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Has the UK Redefined What It Means to Be a High Earner? · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios. Podcasts. Radio. News.
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Speaker 2: Welcome to the Merrin Talks Money Market Wrap, where we
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Speaker 2: talk about the biggest moves in the market this week
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Speaker 2: and what is driving them.
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Speaker 1: I'm Merrin Somerset-Webb, UK money editor-at-large.
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Speaker 3: And I'm John Stavik, senior reporter and author of the
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Speaker 3: Money to Sell newsletter.
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Speaker 2: Today, we are bringing you a UK Budget 2026 special,
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Speaker 2: though we may talk about a few other things along
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Speaker 2: the way, but mostly budget. And to mark the occasion,
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Speaker 2: we are joined by a friend of the show, Anna McDonald.
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Speaker 1: Anna is Investment Strategy Director at.
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Speaker 2: Hargreaves Landstand, where she oversees research across shares, funds, and
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Speaker 2: wider investment trends, helping investors make sense of what's happening
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Speaker 2: in the economy and markets, which amazingly is what.
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Speaker 1: We do too. Anna, great to have you back on
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Speaker 1: the show.
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Speaker 4: Thank you for having me.
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Speaker 2: Right, Anna, there's been a lot of talk about the budget,
1:01
Speaker 2: a lot of talk, even though it was really remarkably boring.
1:04
Speaker 1: What is your quick take on it?
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Speaker 4: Well, I mean, I think I'm hearing lots of takes
1:10
Speaker 4: on it. And from it's a nothing burger to people
1:16
Speaker 4: actually thinking there are a few mounting concerns about it.
1:19
Speaker 4: And I think that's really because it feels like the
1:22
Speaker 4: can has been kicked down the road. And actually what
1:26
Speaker 4: fundamentally has changed in terms of things that I think
1:30
Speaker 4: were pretty positive that went with what we really wanted
1:33
Speaker 4: to see, no increases to CGT. That was very helpful.
1:38
Speaker 4: The cash ISA thing was, you know, we like the
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Speaker 4: idea of ISAs being simple and easy to understand and
1:46
Speaker 4: not being changed the whole time. So in a way,
1:49
Speaker 4: it was a reversal, but we do know that cash
1:52
Speaker 4: ISAs are popular. And I think you'd like this stat
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Speaker 4: that one in five people who open a cash ISA
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Speaker 4: with us go on within six months to open a
2:01
Speaker 4: stocks and shares ISA. So perhaps it is the first
2:04
Speaker 4: step to getting people investing. And I think that the
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Speaker 4: reduction in the limit had led to quite a lot
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Speaker 4: of confusion and sort of a bit of worry. When
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Speaker 4: it comes to the new investor incentives for stocks and
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Speaker 4: shares ISAs, devil is going to be in the detail
2:22
Speaker 4: in that we are speaking to treasury about it is
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Speaker 4: this the starter isa yeah the starter isa.
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Speaker 1: We don't know what that's going to be.
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Speaker 4: Yet yeah so i mean we just don't have the
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Speaker 4: details yet i mean we we are involved in the
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Speaker 4: early stages of discussion as with anything we want things
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Speaker 4: to be simple accessible compelling all that kind of jazz
2:41
Speaker 4: so um can i just ask.
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Speaker 3: Something given that you presumably like all your competitors spent
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Speaker 3: the best part of nine months or so preparing for
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Speaker 3: all the anti-avoidance things that were going to affect the
2:53
Speaker 3: swap out from cash rises and then got told, presumably
2:58
Speaker 3: a couple of days ago, you didn't actually have to
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Speaker 3: waste any time and money doing that. How keen are
3:03
Speaker 3: you in interacting with the Treasury again?
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Speaker 4: Well, I mean, the thing is, you are going to
3:09
Speaker 4: have prioritised things to put something in place. So we
3:12
Speaker 4: launched a money market fund last week. it's a standalone
3:17
Speaker 4: great product in itself and it has a great use.
