US Election Season Gets Underway While the UK leaves the EU

This week finally sees Britain exit from the European Union. While the transition period, secured as part the withdrawal agreement, means that nothing will actually happen for another eleven months, it seems odd not to mention the culmination of something we have written about almost incessantly for three years. Regardless of your position on Brexit, this marks the largest constitutional change to the UK since devolution and its impact will be felt for generations. Elsewhere, while one period of political uncertainty nears an end another is just beginning.

The first votes in the Democratic primary take place in Iowa on 3rd February. This marks the official opening of election season and there will be a near non-stop coverage from now until the general election in November. With a large field of mostly unknown candidates bar former vice president Biden and 2016 democratic runner-up Sanders, expect each twist and turn to be treated as an unexpected shock as the rest of the world scrambles to find out more about each temporary front runner.

Global: Why the Coronavirus impact could be worse than SARS
In terms of the number of infections, the coronavirus has now exceeded SARS. And in terms of global economic impact, the final figure could be even higher than the $40bn hit to the economy SARS caused in 2003. Technological advancements have meant the speed at which these “black swan” events impact asset prices have risen. Last week, western markets were muted monitoring developments: this week they were negative as the virus spread.

Greater interconnectedness’ also means this pneumonia inducing virus will have a strong impact on global supply chains. For example, US companies like Starbucks and McDonalds who have a presence in this region have been impacted. And finally, let’s not forget China. The country’s contribution to world growth has increased greatly since 2003. The country has also evolved. China was able to cope with SARS largely due to its manufacturing dependant model, now, contribution from retail and services outweighs this. With most of China being shut, impact to the nation’s and ergo global growth could be even stronger.

Global: Key Central Banks Hold Interest Rates Steady
To the surprise of few, Federal Reserve (Fed) committee members this week unanimously voted to maintain interest rates, citing improving economic conditions as the main reason against taking action. Interest rate range remains between 1.5 to 1.75 per cent. The only real action noted was the Fed tinkering with one of their levers which controls rates. The central bank is aiming to get the interest rate close to the middle of the range and are doing it by raising the amount of interest it pays banks on the reserves they hold on the Fed’s balance sheet by five basis points; effectively moving rates to 1.6 per cent from 1.55 per cent.

Over in the UK, and in Mark Carney’s final committee meeting the Bank of England also kept rates at 0.75 per cent as improving business sentiment and stronger employment data held the bank from making any changes. Despite both central banks choosing to sit on the side-lines this time, the markets expect both to cut rates this year.

Companies: Facebook Stock Falls Despite Strong Earnings
This week, Facebook’s stock fell seven per cent after last quarter’s earnings report came out. And this is due to the technology giant pretty much being a victim of its own success. Over the last five years, the stock has exceeded market expectations for both revenue and profit forecasts every single end quarter. In Q4 last year, the company again outperformed on both factors, but less than what investors were expecting. Revenues grew 25 per cent to $21bn.

The company’s main source of income is derived from expanding its user base and then using this to sell to advertisers. And the number of users is growing. Facebook hit 2.5bn users across its family of apps. Last year, it grew its overall user base by eight per cent compared to the previous year. One possible explanation for the stock falling is the company’s cautious guidance for this quarter. If tighter regulations rules come into play in turn forcing Facebook to build privacy into their suite of products – the company won’t quite be the same cash cow it is today.

Lifetime ISA warning

Lifetime ISAS (sometimes called LISAs) are a way in which many people will opt to save money – be that to buy their first property or for later in life. The total penalties savers have paid when withdrawing their money in a Lifetime ISA has been revealed by HM Revenue and Customs (HMRC). Savers who have a Lifetime ISA can get a 25% government bonus added to their savings in this type of account – up to a maximum bonus of £1,000 per year. The maximum amount which can be paid into the account is £4,000 each tax year – up until a person reaches the age of 50. But while the 25% bonus may attract some savers, there are some rules about withdrawing the savings. The money can be withdrawn from this type of ISA if a person is:

  • Buying their first home
  • Aged 60 or older
  • Terminally ill, with less than 12 months to live.


