Rishi Sunak revealed his Spending Review on Wednesday and indicated initial steps to help fund the borrowing undertaken this year.

One of the biggest changes to be announced was that the use of the Retail Price Index (RPI) is to change to Consumer Price Index including Housing costs (CPIH). To the relief of many, however, Rishi has postponed this change until February 2030.

RPI has been dubbed an inaccurate estimate of price inflation since 2013. CPIH has, on average, been lower than RPI by around 0.8% pa.

The change will help the government save an estimated £2bn per year in interest payments on index-linked gilts. This is one source of borrowing used to help the economy in this global pandemic.

What does it mean for you?

Pensioners

State Pension will not be affected as the State Pension is currently increased by a ‘triple lock’ method which does not include RPI.

Other occupational pensions that increase in line with RPI will receive lower increases each year due to CPIH normally being lower than RPI.

Bondholders

Unfortunately those who have already purchased index-linked gilts which contain a link to RPI will not be compensated in any way. For these, the change will result in lower interest rates and a lower trading value of the bond.

However, some bond values have risen on the back of this news due the original proposal last year from the Chancellor’s predecessor stating the change may come as early as 2025.

Younger generation

The younger generation will benefit on a range of savings. These include Student Loan Repayments as the interest will now be linked to a lower rate.

General

Any rail users or people holding mobile phone contracts will also see a benefit as the price rises of these are normally linked to RPI.

In conclusion, this change could be considered a less direct way than some to begin the repayment of some of the debt accumulated by the UK government throughout the pandemic. The main alternative would be significant increases to taxes. We may still see this but probably not until the economy begins to recover.

We are delighted to announce that we have, once again, made it onto the Citywire Top 100 list – one of only four firms to do so every year since its outset in 2012!

Collated by the New Model Adviser publication, the list showcases the top 100 financial planning and wealth management firms across the UK each year. Firms are surveyed and analysed on a multitude of areas, spanning investment philosophy, training, fees, and client education, to name but a few.

Ultimately, the list aims to highlight and celebrate the best of the professional financial planning community, and we are proud to be considered as such. As always, we are dedicated to building and providing the highest level service for our clients.

Earlier this year, the Chancellor called for a review of Capital Gains Tax (CGT), which will be undertaken by the Office for Tax Simplification (OTS), specifically focussing on aspects of CGT in relation to individuals and small businesses. The review is to cover:

• Overall scope of the tax and the various rates of CGT that apply.
• The reliefs, exemptions and allowances which can apply, and the treatment of losses.
• The annual exempt amount and its interactions with other reliefs.
• The position of individuals, partnerships and estates in administration.
• The position of unincorporated businesses and stand-alone owner-managed trading or investment companies (including the setting up, selling or winding up of such businesses or companies).
• How the CGT rules affect taxpayers’ investment decisions.
• Interactions with other taxes such as Income Tax, Capital Allowances, Stamp Duty Land (SDLT) Inheritance Tax (IHT).

It is therefore possible that the CGT landscape could change in the near future. Given the previous reduction to CGT rates in 2016, it is unlikely that the rates will reduce further.

The review is currently ongoing, with the deadline for providing the OTS with detailed comments on the above areas already having passed on 12th October. A date for the publication of the findings has not been set, however we will be keeping an eye out for the report when it is published.

The report will only provide recommendations for change and simplification of CGT. Any recommendations are not binding and must first pass through Parliament, although they will be considered in depth.

At the beginning of October, Eldon welcomed Natasha Noble to join our paraplanning team.

Here is a short introduction from Natasha:

I graduated from Newcastle University in 2013 with a degree in Geography and started my career in financial services shortly after.

After spending 5 years in another firm where I achieved the Diploma in Financial Planning, I was drawn to the strong client focus and approach to holistic financial planning at Eldon.

I am currently working towards the Advanced Diploma in order to achieve Chartered Financial Planner status and look forward to developing my career as a Paraplanner further. I hope to gain valuable knowledge from my new colleagues and assist Eldon to continue to provide a first-class service.

During my first two weeks, I have been warmly welcomed to the team and have already had the pleasure of meeting some clients via Zoom!

Outside of work, I am a National Trust member and enjoy exploring sites around the North East. I am also an animal lover and enjoy walks with my family dog, although his advancing age now means he would much prefer to snooze. I also recently adopted a rescue cat who is settling in well, although I get the impression he thinks he has adopted us.

Against a backdrop of surging Coronavirus cases across the UK, and the introduction of further Government restrictions, the Chancellor of the Exchequer, Rishi Sunak, delivered his Winter Economy Plan on Thursday of last week. Sunak’s Plan is intended primarily to offer additional support to businesses and protect jobs over the last quarter of 2020 and into 2021. It comprises four main additions to the existing plan.