3:20
Speaker 4: And I think for a lot of people who've always
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Speaker 4: been savers, it's just that first step on the road
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Speaker 4: to investing. So it's great, but definitely you prioritize things,
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Speaker 4: don't you? You want to find for your clients the
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Speaker 4: right ways to sort of navigate the system. And so
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Speaker 4: what we, potentially we wouldn't have rush to do something
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Speaker 4: like that. But we now have this product and we're
3:44
Speaker 4: happy with it. And we think actually it's quite a
3:46
Speaker 4: good option. And I think I noticed your tweet, Maren,
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Speaker 4: about yesterday about cash ISIS. And actually, you know, if
3:55
Speaker 4: people are just going to stick with their cash ISIS,
3:58
Speaker 4: with their banks, we know that The high street banks,
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Speaker 4: the average rate of savings they pay, the average rate
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Speaker 4: of interest they pay on savings is less than 1%.
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Speaker 2: So most people should be trying harder to get a
4:09
Speaker 2: better rate on cash outside of cash ISA.
4:11
Speaker 4: Yeah.
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Speaker 2: And then using their ISA allowance for stocks and shares.
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Speaker 1: Yeah. So there's that. So I think, you know, I
4:17
Speaker 1: was quite pro the idea.
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Speaker 2: Of being pushed, people being pushed into... shares ISAs over
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Speaker 2: cash ISAs. So I don't think that that Rachel Reeves
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Speaker 2: plan was an ideal one, but I quite liked the idea.
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Speaker 2: But now we've got much more complication coming forward, haven't we?
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Speaker 2: Because we're now losing the LISA and we've got the
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Speaker 2: first time buyer ISA, which is another thing altogether, which
4:40
Speaker 2: is remarkably similar to the LISA, but different. Because you're
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Speaker 2: now not going to lose any of your own money
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Speaker 2: if you withdraw it early, right? And you don't get
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Speaker 2: the bonus until the end, but you can then take
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Speaker 2: your own money out without a penalty.
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Speaker 1: So that's a better product.
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Speaker 2: But again, it's a change, yet another change to this regime.
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Speaker 4: And every time we see changes, we see it just
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Speaker 4: has another chink in damaging investor confidence and savers confidence.
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Speaker 4: So we really see that. And When, for example, we
5:10
Speaker 4: were quite pleased actually that there was not too much
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Speaker 4: rumour in advance of this budget in terms of, for example,
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Speaker 4: last year and the year before. In the month running
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Speaker 4: up to the budget, we saw in the first year 140%,
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Speaker 4: in the second year nearly 180% increases in people taking
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Speaker 4: tax-free cash for their pensions because they were worried about
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Speaker 4: what was going to happen. And that's something you can't reverse.
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Speaker 4: You can't just suddenly go and pay that money back
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Speaker 4: in that tax wrapper has gone for you as a benefit.
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Speaker 4: And so we were pleased about the lack of rumor
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Speaker 4: heading into this. But as you say, Maren, the more changes,
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Speaker 4: the more complexity you introduce, the harder it is for
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Speaker 4: anyone to make plans. And so we would love just
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Speaker 4: let's stop tinkering with ISAs. Let's have like five years
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Speaker 4: of no changes to tax-free thresholds or allowances and things
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Speaker 4: like that. maybe index link them if you will, but
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Speaker 4: let's make it really easy and simple for people to
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Speaker 4: add to their pensions, add to their ISAs. And that
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Speaker 4: means that we all become less reliant in the future.
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Speaker 4: We become able to meet our needs and surely that's
6:23
Speaker 4: a good thing. Yeah.
6:25
Speaker 2: I suppose there were lots of things that we kind
6:27
Speaker 2: of wish would have been fiddled with. And one of
6:29
Speaker 2: the things that I think we would have quite liked
6:31
Speaker 2: to see fiddled with, we would like to see a
6:33
Speaker 2: reversal or at least a a simplification of the way
6:36
Speaker 2: that IHT is going to be charged on pensions, because
6:39
Speaker 2: you know how if people are going to be paying
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Speaker 2: almost ridiculous amounts of tax on pensions, their estate will
6:45
Speaker 2: be paying almost ridiculous amounts of tax on their pensions.
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Speaker 2: So we might have hoped for a reversal of that.
6:50
Speaker 2: We might have hoped for a reversal or at least
6:51
Speaker 2: a little compassion around IHT on family firms and farms
6:56
Speaker 2: we might have hoped for some reduction in the amount
6:59
Speaker 2: of fiscal drag out there john i know that you
7:02
Speaker 2: you worry about this all the time fiscal drag fiscal
7:04
Speaker 2: drag and wage compression these things.
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Speaker 1: That keep you up at night right john.
