Client Update - 18th November 2022

When Jeremy Hunt stood up at 11:30am yesterday he had three main objectives. Firstly, to restore credibility in the UK and to reassure creditors to the UK market that UK debt is a good asset and we can be trusted with their money. Apart from the plans he enacted, having two people deemed more stable and experienced in the chancellor and the prime minister will certainly help and what plans he set out. Over the course of an hour and a half yesterday we have gone from £50bn of tax cuts from Kwasi Kwarteng to circa £55bn of spending cuts and tax rises under Jeremy Hunt – a swing of well over £100bn. The biggest giveaway for 50 years has become the highest tax burden since the second world war.

The second objective was to win over his party in bringing about measures that can give them a fighting chance of re-election in 2024 and to underline a more caring government for those that need the most help. Under the election cry of “we are asking more from those that have more”, the level at which additional rate of income tax was payable will be reduced from £150,000 to £125,140 next year and the freeze on income tax bands will move many more people into higher tax bandings. Added to this state pensions and benefits were increased by 10.1%, underlining that the previously questioned triple lock remained firmly in place and central to the promises of a Tory leadership. Whilst the unravelling of the September fiscal event was evidently required, not all of the damage done can be immediately fixed. According to the Office for Budget Responsibility (OBR), Government spending on interest payments on debt will jump from 1.2% of GDP last year to 4.8% this year. The good news from the OBR was that it can see inflation turning negative in 2024, so it can be deemed likely that interest rates will also be falling well before then, adding a crumb of comfort to current mortgage owners.

To be blunt, the third objective was to blame someone else. He finished his speech by referring to a recession made in Russia and trying to steer the public to the view that the issues we are facing are more global by nature. Whilst Russia’s invasion of Ukraine has greatly contributed to the current state of peril, the Truss regime is hard to ignore in adding further fuel to the fire. Once more we return to objective two – try and salvage hope for the next election. It wasn’t our fault, it was Putin. The next eighteen months will show if this is indeed possible. It can be no coincidence that the worst of the tax freezes and spending cuts are delayed until after the next election, when hopefully inflation will have receded, and a recession is at an end. Therefore, sensible timing one could say, rather than electioneering.

Investors have certainly seen a further squeeze on their household real incomes, but this has the potential to be offset by a firmer hand on the tiller of Britain’s finances encouraging a market recovery and initially this appears to be the case. Do have a good weekend.