However, a 25% charge must be paid if the saver withdraws cash or assets for any other reason. The withdrawal charge aims to recover the government bonus received and applies an extra charge to the original savings. this means that if a person treats their Lifetime ISA as a short-term savings product, it may be that they get less back than they paid in. Data obtained by the Royal London in a Freedom of Information (FOI) request shows that HM Revenue and Customs (HMRC) have so far charged more than £9million in penalties for withdrawing money out of a Lifetime ISA.

New Life Expectancy Figures Released

In early December the Office for National Statistics (ONS) released updated life expectancy projections based on the assumptions for future mortality from the 2018-based national population projections (NPP), which were published on 21 October 2019. The ONS has also updated its life expectancy calculator.

While life expectancy is still expected to rise in the future, the absolute numbers are now smaller. The ONS says that “The lower projections of life expectancy over time reflect the higher mortality rates observed in recent years than were previously projected and the projected lower rates of mortality improvement at older ages”. That explains why, for example, the 2014 projection said that a male reaching 65 in 2018 would have a life expectancy of 21.8 years, while the 2018 projection is 19.9 years. The drop for women is the same – from 23.9 years to 22.0 years.

Falls in projected life expectancy have been commonplace in the UK over recent years. This latest set of data calls into question whether the planned increase in State Pension Age (SPA) from 67 to 68 between 2037 and 2039 will survive the next SPA review. The timing for the move to 68 was originally proposed in the Cridland Report, which was based on 2012 and 2014 ONS data.

April 2020’s IR35 changes – Government review

The Government has launched a review of the forthcoming changes to off-payroll working rules (IR35)

This follows a number of concerns raised by businesses and affected individuals about how the new rules will be implemented. The review will, the Government says, determine if any further steps can be taken to ensure the smooth and successful implementation of the reforms, which are due to come into force in April 2020. As part of this, the review will also assess whether any additional support is needed to ensure that the self-employed, who are not in scope of the rules, are not impacted.

The Government will launch a separate review to explore how it can better support the self-employed. That will include improving access to finance and credit, making the tax system easier to navigate, and examining how better broadband can boost homeworking.

As part of the review, which will conclude by mid-February, the Government will hold a series of roundtables with stakeholders representative of those affected by the reform, including contractor groups and medium and large-sized businesses, to understand how the government can ensure smooth implementation of the reforms. The Government will also carry out further internal analysis, including evaluation of the enhanced Check employment status for tax (CEST) tool and public sector bodies’ experience of implementing the reform to the off-payroll working rules in 2017.

In parallel to the review, HMRC will continue its programme of education and support activities, such as one-to-one engagement, webinars and workshops, alongside targeted communications and support for customers, and their representatives, to help them prepare for implementation on 6 April 2020. Anyone can enrol for HMRC’s webinars using the following link.


From 6 April 2020, all medium and large-sized private sector clients will be responsible for deciding if the IR35 rules apply to their contractors. This moves the onus for IR35 decisions away from the worker to the (medium and large) private sector engager.

This responsibility already applies to public sector authorities. However, from 6 April 2020, there are extra responsibilities that will affect public sector authorities.

However, note that if a worker provides services to a small client in the private sector, the worker will remain responsible for deciding their employment status and if the rules apply.