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Speaker 2: Both of these both of these things came out of
7:11
Speaker 2: this budget in a really bad way.
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Speaker 3: Yeah well i mean just unchanged really but that's the
7:16
Speaker 3: bad thing it's just it's absolutely nuts when you look
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Speaker 3: at what fiscal drag has done and to be fair
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Speaker 3: i think i think Normal people actually are quite aware
7:26
Speaker 3: of fiscal drag now, but because it's such a quiet thing,
7:29
Speaker 3: you still don't appreciate the extent to which it's affecting
7:33
Speaker 3: people's wages. I looked at this earlier this week, and
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Speaker 3: in 2021, one in 10 nursing professionals, roughly, was a 40%
7:42
Speaker 3: taxpayer or above. Now it's one in three.
7:45
Speaker 4: I was looking at that. You tweeted about that.
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Speaker 1: That's extraordinary.
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Speaker 3: It's absolutely bonkers. And I mean, I chose nurses because
7:50
Speaker 3: nurses are obviously, in terms of, Who is a sympathetic,
7:54
Speaker 3: relatively low-paid worker? That's the profession. But the same thing
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Speaker 3: goes for, I mean, we teach our secondary school teachers
8:00
Speaker 3: has gone from one in five to almost half. And
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Speaker 3: actually now more than half of police officers are 40%
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Speaker 3: taxpayers as well. So, I mean, it is really quite
8:10
Speaker 3: astonishing what's happened. And again, to just be very clear,
8:13
Speaker 3: those people, it's not as if they've been given massive
8:17
Speaker 3: pay rises. All that's happened is they've been given with
8:19
Speaker 3: inflation pay rises, that have taken them into the higher
8:22
Speaker 3: tax net. So they aren't suddenly a lot better paid.
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Speaker 3: We aren't suddenly appreciating them a lot more. It's just
8:29
Speaker 3: that's what fiscal drag has done.
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Speaker 2: Well, there are some extraordinary numbers out there on this.
8:34
Speaker 2: And with the rise in the minimum wage as well,
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Speaker 2: so you've seen this compression in wages that you often
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Speaker 2: talk about, John. It used to be, only a decade ago,
8:41
Speaker 2: that by the time you hit the higher rate, you.
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Speaker 1: Were being paid over three times the minimum wage.
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Speaker 2: Now it's 1.8 times. And then- if that higher rate
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Speaker 2: band had kept up with inflation, it would be nearly £ 100, 000. Really,
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Speaker 2: would it? Gosh, that is extraordinary. £ 97, 000 or £ 98, 000, something
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Speaker 2: like that. So, you know, we really have totally redefined
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Speaker 2: what it means to be a high earner.
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Speaker 4: In the UK. But also, perhaps, what it means to
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Speaker 4: have the minimum wage. It's actually, it's quite considerable.
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Speaker 3: Well, yeah, we've redefined low earner. It's actually basically don't
9:15
Speaker 3: exist anymore, which is, like, I mean, Some people may
9:20
Speaker 3: think that's an achievement, but if you're a 16-year-old who
9:22
Speaker 3: can't get a job and you want one and you
9:25
Speaker 3: don't actually need to get 66% in the median salary,
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Speaker 3: then no, it's not very helpful at all.
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Speaker 5: No.
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Speaker 2: I think that let's go back on to the beginning
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Speaker 2: of the budget conversation a little bit, actually, because I think, John,
9:40
Speaker 2: you and I were talking about this this morning. We
9:41
Speaker 2: were on Bloomberg Television talking about the budget. And one
9:44
Speaker 2: of the things that we were trying to make clear
9:46
Speaker 2: is that while we talk about all the fiddling around
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Speaker 2: the edges and what you call the tapas budget on Twitter,
9:51
Speaker 2: didn't you? Oh, yes.
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Speaker 4: I liked that.
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Speaker 2: I liked the tapas budget. All the fiddling around the edges.
9:56
Speaker 2: But the background is exactly as it was. exactly as
10:00
Speaker 2: it was. We've got debt to GDP approaching 100%, we've
10:03
Speaker 2: got tax revenues coming in at about 37, heading towards 38, 39, 40%
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Speaker 2: of GDP. We've got state spending coming in at 44,
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Speaker 2: heading to 45% of GDP. We have a major problem
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Speaker 2: with one pound in every 10 spent by the state
10:23
Speaker 2: being spent on debt interest. And every single possible solution
10:27
Speaker 2: to any of these things has been kicked into next year.
