt o’ crypto

Cryptocurrencies are not currencies. Discuss – Klement on Investing

Naughty corner: Active antics

Valuation measures for the US market are looking more reasonable – Validea

Narcissistic fund managers do about 1% a year worse, study finds – Klement on Investing

Illusion of knowledge [PDF]Howard Marks

Does company culture drive stock performance? – The Onveston Letter

Covid corner

President Biden says Covid 19 pandemic is over in the US – BBC

Kindle book bargains

Winners: And How They Succeed by Alistair Campbell – £0.99 on Kindle

The 5 AM Club: Own Your Morning. Elevate Your Life. by Robin Sharma – £0.99 on Kindle

How To Own The World by Andrew Craig – £0.99 on Kindle

Quit Like A Millionaire: No Gimmicks, Luck, or Trust Fund Required by Kristy Shen – £0.99 on Kindle

(Don’t have a Kindle? Buy one and join the cheap book club!)

Environmental factors

Who will pay to clean up ubiquitous ‘forever chemicals’? – Politico

Off our beat

Diversity – Moontower Weekly

How the Fitbit (and its 10,000 steps) dictates modern outfits – Guardian

Why travel is no cure for the mind – More To That

On the beach at the world’s first wealth festival – L.A. Times

Keeping NYC [and London…] on top – Dror Poleg

Ukraine war: “what’s happening now in Russia is total fear”BBC

And finally…

“In the abstract, life is a mixture of chance and choice. Chance can be thought of as the cards you are dealt in life. Choice is how you play them.”
– Edward O. Thorp, A Man For All Markets

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