A New Job Support Scheme

This is to be introduced from 1st November and set to run for six months, during which time the Government will contribute towards the wages of employees that are working fewer than normal hours due to decreased demand. Whilst employers are to continue funding wages for the hours that are worked, the Government and employer will each pay one third of equivalent salary for the hours not worked. In order to qualify, employees must be working at least 33% of their typical hours, with the level of grant capped at £697.92 per month.

Extension of the Self Employment Income Support Scheme (SEISS) Grant

For those currently eligible for the SEISS Grant and continuing to trade but facing reduced demand, a further taxable grant will be available. This offers a lump sum of three months’ worth of profits from November to January 2021, equating to 20% of average monthly profits up to a maximum of £1,875.

A second grant is also set to be available for the self-employed to cover the period from February to the end of April 2021, although this is subject to change.

Temporary 15% VAT Cut

Sunak also announced that the 15% VAT cut is to be extended to the end of March 2021 for the tourism and hospitality sectors, the intention being that businesses within this sector feel able to retain staff as they adapt to the impact of the Coronavirus.

Furthermore, businesses that deferred their VAT bills will now be able to make payment in eleven instalments during the 2021/22 tax year, rather than an as one lump sum at the end of March 2021, under the New Payment Scheme.

Increased Flexibility for Business Loans

The introduction of a new ‘Pay As You Grow’ repayment system for Bounce Back Loans will see the extension of loan terms from six to ten years. In conjunction, businesses may be able to extend the length of Coronavirus Business Interruption Loans to ten years. Applications for such loans, and other Coronavirus loan schemes, will now remain open until the end of November.

It’s been a long time coming, after first being announced in 2014, but the government has just confirmed the minimum pension age increase from age 55 to 57.

The change will be effective from April 2028. This applies the rule of the minimum pension age being 10 years earlier than state pension. State pension age is due to increase to age 67 as from April 2028. Until 2028 you can access pension from age 55.

The change is said to reflect the trends in longevity and to encourage people to remain in work and save in their pensions for longer to provide a more sustainable retirement.

We believe that some earlier, scheme-specific, retirement ages may persist but as time goes on such exceptions will become fewer but it always worth checking your own pension scheme.

If you need guidance or advice on your pension and its accessibility or you are planning for your retirement please contact us and we’d be please to help.

Since the COVID-19 pandemic, the amount of government support has increased significantly. This has enabled individuals across the UK to remain employed through the furlough scheme and the self-employed to continue funding their living without taking on personal debt. However, these are only two of the schemes put in place to boost the economy.

Government Borrowing

This begs the question, which many people have already asked; “How do we pay for this support”? The answer is government borrowing in the form of UK GILTS. The government are effectively borrowing money from various sources, for which they will pay annual interest like any other loan and repay in full at a later date.

This type of government borrowing isn’t unusual as a type of fiscal policy to boost the economy. However, recent figures have shown the effect COVID-19 has had on the level of borrowing. Between April and July 2020 c£150.5 billion was borrowed. This is almost three times the total borrowed in the financial year 2019/2020.

Although this is the case, the rate of interest on the borrowing is very low. One example shows the government will only pay 0.125% pa on a GILT which does not need to be repaid until 2028. For one repayable in 2050 the rate is a little higher but still low at 0.625% pa. The key is that although the level of debt has significantly increased, the cost of the debt is very low. If inflation averaged just 2% pa between now and 2050 the cost in today’s terms of repaying the debt is nearly halved in today’s terms.

Looking Forward

The effect of this level of borrowing is unknown at this stage, but it is clear that the government wants the economy back to normal as soon as possible. Typically, the rate of inflation increases because of increased government borrowing but given the reduction in economic demand has been so severe, it is thought inflation could remain low for an extended period.

For investors within equities it could be good news, as typically when interest rates on fixed interest (GILTS) and cash are low, it makes the equity market more attractive leading to potential increases in value.

As ever should you have any questions or concerns about your investments please don’t hesitate to contact us.

Inflows

Many people will now be familiar with Ethical/Environment, Social & Governance (ESG) investing as this is becoming an ever more prominent area, but just how much has this area grown recently?

2019 saw record inflows for ESG funds. This was the case both in the UK and in the US. Previously the investment options in this area were far more limited, usually with a typical “Ethical” fund being offered only. With many more offerings in the market, investors can now invest in a far greater range of funds, which can align more closely with their own views and morals. This has broadened the appeal of ESG funds. An added benefit of this increased competition is that it has driven costs down in funds to a far more competitive level when compared with non-ESG funds.

Indeed, this trend has continued, with July seeing record monthly inflows into ESG funds in the UK. The graph below highlights just how the ESG Equity fund inflows have exploded showing that from 2019 onwards inflows really took hold.

Performance

One misconception is that investing in an ESG fund means giving up on returns. Academic research is divided on the issue, with some arguing that a company demonstrating good ESG behaviours will outperform those that do not, as better governance is often correlated with companies who are deemed to be higher quality. Others argue that the additional costs involved in meeting ESG compliance will outweigh the benefit and be a hindrance to the performance of the company.

