Month: January 2019

It is now just two months until the UK is – in theory – due to leave the European Union. In this special report we have tried to summarise the current position for you: what has happened, what might happen and – most crucially of all – what it might mean for your savings and investments.

But first, a word of caution. The bulk of this report was written on the morning of Saturday, January 26th: practicalities dictate that it is always necessary to write a couple of days ahead of sending something to our clients. Be aware therefore, that events – and we have never known anything as unpredictable as these Brexit negotiations and the attendant political manoeuvring – may have moved on by the time you read our report.

The History
It seems a remarkably long time ago but on Thursday 23rd June 2016, the UK went to the polls to vote on our continuing membership of the European Union, with then Prime Minister David Cameron repeatedly stressing that if voters chose to leave the EU they would be choosing to leave the single market and the customs union, and promising that whatever the result, “Parliament will enact it.”

17.4m people duly voted to leave the EU, with 16.1m voting to remain. David Cameron promptly resigned and Theresa May – who had supported Remain in the Referendum campaign – took over as Prime Minister.
Article 50 – the UK’s formal notice to leave the EU – was triggered on 29th March 2017, meaning that the date of leaving the EU was set for Friday, March 29th 2019.

As everyone reading this report will know, there then followed two years of torturous negotiations with the EU over the terms of the UK’s ‘divorce’, with the Prime Minister agreeing to pay the EU a ‘divorce settlement’ of £39bn.

She eventually brought her Withdrawal Agreement (frequently shortened to WA) before parliament on January 15th, having postponed an earlier vote as she feared a heavy defeat in the Commons. However, the result in January was exactly what had been feared in December. Theresa May suffered a heavy defeat, losing the vote by 432 votes to 202. More than 100 Conservative MPs voted against the deal – although they very quickly returned to the fold to defeat an Opposition motion of no confidence in the Government.

This week will see another vote in the Commons on Tuesday 29th when Theresa May will put ‘Plan B’ before parliament – although there are dark mutterings that ‘Plan B’ will look very much like ‘Plan A’.

What does the Withdrawal Agreement propose?
Theresa May’s deal includes five main subjects. Firstly, there is the size of the ‘divorce bill’, which – as above – currently sees the UK paying the EU £39bn. There is then the rights of EU citizens in this country, fisheries, a ‘transition period’ and – most contentiously of all – the ‘Irish Backstop’. Let us look at these in more detail.

Freedom of Movement and EU Citizens’ rights
There is no doubt that ending freedom of movement was a contributory factor to many people voting ‘Leave’ and it is currently scheduled to end when the transition period finishes. Future immigration rules are not included in the negotiation process, meaning that the UK will have the flexibility to set its own criteria.
The existing rights of EU citizens living in the UK and Britons living in Europe have already been guaranteed in the negotiations.

Fisheries
Almost without exception, UK constituencies that have a significant fishing industry voted to leave the EU. The withdrawal agreement only says that both sides will make a commitment to use ‘best endeavours’ to reach a future deal. Essentially, UK fishermen see this as very much favouring the EU and giving EU fishing vessels licence to continue what is seen as the overfishing of UK waters, without any commitment on when this will end.

The transition period
Under the current proposals, the UK will leave the EU on March 29th but remain in the single market – and be bound by its rules – until the end of December 2020, theoretically giving the two sides time to work out a new trading relationship. The transition period can be extended by joint agreement before July 1st 2020 if both sides agree more time is needed.
During the transition period, the UK will have to follow all EU rules and European Court of Justice rulings – another big bone of contention with Leave supporters.

The Irish Backstop
The Irish Backstop has been the biggest sticking point in the negotiations – and certainly the source of much of the political wrangling. So what exactly is it? It is effectively an insurance policy, designed to make sure that the border between Northern Ireland and the Republic of Ireland remains open as it is today – that is, as a ‘soft’ border with very easy movement (for both goods and people) between the two parts of Ireland.

The backstop arrangements were agreed between the UK and the EU in November 2018 as part of the draft withdrawal agreement. If there is no agreement between the UK and the EU before March 29th then that raises the possibility of a ‘hard’ border between the North and the Republic, with all the consequent practical and political difficulties.

Inevitably, this is an emotive subject: the Democratic Unionists – the party Theresa May is reliant on for her parliamentary majority – are adamant that Northern Ireland cannot be treated differently to the rest of the UK. Advocates of a very soft Brexit maintain that a hard border between the North and South would jeopardise the Good Friday Agreement and risk a return to the ‘troubles’. Brexiteers suggest there is no realistic prospect of a hard border whatever happens, and that the threats are just part of the EU’s negotiating stance and a ploy to keep the UK chained to the EU ‘in perpetuity’.