10:30
Speaker 2: How do we pay for defense? How do we deal
10:32
Speaker 2: with welfare? How do we get this deficit really down
10:36
Speaker 2: as opposed to pretend-y down, which is we've got at
10:38
Speaker 2: the moment? All these problems remain there.
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Speaker 1: We know that.
10:41
Speaker 2: Household disposable income by the end of this decade will
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Speaker 2: have barely budged. And we have the forecast for growth
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Speaker 2: next year and the year after and the year after.
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Speaker 1: Never go over 2%.
10:52
Speaker 2: Never go over 2%.
10:53
Speaker 1: I mean, maybe they will. That would be nice.
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Speaker 2: But even if they hit 2%, this is pathetic.
10:58
Speaker 1: I'm pathetic. So the background here remains really bad. And
11:02
Speaker 1: I did go through this.
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Speaker 2: I did go through this by trying to find things
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Speaker 2: to be optimistic about. Well, there's a little bit of
11:07
Speaker 2: common sense coming in here on energy. Well, they're having
11:10
Speaker 2: a go at pretending to be nice to entrepreneurs and
11:14
Speaker 2: small businesses. But none of those things really come through.
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Speaker 2: And we looked this morning, didn't we, John, at this
11:19
Speaker 2: founder's relief business, the idea that when you sell your business,
11:23
Speaker 2: you'll be able to pay 10% up to $ 10 million
11:26
Speaker 2: rather than all the normal taxes. And then you sit down,
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Speaker 2: you look at what you have to do to qualify this.
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Speaker 2: And as far as I can see, nobody will ever
11:34
Speaker 2: qualify for this. Ever. Ever. Simply not possible.
11:38
Speaker 4: But also there is that thing, don't you think, when
11:40
Speaker 4: you talk about founders that leave up to 10 million. Now,
11:42
Speaker 4: 10 million sounds like a lot of money. But when
11:45
Speaker 4: you think, is there a single founder at 10 million
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Speaker 4: who's going to go, oh, yes, I've had enough now.
11:49
Speaker 4: I want to stop now. And what kind of culture
11:52
Speaker 4: have we got there? People in the US don't get
11:54
Speaker 4: out of bed for that. You know, when they talk about,
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Speaker 4: they're talking about Really significant sums, not small amounts, which
12:00
Speaker 4: are very welcome. But 10 million is not it's not
12:04
Speaker 4: a game changer. That sounds awful. But this is not
12:07
Speaker 4: taking the scale ups from 10 million out to being
12:11
Speaker 4: our next listed companies of the future. I mean, that
12:14
Speaker 4: that's what we want. And we're not we're not yet
12:16
Speaker 4: getting that, I don't think.
12:18
Speaker 3: Yeah, I mean, your point is Mark Zuckerberg didn't sell
12:21
Speaker 3: Facebook when he was offered something like a billion for
12:23
Speaker 3: it and everyone thought it was nuts. But I think
12:25
Speaker 3: just so that nobody phones his arm and says, oh,
12:27
Speaker 3: I know she doesn't think 10 million's a lot of money.
12:30
Speaker 3: It's not a lot of money in this context. So,
12:32
Speaker 3: you know, keep your complaints to yourselves.
12:33
Speaker 4: Yeah, sorry. I don't mean to sound sort of flippant
12:35
Speaker 4: in that at all.
12:36
Speaker 1: No, you're not. That's the point.
12:38
Speaker 4: But I'm just saying we need ambition for those people. Actually,
12:41
Speaker 4: what we're still missing, I think we've got good VCT
12:44
Speaker 4: and good EIS culture, all that kind of thing. But
12:46
Speaker 4: what we're still missing is that extra leg that takes
12:49
Speaker 4: those companies and moves them up to the next level
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Speaker 4: and doesn't get them bought by overseas investors. So do
13:04
Speaker 4: you think the answer to why it is a kick
13:07
Speaker 4: the can down the road budget is because there maybe
13:09
Speaker 4: is another big political event happening in the shorter term?
13:13
Speaker 1: I think there's quite a lot going on here.
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Speaker 2: I mean, you could, if you were being generous, you
13:17
Speaker 2: could say, look, they've got a lot of investigations going
13:20
Speaker 2: on here. They're looking at welfare. They're looking at defense.