One “benefit” has been the lack of Oil holdings in ESG funds. This has been an area of poor performance. In addition, Technology holdings often feature quite prominently in ESG funds, which has been a sector that has outperformed lately.

If we look at the data, this backs up the thesis of ESG funds outperforming. Data published by Morningstar has examined the long-term performance of a sample of 745 European based sustainable funds. The results showed that most strategies have done better than non-ESG funds over 1, 3, 5 and 10 years. As ESG funds are still relatively new, performance data only goes back 10 years with a big enough sample range, however the findings do seem to debunk the myth that investing in ESG funds carries a performance cost.

Looking Ahead

The growth in ESG funds is projected to continue, with a report from Deloitte estimating that ESG mandated assets in the US could grow at 3x the rate of non-ESG mandated assets up to 2025.

In addition, from 10th March 2021 the EU directive on Sustainability-Related Disclosures will take effect. This aims to enhance transparency regarding the integration of environmental, social and governance matters. This will apply to the UK also, despite the withdrawal from the EU. This will give investors a clear benchmark for comparison between funds.

Despite the outperformance of ESG funds over recent times, there is no guarantee this will continue. Investors should move into ESG funds not based on performance, but to ensure their investments are aligned with their own views. As we often say, past performance is no indicator of future performance.

The UK government has introduced temporarily reduced rates on Stamp Duty Land Tax (SDLT), but what does this mean for you?

SDLT applies on the purchase of land or residential property in England or Northern Ireland. Similar taxes apply in Scotland (Land & Buildings Transaction Tax) and Wales (Land Transaction Tax), but the rates and thresholds are set by the Scottish and Welsh Governments.

As well as the reduction in SDLT in England and Northern Ireland, the equivalent taxes in Wales and Scotland have also been reduced temporarily. These reduced rates will be in place until 31 March 2021.

If you are not likely to complete the sale or purchase of a property before 31 March 2021, these short term changes are unlikely to affect you.

If you are purchasing land or property within this time frame, then this is how the taxation will differ for you:

England & Northern Ireland – If you purchase a residential property between 8 July 2020 to 31 March 2021, you only start to pay SDLT on the amount that you pay for the property above £500,000. Transactions involving an additional dwelling will continue to attract a 3% surcharge on the full purchase price.

Scotland – You now only start to pay Land & Buildings Transaction Tax on purchases above £250,000 rather than £145,000. Transactions involving an additional dwelling will continue to attract a 4% surcharge on the full purchase price.

Wales – The starting threshold for Land Transaction Tax will increase from £180,000 to £250,000 for the residential main rates. Transactions involving an additional dwelling will continue to attract a 3% surcharge on the full purchase price.

More information can be found on government websites for each country.

Following the announcement of Chancellor Rishi Sunak’s Summer Statement on the 8th July, the Prime Minister appeared to solidify proposals for a ‘greener’ economic recovery in an announcement on Wednesday 22nd July.

In addition to Sunak’s introduction of £3billion worth of grants for more energy-efficient public buildings and homes, PM Johnson has committed around £350million to cutting heavy industry emissions in a bid to tackle climate change. The investment package will also be aimed at the decarbonisation of the construction, aerospace, aviation, and transport sectors, forming part of the Government’s overarching plan to reach net zero emissions by 2050. Wednesday also saw the first meeting of the Jet Zero Council, bringing together government representatives of the aerospace and aviation sectors to draw plans for tackling the carbon footprint of flights.

What’s in the box?

1 – Johnson’s investment package includes £139million designated to the transition from natural gas to cleaner hydrogen energy amongst heavy industry, as well as ongoing research into technology designed to prevent the outward release of industrial emissions.

2 – A further £149million has been committed to 13 ‘initial projects’, including the development of recyclable steel.

3 – £26million has been attributed to the reduction of build costs and emissions in the construction industry. An additional £10million has been allocated to 19 construction projects, including research into reusable roofs.

4 – The package details the launch of a New National Space Innovation Programme, backed by £15million UK Space Agency funding. Initial projects are set to focus on monitoring global climate change and extreme weather.

5 – A final £10million has been committed to the automotive sector and development of electric vehicle projects.

Too little too late, or a beneficial first step?

The response to announcements by both the Chancellor and Prime Minister has understandably been mixed, with some welcoming any stimulus package intended to tackle both environmental and economic issues. However, campaign group ‘Plan B’ has launched a legal challenge against the Government’s plans, stating that they are ‘clearly unlawful’. Members of such groups have argued that the PM’s investment is merely dwarfed by billions previously committed to airline industries and the use of fossil fuels: a ‘fig leaf for the Government’s new deal for polluters’, as branded by the group’s director, Tim Crosland.