The draft deal envisages a decision being made in July 2020 on what would have to be done to make sure the border stays open after the transition periods. If a new trade deal is not in place, Britain would need to extend the transition period, go into a customs union that would cover all of the UK – or treat Northern Ireland differently to the rest of the UK.
The DUP will not have this last option and Brexiteers will not have the prospect of an indefinite customs union, arguing that the current arrangement gives the EU no incentive to make a deal.

You pay your money and you take your choice. What is certain, though, is that you will hear the words ‘Irish backstop’ an awful lot of times between now and the end of March.

Would ‘No Deal’ really be that bad? And is it likely to happen?
For most people, their view on a ‘no deal’ Brexit probably depends on how they voted in the original Referendum. If the UK were to leave the EU on March 29th without a deal, it would revert to trading on World Trade Organisation rules (which govern most of the trade done throughout the world). So there are rules and regulations in place to govern what would happen after March 29th.
It is important to note the practicalities though. There is emphatically not a majority in parliament for a ‘no deal’ Brexit. It may be the most popular option among the British public – a recent opinion poll placed it ahead of Theresa May’s deal and remaining in the EU – but it is not the most popular option among MPs. At this stage it still feels that doing some sort of deal with the EU is far more likely than a ‘no deal’ Brexit – and Sunday’s papers brought us threats of several Cabinet resignations if the Prime Minister goes ahead with this option.

Could there be a second Referendum?
Much has been made of a campaign for a ‘People’s Vote’ – a second Referendum on membership of the EU. The prospect of this now seems to be receding, with increasing opposition to a second vote in both main parties. A delay to Brexit – giving the Government more time to reach a deal with the EU that it can get through Parliament – seems far more likely.
What will it all mean for your savings and investments?

At the beginning of the year, the FT-SE 100 index of leading shares stood at 6,728 having fallen 10% in the final quarter of the year and 12% for the year as a whole, as world markets suffered their worst collective year since 2008. As we write, the FT-SE stands at 6,809 – barely up on the year but certainly not having fallen any further for the continuing uncertainty over
what will happen with Brexit.

When he was Chancellor, George Osborne frequently made the point that world events had more impact on the UK economy than anything he did as Chancellor, and I suspect that the same might be true for Brexit. China’s economy ‘only’ grew by 6.6% last year and the consensus for this year appears to be an even lower 6.3%. Weak economic data is threatening growth in the Eurozone and the trade dispute between the US and China remains unsettled.

So Brexit is by no means the only game in town, and while ‘no deal’ might give the stock market a short term shock, in the long term – and remember that saving and investing is always for the long term – other events will be at least as important as Brexit. That is why we review all your savings and investments regularly, and make sure that they remain in line with your overall financial planning requirements.

Monday morning update…
As we have noted above, the bulk of this report was written on Saturday, January 26th. But over the weekend…
● Tory rebels are apparently prepared to throw their weight behind a plan demanding changes to the Irish Backstop, but which otherwise supports Theresa May’s plan
● Irish Deputy Prime Minister Stephen Coveney has said that the Backstop “cannot be changed”
● Education Secretary Damian Hinds has said that the UK “will definitely” be leaving the EU on March 29th
…So nothing is certain and – as someone said when the UK/EU negotiations started – “nothing is agreed until everything is agreed”.

The only thing you can count on is that, whatever happens, we will be here to answer any questions you might have, whether it is on Brexit or on any other events affecting your savings and investments.

From January 9 2019, the cold-calling of savers about anything to do with their pensions will become illegal. The new law doesn’t just cover phone calls. Any unsolicited emails or text messages about your pension will also be illegal.

As it stands, not every cold-call about you receive about your pension is a scam, though many scammers use it as a tactic to get their hands on your retirement savings. When the ban comes into force, you can be sure that any out-of-the-blue call about your retirement savings is definitely a scam.

The introduction of pensions freedoms in 2015 is widely cited as the reason for the alarming increase in pension fraud over the last few years. Scammers have seized upon these rules, which give savers much more flexible access to their retirement savings, to get unsuspecting individuals to transfer their cash.

Key warning signs of pensions scams include offers of free pension reviews and promises of incredibly high rates of return, among others. Citizens Advice report that as many as 10.9 million people were cold-called about their pensions in 2016 alone.

In the wake of this rise in scamming, savers have been turning to financial watchdogs in huge numbers for help. Between August and October last year more than 173,000 people visited the FCA’s ScamSmart website for more information.

Pension fraud victims lost £23 million in the last year alone, up £9.2 million from the year before. The real amount could be even higher as only a minority of victims report being scammed.

From 9th January, when you put the phone down on would-be pension scammers, you can tell them that they have broken the law just by contacting you.