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Speaker 2: They're trying to figure stuff out. Burnham hasn't been in
13:25
Speaker 2: place that long, although one would have thought he'd been
13:26
Speaker 2: thinking about it in advance.
13:27
Speaker 1: But, you know, whatever. No one seems to think in
13:30
Speaker 1: advance in politics anymore.
13:31
Speaker 2: So you could say that. And there's a spending review
13:34
Speaker 2: coming and we'll get some proper stuff then.
13:35
Speaker 1: You could say that. But I think probably we all
13:37
Speaker 1: suspect there's an election coming, don't we?
13:39
Speaker 5: Yeah.
13:41
Speaker 3: I'd be interested to get your take on this, Anna,
13:44
Speaker 3: because I can totally see the argument and I think
13:47
Speaker 3: I'm basically on the side of an early election. But
13:50
Speaker 3: I am also wondering what happens, because if he says
13:53
Speaker 3: we're going to have an election so that I can
13:55
Speaker 3: raise taxes, how do you sell the story?
13:59
Speaker 4: Well, I don't know how they sell the story. And
14:02
Speaker 4: I was thinking about Brenda from Bristol who said, oh,
14:07
Speaker 4: not another one. Do you remember that?
14:09
Speaker 5: You're joking, Anna.
14:10
Speaker 1: Not another one? Oh, for God's sake, I can't, honestly,
14:15
Speaker 1: I can't stand this.
14:16
Speaker 4: But I do think internally it's probably an easier sell
14:20
Speaker 4: because I saw a John Curtis presentation at the Conservative
14:26
Speaker 4: Party conference and it was quite sobering, I think, for
14:32
Speaker 4: the Conservatives in the room there because whilst it does
14:35
Speaker 4: feel like we're getting back to two-party politics... The Green
14:40
Speaker 4: vote has really diminished. Labour is ahead in the polls.
14:44
Speaker 4: And the Conservatives' vote has been fragmented by the reform.
14:48
Speaker 4: And even if reform aren't polling what they were, they're
14:51
Speaker 4: still taking enough of that vote away from the Conservatives
14:55
Speaker 4: that the Prime Minister and others might feel quite confident
14:59
Speaker 4: about going into that election. And we may either have
15:03
Speaker 4: some kind of resolution in the Middle East and some
15:06
Speaker 4: kind of oil price fall, or simply we start lapping
15:10
Speaker 4: those comparatives. And that means that things start to feel
15:13
Speaker 4: a bit better. And perhaps actually you don't need to
15:17
Speaker 4: go for such a big tax and spend. You just
15:20
Speaker 4: want to get yourself in for another five-year term so
15:23
Speaker 4: you can put your 10-year plan into action. And remember,
15:27
Speaker 4: whilst our yield's so the return that investors are asking
15:32
Speaker 4: on our bonds is quite high and it's still higher
15:35
Speaker 4: than our European neighbours. Since we last had the potential
15:40
Speaker 4: ideas of some kind of resolution in the Middle East,
15:42
Speaker 4: it's say in July, our bond yields have gone up
15:45
Speaker 4: an awful lot less than our neighbours in France and
15:50
Speaker 4: others in Europe and in the US. So I think
15:53
Speaker 4: there potentially is a small amount of credit being given
15:56
Speaker 4: to things like triple lock to double lock which doesn't
16:00
Speaker 4: make a huge difference by 2030 but by the end
16:03
Speaker 4: of 2030s is 25 billion by the end of 2040s
16:07
Speaker 4: is 50 billion per year this does make a difference
16:10
Speaker 4: it does start to compound and maybe maybe we are
16:14
Speaker 4: seen as slightly less politically risky than some other countries
16:17
Speaker 4: at the moment and and a small amount you know
16:21
Speaker 4: little incremental bits and start getting into a kind of
16:24
Speaker 4: virtuous circle around borrowing costs instead of a vicious circle
16:28
Speaker 4: would be a very, very happy place to be.
16:32
Speaker 2: Not entirely convinced.
16:35
Speaker 1: I'm trying to be positive, Mary. Yeah, no, good work.
16:37
Speaker 1: Good work. Good work.