The off-payroll working rules (IR35) can apply if a worker provides their services to a client through their own intermediary. The intermediary can be:

  • a worker’s own limited company – known as a personal service company;
  • a partnership; or
  • another individual.The burden of responsibility for deciding if a worker is caught by IR35, or not, falls on the engager if they are a Public Sector body. If the engager is a Private Sector business, the onus is currently on the worker. However, for Private Sector engagements, this burden of responsibility will be moving from the worker to the engager, from April 2020. Although importantly, this will not apply to small Private Sector businesses.
  • The four key factors for a worker to prove that they are genuinely self-employed, and not caught by IR35 are:
  • The off-payroll working rules are intended to make sure that, where an individual would have been an employee if they were providing their services directly, they pay broadly the same tax and national insurance as an employee.
  1. No control – there must be no, or absolutely minimal, control over the “worker”;
  2. No mutuality of obligations – To be self-employed, the “worker” has to show that they can turn work down. If there is an obligation for the “end client” to give work to the “worker”, and he or she has to accept it, there would be mutuality of obligations, and he or she would be an employee;
  3. Substitute – ideally the “worker” would have a substitute, at the same technical level as him or her, and have used that substitute. The “worker”, or their “personal services company”, must have chosen, engaged and paid the substitute.
  1. Insurance – the “worker”, or their “personal services company”, must ideally have paid public liability insurance or other relevant insurance relating to their work.

To be self-employed the “worker” has to win on both of the first two: no control; and no mutuality of obligations.

Budget 2020 – what to expect

Chancellor Sajid Javid will seek to lock the government into its new pledge to “level up” economic performance in struggling towns in northern England and the Midlands in a tax-and-spend Budget on March 11. But Mr Javid will be boxed in by tight constraints on day-to-day public spending, with official forecasts likely to show little room for manoeuvre.

The Budget money stems from the Conservatives’ pledge to raise net capital spending from about 2% of gross domestic product to 3%, giving the chancellor some £100bn for investment over five years. But outside of infrastructure spending, most of the money needed to boost underperforming regions will need to be raised from additional tax revenues because Mr Javid faces tight public finances. Having already announced a loosening of his fiscal rules to take advantage of low interest rates for more investment, the Conservatives’ manifesto promised to balance the current budget — so that tax revenues exceed day-to-day public spending — within three years.

In December, the Office for Budget Responsibility signalled that after the spending increases announced by Mr Javid last September there would be only about a £5bn margin for error on hitting his goal of a balanced current budget in 2022-23 on the basis of its March forecasts. The government has pledged not to increase the rates of income tax, value added tax and national insurance, but would have many other routes to increase revenues in the Budget. Ministers have already indicated they are looking to reform entrepreneurs’ relief in capital gains tax, which will cost the Treasury about £2bn during 2019-20.

Cheapest pension set for market launch

Vanguard, one of the world’s largest fund managers, is launching the UK’s cheapest ever pension in 2020 – but how does it work and could it help you save more for retirement? With an account fee of just 0.15%, capped at £375 a year, Vanguard Personal Pension brings a new level of competition to the pension market. Vanguard’s self-invested personal pension (Sipp) is designed to help the UK’s five million self-employed workers as well as anyone who wants to consolidate several pension pots into one place.

The Vanguard Personal Pension is a Sipp open to savers aged 18 or over who live, and pay tax in the UK, as well as having a UK bank account. The Sipp allows you to choose from 76 funds and ETFs and will be available from early 2020. Initially, Vanguard Personal Pension will only be open to investors that have not started to draw down from their pensions. Vanguard hopes to make the Sipp available to those savers during the 2020-21 tax year. You must open an account with a lump sum of £500 or make a £100 a month contribution under a regular savings plan.

Weekly Market Commentary – 24 January 2020

Will this year’s Davos Conference Kickstart Real Climate Change Action?
This week all eyes turned to the Bank of England ahead of the January Monetary Policy Committee meeting. Rates have only moved three times in the last ten years and have hovered around half a percent that whole period. On the surface, a 50% chance of a rate cut back to 0.50% is extremely underwhelming. While the potential move is deeply ordinary, it’s the symbolism that’s generating the buzz. A reversal following two years of minor rate hikes would send a very negative message about the state of the economy.

