Published on: May 29, 2020

Hello everyone and what a wonderful day it is.  The sun is shining and the forecast for the weekend is even better.  So, celebrate in style with this week’s News, Views and Truths.

Kicking off first with the equity markets where things have been steadily positive.

Whilst we in the UK were enjoying last Monday’s bank holiday lockdown, the European markets got off to a flyer, with the German Dax ending the day up 2.87% and the French CAC40 knocking out 1.02%.  Our FTSE 100 opened up on Tuesday and ended the day up 1.27% and that trajectory has continued throughout the week, with steady gains as a result of the projected easing of lockdown conditions. 

Please note that none of this is predicated on the improvement of economic conditions.  The assumption that the market has is that, as long as restrictions are eased, the economy has a greater chance of normalisation.  That itself is true; the opportunity for economic normalisation has grown.  However, in any other scenario, the market would be through the floor and that surely cannot be refuted.

My co-Director David loves a good statistic.  His latest one is that, via the Office for Budget Responsibility, the UK Government borrowed £62.1bn in April 2020.  That is greater than the borrowing for the entire of 2019. 

Remember HS2?  Remember the kick-up because of the cost?  Remember the cost?  Let me remind you, potentially £106bn. (Source: Financial Time)

The Government have to borrow and on a positive note, with Government bond yield so depressed, they can borrow at hugely low rates.  Taking data from the FT this morning, 10-year UK gilts yield 0.21% and bearing in mind that in September 2018 they were at 1.57%, the interest rate the government pays the debt back is very low.  In fact, the lowest ever in history.  Furthermore, the Bank of England has already stated that, as a part of the COVID-19 measures, they will guarantee a buyer for all new Government bond issuances, raising finance is not a problem for the Treasury??

However, you cannot just sit back and expect everything to be fine.  The Government is stepping up its focus on tax receipts.

Just like everyone else, HM Revenue & Customs (HMRC) has been hit by the outbreak of the coronavirus pandemic.  According to investment platform AJ Bell, HMRC received 42% less in tax payments in April 2020 than it did in the same period last year. The areas that have seen the biggest fall are income tax (21%), and National Insurance contributions (18%), which can be attributed to the number of people who have either been furloughed or lost their jobs as a result of lockdown.

However, due to the exceptional investment returns generated during the previous tax year, the taxman did report a 51% increase in Capital Gains Tax compared with April 2019. 

The total tax receipts taken by the Government in April dropped 42%, as people lost their jobs, staff were furloughed, and businesses used Government coronavirus schemes to defer tax.  The Government now faces a huge challenge ahead to deal with these falling tax receipts while also having to pay for its numerous support schemes during the current crisis.  

And so HMRC is stepping up the focus on their specialist task forces, who tackle professions and industries where tax evasion and avoidance seem to be more widespread.  Some of the sectors the task forces have been targeting are: 

  • The haulage sector 
  • Market stall traders 
  • Dog breeders and…
  • The adult entertainment industry

HMRC managed to collect an extra £540m from these industries and professionals who were due unpaid tax. And that take has been growing steadily since 2014/15 tax year where they raised £138m.

So remember, you were warned!

If you have not heard the news, this blog is now a podcast.  While you are reading this, a “Director’s Cut” is available on various podcast outlets; the link is here. I will be experimenting with guest speakers, the odd interview or two and other things that pop into my head.  I would be eternally grateful if you could click on the link, have a listen and press the follow button so that you do not miss out.

My latest fund manager video is now live where I talk to Andy Brown, Japanese Equity Specialist at Baillie Gifford who works on the Baillie Gifford Japanese Fund team.  If you invest into our portfolios, you are invested in his fund and it is a very interesting listen on what the West can learn from the Japanese economy.  You can watch it here.

Finally, we have plans for another Three Counties Investment Update webinar in the coming weeks.  If you have signed up to our mailing list for notifications, you will get an invite automatically.  To ensure you do not miss out, click HERE to subscribe.

And so to our usual playlist.  Make sure you have a great weekend, if you do not live in Barnard Castle, avoid Barnard Castle and I shall see you all next week.

The content of the above blog is for information purposes only and does not constitute advice.  If you do not understand any of the content, we would recommend that you seek professional advice. 

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