16:38
Speaker 2: There were a few bits and bobs in the budget
16:40
Speaker 2: that haven't really been discussed that much. And one of
16:42
Speaker 2: the things that I thought was quite interesting and we
16:44
Speaker 2: haven't really got to the bottom of yet is how
16:47
Speaker 2: often people who pay their taxes via self-assessment are going
16:51
Speaker 2: to be asked to pay, you know, the moments you
16:53
Speaker 2: pay twice a year and you kind of top up.
16:56
Speaker 2: And there is a suggestion that you'll now have to
16:58
Speaker 2: pay quarterly or monthly, which I think will be an
17:01
Speaker 2: enormous strain on small businesses. And that one of the
17:04
Speaker 2: things that John, you and I have talked about before
17:06
Speaker 2: is the way that politicians tend not to understand how
17:08
Speaker 2: income works in the real world, in the private economy,
17:12
Speaker 2: the way that our incomes go through life cycles instead
17:15
Speaker 2: of being constant forever. And that is also the case,
17:17
Speaker 2: of course, for freelancers, for small businesses, for sole traders,
17:20
Speaker 2: you see very, very lumpy income over a year. So
17:23
Speaker 2: if you're then asked, to pay monthly, that's going to
17:27
Speaker 2: have an unpleasant cash flow effect, particularly at the beginning
17:31
Speaker 2: for some businesses. And we know that the government is
17:33
Speaker 2: anticipating raising quite a lot of money from other people's
17:35
Speaker 2: cash flow difficulties. I think they've put in 1.3 billion
17:38
Speaker 2: for it. That seems to me the kind of little
17:41
Speaker 2: thing that can be quite easily overlooked, but might cause
17:45
Speaker 2: quite a lot of people some trouble.
17:46
Speaker 3: No, I mean, I agree. I was looking at this
17:48
Speaker 3: this morning as an example of some more complexity that
17:51
Speaker 3: they've just whacked in. And effectively what you're doing is
17:54
Speaker 3: you're taking a very illiquid institution like HMRC and a
17:58
Speaker 3: load of illiquid institutions like small businesses and you're demanding
18:02
Speaker 3: that they take all the cash flow risk all of
18:03
Speaker 3: a sudden. And I just think that that's actually a really... Yeah,
18:07
Speaker 3: I think you're absolutely right. So it's not then a budget.
18:09
Speaker 4: For beauticians and the white men?
18:11
Speaker 1: No, it isn't at all. You're right. It really isn't.
18:15
Speaker 3: Not the ones that are paying their taxes.
18:17
Speaker 4: And I think that the number of tax changes from
18:20
Speaker 4: this budget has been counted up to be 50. And
18:23
Speaker 4: that adds to a further 50, I think, since the
18:27
Speaker 4: previous chancellor started.
18:29
Speaker 2: And I think.
18:31
Speaker 4: What happens is that legislation comes on top of further
18:34
Speaker 4: legislation or these kind of changes, and someone forgets to
18:37
Speaker 4: take away the legislation that no longer should apply. And therefore, actually,
18:41
Speaker 4: it becomes quite difficult as a small business owner or
18:45
Speaker 4: as a private individual. If you're not making a huge
18:47
Speaker 4: amount of money, you can't afford the expense of tax advice.
18:50
Speaker 4: And the tax advice gets ever more cumbersome and more
18:52
Speaker 4: convoluted with each passing legislative change. And that makes it just...
18:58
Speaker 4: it doesn't benefit the beautician or the white band man
19:01
Speaker 4: who just has more and more to navigate each time.
19:03
Speaker 2: Yeah, and this is nothing to MPs because P-A-Y-E, flat incomes. Anyway,
19:09
Speaker 2: the other thing that we should probably mention is the
19:12
Speaker 2: extra two percentage points on saving income and on rental income. Now,
19:17
Speaker 2: the extra two percentage points on saving income, that's added
19:22
Speaker 2: to the two percentage points that were added, what, last year, Jonathan?
19:26
Speaker 3: Well, yeah, they were added. Basically, it's all going up
19:29
Speaker 3: by four percentage points in April. It was headlined by Rachel.
19:34
Speaker 2: Yeah. So that's something that, again, we were talking about
19:36
Speaker 2: this earlier, something that might push people into buying gilts
19:39
Speaker 2: instead of having deposit accounts, which is old-fashioned financial repression.
19:44
Speaker 2: Or maybe it'll push people, Anna, into some of your products.
19:46
Speaker 4: We have a lot of gilt buyers at the moment.