If you suspect you have been victim to a pension scam, you should report the scam or fraud to Action Fraud as soon as you can. They will pass the information to the National Fraud Intelligence Bureau who will analyse the case to find viable lines of enquiry. If they find any, they will send the report to the police for investigation.

Inheritance tax is enormously unpopular to say the least. A YouGov poll found that 59% of the public deemed it unfair, making it the least popular of Britain’s 11 major taxes. What’s more, the tax has a limited revenue raising ability, with the ‘well advised’ often using gifts, trusts, business property relief and agricultural relief to avoid paying so much.

As it stands, the tax affects just 4% of British estates and contributes only 77p of every £100 of total taxation. This puts the tax in the awkward position of being both highly unpopular and raising very little revenue. At the moment, the inheritance tax threshold stands at £325,000 per person. Anything above this is subject to a 40% tax.

Inheritance tax is seen as unfair because it is a tax on giving (while normal taxes apply to earnings) and it is a ‘double tax’ on people who have already earned – and been taxed on – their wealth.

However, the Resolution Foundation, a prominent independent think tank, has suggested an alternative.

They propose abolishing inheritance tax and replacing it with a lifetime receipts tax.

This would see individuals given a lump sum they could inherit tax free through their lifetime and would then have to pay tax on any inheritance they receive that exceeds this threshold. The thinktank suggests that by setting a lifetime limit of £125,000 and then applying inheritance tax at 20% up to £500,000 and 30% after that would be both fairer and harder to avoid.

They predict that a lifetime receipts tax would raise an extra £5 billion by 2021, bringing in £11 billion rather than the £6 billion inheritance tax currently raises. In a time of mounting pressure on public services like the NHS, this additional revenue would be welcomed by many.

Moving away from inheritance tax would reduce many of the current ways to manage the amount of assets an individual is taxed on upon death. For instance, people would not be able to reduce the size of their taxable estate by giving away liquid assets seven years prior to their death.

The Resolution Foundation also suggests restricting business property and agricultural relief to small family businesses.

The lifetime receipts tax is, at the moment, just a think tank recommendation and is not being considered by the government.

However, the government are trying to introduce changes to probate fees that would see estates worth £2 million or more pay £6,000 in probate fees, up from the current rate of £215. This proposal has seen little support in the House of Lords and the government may consider scrapping the tax.

With the new year comes new possibilities, and most of us like to put a resolution in place. While you might not stick to your January gym membership or finally get that novel written, committing yourself to a financial resolution is an excellent way to start 2019.

Improving a financial situation has proven to be a high priority for the British public as we turn the first page on a new calendar. In fact, the average adult will commit £4,600 on financial resolutions; this includes goals like paying off a debt or moving house. For those under the age of 25, 11% of people aim to clear their debts in the new year, and for the over 55s that figure increases to 15%.

Even with the best intentions, however, it can be tough to see resolutions bear fruit. Luckily, there are a few steps you can take to give yourself the best chance.

1. Look before you leap!

It can be tempting to jump into the new year with big plans for the future, but if you’re not looking at where you’re coming from, you may not be giving those plans the preparation they need to flourish. Review your spending for 2018, collect your bank statements, bills and receipts and look out for areas of excessive or unnecessary expenditure. Once you’ve identified any pitfalls, they’ll be much easier to avoid in the year ahead.

2. Find your feet

Once you’ve got a good grasp of how the past year has been for your finances, you’ll have an understanding of where you are currently. There may be actions you can take immediately to better your situation. For example, review any subscriptions or direct debits that you now deem unnecessary. Sell any unnecessary items to create an income without any serious lifestyle changes. Consolidate debts with balance transfer cards, to make payments more manageable and to potentially lower your interest rate. Simplifying and strengthening your financial situation at the start of the year will give you greater control over the coming months.

3. Set goals and be reasonable!

There’s no point in setting a goal that is unachievable, only to disappoint yourself when you inevitably fail to meet it. With a solid understanding of your recent financial habits and your current position, set yourself an achievable plan for the year ahead. Be specific and make it measurable! Rather than pledging to eradicate all of your debt, identify a portion that you’re confident you can clear, and set yourself benchmarks to help track your progress.

4. Draw up a budget

It’s all well and good having a plan but you’ve got to stick to it. A well constructed budget can be just the thing to keep you on the straight and narrow. Gather information about your income and outgoings and regulate your spending. For example, it can be very tempting to treat yourself when you receive some unexpected income but don’t ignore the opportunity to bump up your savings. Perhaps consider splitting that extra money between debt repayments and future savings, and if there’s any left over then go for that posh meal. The key is to keep up to date, and revise your savings goals and budget plans as you go so that you’re prepared for whatever the year may bring!

With the right preparation and planning, 2019 can be a great step forward for your finances – take on the challenge and have a happy new year!