6 Jan 2020

The last two weeks of 2019 were a good year for equity markets. The immediate cause was of course a decisive majority for the Conservatives and the apparent dispatch of Corbynism to the library shelf marked “Historical Fantasies”, perhaps one day to be studied by students who feel that their knowledge of the Venerable Bede is as complete as it will ever be. From 13 December, the day the results were known, the FTSE 100 rose by 4% to the end of the month, having been down in the quarter up to that point. The star performer in Q4 was the FTSE 250, the most domestically exposed index, which rose by 10%, compared to 2% for the 100 and 3% for the All Share. Year on year, all the indexes were stars due to a meltdown in Q4 2018 which offered a generous comparison. For 2019 as a whole, the FTse 100 was +12%, the 250 + 25% and the All Share +15%. Wow. The US 10 year yield was stable at 1.79%. 10 year gilt yields rallied from 0.55% to 0.74%, perhaps reflecting very small worries about more government borrowing. A year ago when things looked bearish I wrote the following: Here are three really bad things that could happen in 2019 or preferably later. 1) London house prices fall by 20% rapidly or 40% gradually (or both) 2) A major issuer of government debt suffers a catastrophic collapse in confidence or actually defaults (will the person who said “China” see me afterwards?) 3) A neo-Marxist garden gnome becomes Prime Minister of Great Britain. At the time I said that I was bored by politics and Chinese trade wars. On those fronts the noise has remained much the same. Donald Trump is a year closer to re-election, subject to the Democrats deciding to try to defeat him democratically rather than with the law. Climate change activists have got louder and sillier, though following COP 25 in Madrid, at which 27,000 delegates achieved very little, there was some overdue acknowledgement of the tension between the economic demands of poor countries with hundreds of millions of people living in poverty and the schoolgirl demands of...

20 Jun 2017

Nearly every commentator admits that he or she was wrong about the recent election, in particular their belief that no one with a modicum of responsible judgement would vote for Jeremy Corbyn. I also was wrong when I wrote this: Just as the Labour party cannot afford to be a blunt advocate of public spending because it knows that government debt is critically high, the Conservatives are no longer perpetually calling for lower taxes because they know that services to which we all think we are entitled are going to become yet more expensive. So the result is that the debate at this election has become a little more subtle than usual. As it happened, Labour produced a costed manifesto in which 80% of the extra revenue was to come from corporations or rich people, those joint gold medallists in legal tax avoidance. This was anything but subtle (“people in suits can pay”) and was effectively trashed by the party itself when, in response to complaints from students who have already incurred high debts that their successors would benefit from Labour’s plan to abolish fees in future, Jeremy Corbyn promised to “deal with it”. Dealing with it sounds expensive and was not covered by the manifesto. By contrast, the Conservatives decided that it was a good time to have a grown-up conversation about relieving young people from the burden of paying for the care of the elderly by tapping the assets of the elderly themselves. It turns out that the country is not ready for this discussion which is a great shame. Time is running out. Between now and 2030, for every net person joining the major income tax paying years of 30-59, there will be nine (net) joining the over 75s. The Conservative MEP Daniel Hannan has this plausible explanation for the surprising performance of a Labour movement led by its left wing. No, I’m afraid we’re down to the simplest and most depressing explanation. Quite a few voters will support any party that seems to be offering them free stuff. Labour’s manifesto was a ridiculous list of public handouts. More money was promised for healthcare, schools, the police, public sector pay rises,...

28 Apr 2017

THE PARADOX OF SPENDTHRIFT AUSTERITY It may be stretching a point to say that any of the political parties in the forthcoming “snap” election will make interesting financial arguments but it does seem that the days of competitive spending pledges might be behind us. That would be a relief and at least we could say that the continuing nine year fallout from the financial crash was not for nothing. I will generalise by saying that opposition parties have a strategic problem. They would like to criticise the Conservatives for allowing government debt to rise from 76% to 90% of GDP during a number of years labelled as a period of “austerity” but they are also against austerity in principle and disinclined to criticise the Tories for pursuing it with insufficient discipline.    Yet it seems that calling for even more government borrowing is not regarded as an option for a party with serious ambitions to be elected. So the debate, if that is not too dignified a word, is turning towards where the burden of taxation should lie and whether the status quo is “unfair” (a word that we all remember well from the school playground). LET’S TALK ABOUT TAX We can all agree that tax evasion, which is illegal, is a bad thing. Unfortunately tax avoidance, which is not illegal, is frequently lumped together with evasion and cited as part of the evidence that some wealthy people or companies are not doing their share. It is certainly the case that some tax avoidance is morally dubious and some tax advisers come close to crossing legal lines. But much tax avoidance is the result of behaviour that has been encouraged by the government of the day. I avoided income tax by paying money into my pension. I was deliberately incentivised to do this. Children are encouraged to avoid tax by putting their savings into a Junior ISA. The fact is that you are unlikely to meet anyone who wants to pay more tax but it would be equally unusual to find a person who doesn’t think that someone else should. Just as the Labour party cannot afford to be a blunt advocate of public...