Investor Points of Few – The Annual Autumn Budget Hokey Pokey

“You put your right foot in
You take your right foot out
You put your right foot in
And you shake it all about
You do the hokey pokey
And you turn yourself around
That’s what it’s all about” – Jimmy Kennedy

By Alan Steel

After listening to today’s budget statement I think I finally understand Jimmy Kennedy’s “Hokey Pokey.” 

It wasn’t written for kids. It’s a budget statement guidebook. 

You put something in. You take something out. You put that first thing back in and then shake it all about so that everyone can see it. Then you turn around on everyone and do it all over again.

Call it a “Pokey Epiphany.”

By example, the Chancellor of the UK’s Chequered finances, Philip Hammond, had previously warned us there would be no economic silver bullets fired in today’s budget announcement at things like social housing, stamp tax, and our nation’s ever-expanding £1.95 trillion national debt pile.

He didn’t lie. He just lowered expectations.

Hokey, Hokey Pokey…

Nor does it appear that from that ridiculously small red brief case he currently carries will come any real tax, spending or austerity solutions to incite economists and commentators alike into a swell of oohs and aahs, like spectators at a Guy Fawkes fireworks display.

What Value, Then? 

This annual economic Lollapalooza seems as out of touch with reality as the Conservative party politico who took up the Chancellorship on 13 July 2016, who just days ago said there were “no unemployed people” in the UK.

That said, no bullets and no unemployed sounds like nirvana to me, and just about as likely. 

So what can we divine from the first listen to this statement?

You Put Your Left Foot In

Well, there is the promise of building 300,000 new homes each year, sadly with no specifics as to whether these will be “affordable” or not, where they will be built nor which tin of broken biscuits will be raided to pay out the £44 billion capital investment to get this done.  

Practically speaking, were we living in the decades proceeding World War II, then this would likely arrive as a welcome and even achievable feat.

But we’re not.

You Take Your Left Foot Out

This particular campaign promise arrives as if torn from the pages of a 2007 Labour government that promised 240,000 homes per year. That never came to pass either.

The closest we got was during the housing bonanaza of 2006/07 when 219,000 homes were constructed. Only last year did we get back up to 217,000 after extended periods in 135,000 to 150,000 range.

You Shake It All About

What else?

Tuition fees will be frozen and the 26 to 30 year-old set will get a discount Millennial railcard. 

No oohs and aahs as yet….

Next up was Mr Hammond’s commitment to “invest to secure a brighter future for Britain” with things like driverless cars and £1,000 pots for schools that have fallen behind.

£1,000? Really? What does that mean? A new pencil and eraser set for each student?

The Hokey in the Pokey 

  • No stamp duty for first time buyers (up to £300k, and £500k in London)
  • £1.7 billion to improve city transport
  • He doesn’t like diesel cars and he’s putting £400 million towards the electric car infrastructure
  • The small business VAT threshold will remain at £85,000
  • The NHS gets an extra £10 billion over this Parliament
  • There’s £500 million for 5G and full fibre broadband (I must admit I like that one!)
  • There will be additional taxes on private jets to pay for short-haul air passenger duties
  • A 4.4% rise in the living wage will give folks about £50 extra per month (that’s before taxes – woo hoo!)
  • There will be “maths for everyone” (except the folks who wrote this budget) and a tripling of computer science teacher training
  • £20 million to further education colleges – which means about £61k to each of the 316 further education colleges in the UK…not exactly what you’d call transformational money, and
  • £3 billion for Brexit alongside a “free and frictionless trade and friendship…” (read: Guff)

Remember: The Hokey Giveth, and the Pokey Taketh Away

Borrowing is forecast to be about £49.9bn this year. That’s £8.4bn lower than forecast at the spring budget, with a promise of further decreases to achieve the lowest borrowing levels in over two decades by 2022/23. 

Where have we heard that one before?

Probably from the last guy with the goofy red briefcase…and the one before him…and so on.

You Turn Yourself Around…

OK, so Government borrowing just hit its lowest August level in 10 years via bumper VAT receipts.

But be careful trusting in the accuracy of that one, as it comes courtesy of the Office for National Statistics; who it seems was put on this earth to make the predictive efforts of weather forecasters and economists look good.

And if growth slows and higher government interest payments ensue then it’s likely that borrowing reduction game’s a bogey.

As for all of the unemployment that the Chancellor earlier this week claimed did not exist, he now describes the 1.4 million out of work in the UK as “too many.”

Well, at least that bit of maths is correct.

That’s What It’s All About

So, where does that leave us? 

Maybe it’s what’s not mentioned that investors should focus on; pensions, investments like ISAs, and avoiding the hassle for those left behind when you drop deid with no Will and no trust protection on pension plans.

Apart from that the tax gulf widens between Scotland and the rest of the UK.

So, we’re going to provide a more detailed look into the impact of this budget statement on investors over the long-term in the next edition of Master Investor magazine.

But for the near term, if and when the subject of the autumn budget announcement comes up in discussion, think of the Hokey Pokey, but don’t get turned around.

Alan Steel, Chairman, Alan Steel Asset Management 

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