Elsewhere the annual gathering of the wealthy and self-important at Davos kicked off. While the importance of this gathering is debatable, most years it’s just backslapping and hobnobbing, it is notable how earnestly everyone is discussing climate change this year. 2019 saw the issue enter the zeitgiest, capturing the public’s attention – and that has definitely caught the attention of the elite. Whether all the heartfelt speeches and initiative announcements amount to anything remains to be seen.

Autos: Tesla becomes the World’s second most valuable automaker
Despite struggling with profitability as it tries to scale up production, Tesla’s market cap broke the $100bn level this week. In doing so, it became the world’s second largest automaker by market value. To put it into further context, Tesla is more valuable than the next biggest automaker, Volkswagen, despite selling 97 per cent fewer cars. This suggests markets view being a leader in electric cars as more valuable than leading in actually making and selling cars.

Increasing car sales and its new Shanghai plant are the two factors driving the recent share price rally. Tesla delivered twice as many cars (367,500) last year compared to the year prior. It is also hoped that its new factory will capture more of the Chinese market. If Tesla continues to stay above the $100bn mark on average for the next six months, Elon Musk will receive $350m in the first of up to 12 stock pay-outs.

UK: Manufacturing Optimism Hits Five Year High
Market expectations for the Bank of England to cut interest rates this month, fell ten per cent this week driven by improving sentiment amongst manufacturing businesses and unemployment rates hitting record lows. Odds on the central bank to cut rates is now evens. The CBI survey of business optimism increased by 23 per cent in the last quarter of 2019 – a stark contrast from the -44 per cent recorded in the prior quarter.

Four out of nine monetary policy committee members have stated that they are willing to cut rates if economic conditions don’t improve. According to soft data published this week – they may not have to. The PMI, an index of the prevailing direction of economic trends in the manufacturing and service sectors, depicts an economy coming out of contractionary mode and returning to growth. PMI for the month of January was 52.4 up 1.7 points from December, mainly due to a strong services sector.

Global: Wuhan Virus Wreaks Havoc in China
Millions of Chinese residents preparing to travel ahead of the Chinese New Year saw their plans disrupted by an outbreak of the Coronavirus. A strain of the deadly virus first broke out in the Chinese city of Wuhan, causing neighbouring cities to go into lockdown. So far 26 people have died across China and more than 800 are thought to be infected. There is no current cure for the disease. Cases have also been reported globally but the world health organisation is currently split as to whether an international ate of emergency needs to be declared.

So far, the spread of the Wuhan virus, which comes from the same family as SARS, has only adversely impacted Asian markets. The impact on western markets has been much more muted as investors closely monitor the spread of the virus.

Misuse of Powers of Attorney are on the rise

Court action against power of attorney misuse reaches highest-ever levels. It has been reported that the Office for Public Guardian (OPG) for England and Wales has made over 700 applications to the Court of Protection to censure or remove attorneys in 2018/19. This is a huge increase, the number of legal actions taken against people with power of attorney has more than doubled over the past two years.

Making improper gifts and not acting in the vulnerable person’s best interests were two of the main reasons for having attorneys censured or removed. Unfortunately, this is only a small proportion of the true figure as most abuse does not come to light until after the death of the donor.

These statistics are concerning but in line with previous comments made by retired Senior Judge at the Court of Protection Denzil Lush. He told BBC listeners that he would never grant anyone a lasting power of attorney overs his financial affairs because of the serious risk of abuse.

Comments made by the firm who applied for the data stated that misconduct among attorneys is very difficult to detect so these numbers are likely to be just the ‘tip of the iceberg’. There are some fundamental questions about how the current system operates and whether there are sufficient safeguards at the point at which people register. In April 2019, the OPG launched a new safeguarding strategy to protect donors, to include working more closely with adult social services and the NHS.

Money and Pensions Service Begin Pensions Guidance Nudge Trial

The Money and Pensions Service (MaPS) are working with the Behavioural Insights Team to trial two different approaches to direct savers towards Pensions Wise when they first access their pensions savings or enquire about their options.

