Woah, I never said there would be income tax rises, just that Rachel Reeves had hinted at them!! Anyway, we seem to have had a massive U-turn on something that was only hinted at and never actually outlined as being a potential diversion away from the manifesto direction. It has the same feeling to me as waiting for an Uber driver to arrive and watching on your app as the nearest one goes round the same roundabout several times rather than picking you up! I guess as the Chancellor keeps saying we will “have to wait for the budget” if we want to know what she plans but it does feel a bit like we don’t know where we are going!

Tax-Turns

It was a report in the Financial Times that suggested plans to increase income tax rates in the upcoming budget, due to be delivered on November 26, have been shelved by the government. Speaking on this, Hargreaves Lansdown head of personal finance, Sarah Coles, said: “Plans to drop the manifesto promise not to raise income tax have reportedly been shelved. “It means the government can avoid the associated drama of going against a manifesto promise, but it will need other options to close the gap in its finances.”

To fill this gap, Hargreaves Lansdown identified several areas which the government might consider raising additional funds such as introducing a longer freeze in income tax thresholds. It explained this has been an effective stealth tax already as fiscal drag has brought over 6mn more people into paying income tax, and 3.36mn more into paying higher or additional rate tax. Calculations from Hargreaves Lansdown showed that freezing the thresholds for two more years, instead of increasing with wages, means someone earning £60,000 might pay an additional £1,529 by the end of 2029/30.

Additionally, Hargreaves Lansdown pointed out that the government considered cutting tax thresholds. However, it suggested that a reduction of the personal allowance of £12,570 might be less likely because of the impact on lower earners. Instead, any change to thresholds might involve a cut in the higher rate threshold of £50,270, when the marginal tax rate rises from 20 per cent to 40 per cent, and the additional rate threshold of £125,140 when it rises to 45 per cent. If the additional rate threshold moves, then it could also change the point at which the personal allowance starts to taper, and taxpayers pay an effective rate of 60 per cent.

Hargreaves Lansdown said these changes could protect basic rate taxpayers, but everyone else would pay the price as it would force more people over each of the thresholds. “This would bring more tax pain but wouldn’t be enough to close the gap for the government, so would be likely to come alongside a host of other changes,” the company said. Therefore, they pointed out that it’s “more important than ever” that people take advantage of all the tax-efficient options that make sense for the circumstances of individuals.

Good News

There is some good news today, reports IFA Magazine. It appears that Chancellor Rachel Reeves will not alter tax-free cash entitlements from pensions at the Budget, which has been confirmed by Treasury officials. Temporary respite from speculation will come as a relief to many, but uncertainty is likely to linger without a clear commitment to long-term stability. AJ Bell comments that while the decision offers short-term reassurance, lasting clarity from government is urgently needed to restore confidence.

AJ Bell director of public policy, Tom Selby, says: “Attacking tax-free cash at the Budget would have been a massive own goal from the chancellor, raising little money and causing uproar from young and old alike. “It would also likely have led to further industrial action from public sector trade unions, including senior NHS staff, at a time when public services are already creaking.

Mayhem in Motown

David E Rovella from Bloomberg says “It was just the other day when the conventional wisdom was that the Federal Reserve had turned the corner and more rate cuts were effectively a lock. Putting aside President Donald Trump’s relentless attacks on the central bank’s independence in his quest for cuts, a wavering US labo(u)r [Ed – you’ve got to let go on their spellings!] market and economic uncertainty were seen as prime motivators for future reductions. But maybe not anymore.

Inflation has been rising under Trump, sitting now at 3%, and Fed policymakers are stepping up warnings that another cut in December could be a damaging move. Officials broadly agree the labor market has cooled but are split over whether the slowdown will intensify. And while one group is sanguine about price pressures, others are warning further cuts put years of progress on inflation at risk.

“I do not think further cuts in interest rates will do much to patch over any cracks in the labor market—stresses that more likely than not arise from structural changes in technology and immigration policy,” said Jeffrey Schmid, president and chief executive of the Federal Reserve Bank of Kansas City. “However, cuts could have longer-lasting effects on inflation as our commitment to our 2% objective increasingly comes into question.”

The Markets 

We have Tatton Investment Management’s Tatton Weekly covering the following areas – 

• Open and shut – The muted market rejoicing as the longest US government shutdown ended tells us that there may be other dynamics at work underneath the surface. 
• Back to the 90s, but what year is it? – Is the AI investment boom heralding a repeat of the market dynamics of the TMT bubble of the 1990s?
• The precautionary tale of Tony Dye – Michael Burry, the ‘Big Short’ 2008/2009 investment hero, closed his hedge fund this week after mounting losses from two years of shorting tech stocks. Will he be the ‘Tony Dye’ of the AI investment boom?

Chart of the Week – POSTPONED

I had a cracking chart from 7IM to insert here talking about how the markets were hitting new highs, how the FTSE 100 share index was almost at the 10,000 mark, and how that would mean it would only take a 10% increase to get to 11,000, then just over another 9% to get to 12,000, etc.

Alas, the uncertainty caused by the Chancellor’s decision [Ed – or non-decision, possibly??] which sent the markets into a bit of a tizz on Thursday and Friday, have meant it might be a while before I get to include that one.

Hopefully, it’s engine will still be warm when I do.    

Sting in the Tale?

If the government isn’t doing U-turns, then it might well have taken two lefties in a row as it is to reconsider its decision to reject compensation for ‘Waspi’ women hit by a rise in the state pension age. Pat McFadden, secretary of state for the Department of Work and Pensions (DWP), said yesterday that evidence had been missed from the initial investigation.

According to a BBC report, McFadden told the House of Commons that ‘work will begin immediately’ on the new investigation, but that the move ‘should not be taken as an indication’ the government will issue compensation.

Women Against State Pension Inequality (Waspi), a campaign group formed in 2015, claim that 3.6 million women born in the 1950s were not told about rises in the state pension age to bring it in line with men.

Miscellaneous

Rachel Reeves has also reportedly abandoned plans to impose a new “exit tax” on entrepreneurs moving their business out of the country, after accepting that it could lead to an exodus of millionaires. Startup Coalition executive director Dom Hallas said over LinkedIn that the government had confirmed to him that the policy had been scrapped.

Reeves has also reportedly abandoned plans to impose a new “exit tax” on entrepreneurs moving their business out of the country, after accepting that it could lead to an exodus of millionaires. Startup Coalition executive director Dom Hallas said over LinkedIn that the government had confirmed to him that the policy had been scrapped.

The amount of cash that is protected if a bank or building society goes bust is set to rise for the first time in eight years, The Mail on Sunday understands. In a major boost for millions of savers, the Bank of England is expected to confirm that the deposit guarantee limit will increase from £85,000 to £110,000. The higher limit is due to come into effect on December 1 – just five days after the Budget, when Rachel Reeves is expected to launch a tax raid on popular cash ISA accounts. Fears they will be hammered by the Chancellor have seen savers salt away huge sums of cash. Almost £100billion has poured into easy-access and fixed-rate accounts, as well as ISAs, since Labour came to power last year. In September alone an extra £2.4billion went into cash ISAs.     

And finally this week, in his final letter to investors, the outgoing Berkshire Hathaway CEO has some last words of wisdom before he steps down at the end of the year. Money Week has outlined Warren Buffet’s three lessens for pension investors. An appropriate time to say I hope to catch up with you next time.