The trials are being conducted by three providers Aviva, Hargreaves Lansdown and Legal & General Investment Management and will cover 4,300 conversations. The two approaches being trialled are either where the provider offers to book a Pension Wise appointment for the customer or where the customer is transferred to MaPS to make an appointment.

These will be tested against the existing signposting to Pension Wise which is prescribed in the regulations. The trial aims to help the FCA and DWP deliver their commitment to provide individuals with a stronger nudge towards pensions guidance when they look to access their savings.

The number of Pension Wise appointments increased from 61,000 in 2015/16 to 167,000 in 2018/19 and the growth in demand is expected to continue.

Weekly Market Commentary – 17 January 2020

Phase One Trade Deal May be more politically Symbolic than Economic
Markets this week cheered the completion of a Phase One trade deal between the US and China. While subsiding political tension has been a boon for markets, for most countries, it means diddly-squat. Tariffs on $120bn of imported Chinese goods have been halved, but 25% levies still remain on an extra $250bn. These won’t be rolled back until Phase Two, which is likely to happen after the US elections in November. A smart move by the White House as it puts the onus on China to maintain favourable ties, raise import levels from the US and not tamper with its currency.

For China, it’s the equivalent of being a donkey stuck in a box with a carrot dangling just out of reach, hurt by a slowing economy, tariffs and an appreciating currency. The increase of US agricultural imports to China could have an adverse impact on European and Asian (ex-China) imports to the region. For now, with both sides maintaining high tariffs, it appears that the trade deal is more politically inclined than economically significant, much to the rest of the world’s annoyance.

US: Banks Kickstart Earnings Season
Big US banks heralded the start of the earnings season this week. And despite falling interest rates making lending less profitable, both JPMorgan Chase (JPM) and Citigroup posted double digit revenues last quarter. The less rate-sensitive parts of the business, including corporate and investment divisions boosted results for both companies. That’s not to say that consumer borrowing didn’t add to the bottom line. Rising wage growth and rising house prices have led to US consumers flexing their credit muscles. Both companies reported an increase in spending and loan balances for Q4.

Not all banks had positive earnings. Wells Fargo’s saw its profits halve last quarter as the bank was forced to set aside $1.5bn for ongoing fines. The bank emerged largely unscathed from the financial crisis and was subsequently lauded as a pillar of financial stability. However, the bank’s reputation was tarnished after a cross-selling scandal in 2016 led to millions of consumers having bogus accounts opened for them without their knowledge

UK: Rate Cut Expecations Rise Amidst Weak Economic Data
Sterling fell below the $1.30 level this week on the back of noise from the Bank of England (BoE) and weak economic data. GDP growth fell more than expected for the month of November coming in at -0.3 per cent. It’s no secret that the BoE’s tone has been one of lowering interest rates if the economy doesn’t pick up. But candid comments from policy maker Gertjan Vlieghe who is willing to vote for cutting rates at the upcoming monetary policy committee meeting, helped fuel sterling’s descent. A lot hinges on December’s GDP data; should the “Boris Bounce” kick in, expectations of a rate cut in January could very well cool.

Elsewhere former BoE boss Mark Carney has been snapped up by Johnson to become the UK’s climate change finance advisor. Carney’s key focus will be changing the financial system in order to achieve the goals of the Paris agreement and help the UK transition to a net-zero emissions economy by 2050.

Eurozone: Investors Scramble for Sovereign Bonds
This week we saw unprecedented investor demand for European sovereign debt. Spain attracted the largest ever order book for a eurozone bond. Orders for the 30-year Italian government bond topped 44 billion euros and Belgium’s 10-year bond issuance raised close to five times what it was hoping to raise. Even Germany with its zero per cent yielding government bonds managed to raise an additional 1 billion euros.

Scarcity drove the bulk of the demand. Net sovereign debt issuance for the bloc in 2020 is expected to be around 188 billion euros – its lowest since the financial crisis despite the growing government debt pile. There are virtually no expectations of interest rate rises in the short term which has also been a key selling point.