19:48
Speaker 2: I bet. I bet.
19:50
Speaker 4: They are buying those low-coupon gilts. As you know, they
19:54
Speaker 4: don't have capital gains tax to pay on them. And
19:57
Speaker 4: we've got some who, there was a big expiry last week,
20:02
Speaker 4: and about half of them have gone back into the
20:04
Speaker 4: January 2028. But some are going really quite um adventurous
20:08
Speaker 4: and going out to 2056 2061 that's not the same.
20:12
Speaker 3: Thing i know god that's yeah.
20:16
Speaker 4: But um yeah some of them are quite some of
20:18
Speaker 4: them are quite adventurous but most of them are going
20:20
Speaker 4: for the shorter dated lower.
20:22
Speaker 5: Coupon i've been doing the very shorter dated ones yeah
20:24
Speaker 5: like the january 28th that's yeah yes We know that
20:28
Speaker 5: from our special gold-plated Merin line on the Hargreaves Lansdowne platform.
20:33
Speaker 4: And so, yes, I mean, again, this whole increase in
20:37
Speaker 4: the savings rate for a higher rate taxpayer, I mean,
20:41
Speaker 4: it's really quite considerable tax that you're paying.
20:43
Speaker 1: Yeah, nearly 50%.
20:44
Speaker 4: 49%.
20:44
Speaker 5: 49%.
20:44
Speaker 4: Nuts. And so that is tricky. And again, it's back
20:53
Speaker 4: to those manifesto commitments they got themselves stuck into about
20:57
Speaker 4: raising taxes for working people.
20:59
Speaker 1: Now, the other one, of course, is buy-to-let investors. I mean,
21:02
Speaker 1: this is just over, isn't it? It's done. It's done.
21:06
Speaker 2: I mean, who would get into that business now? And then,
21:09
Speaker 2: of course, even though we have said that that may
21:13
Speaker 2: lead to higher rents in future, because what are you
21:15
Speaker 2: going to do if you're paying 50% on your income?
21:19
Speaker 2: from your buy to let, you're going to put rents up,
21:20
Speaker 2: aren't you?
21:21
Speaker 4: And also we know that the OBR have also put
21:23
Speaker 4: in about how much house building in itself has been hit.
21:27
Speaker 1: So an ever.
21:28
Speaker 4: Shrinking supply of properties to let or properties to buy
21:31
Speaker 4: or that exist is going to lead to more and
21:33
Speaker 4: more issues around pricing, whether you're a renter or a buyer.
21:37
Speaker 2: No, of course, we now also have effective rent control.
21:39
Speaker 2: So maybe rents won't go up that much, you know,
21:41
Speaker 2: but certainly supply will come down.
21:43
Speaker 3: Well, that was interesting about your first home project. thing
21:46
Speaker 3: as well. All the house builders kind of cratered about
21:49
Speaker 3: halfway through the budget when they realised that the structure's
21:52
Speaker 3: not the same as help to buy, which was basically
21:56
Speaker 3: help to pay your chief executive's bonus. And that's not
21:59
Speaker 3: actually the case for this. It's much more expensive for
22:03
Speaker 3: them to take part. And while on the one hand,
22:05
Speaker 3: I'm kind of like, well, that's a good thing. On
22:07
Speaker 3: the other hand, it's kind of like, well, it also
22:09
Speaker 3: means that nothing's probably going to come of it.
22:12
Speaker 1: How does this one work, John?
22:13
Speaker 2: What's the difference?
22:14
Speaker 3: Well, basically, as I understand, I haven't looked into it
22:17
Speaker 3: in detail, but the more houses that you sell as
22:20
Speaker 3: a house builder through this, the more of a kind
22:23
Speaker 3: of essentially commission you have to give to the government
22:26
Speaker 3: to be part of the scheme. And as far as
22:29
Speaker 3: I'm aware, the conditions on this one are more expensive
22:34
Speaker 3: than the last time. I would need to look into
22:36
Speaker 3: that a little properly.
22:37
Speaker 1: It's an equity stake, not a loan, right?
22:39
Speaker 2: You come in with your 2.5% deposit and then you
22:41
Speaker 2: can get the government to effectively... buy pot for you
22:46
Speaker 2: as an equity stake?
22:48
Speaker 3: That's the same law as the last one. Because then, yeah,
22:51
Speaker 3: when you buy the government out, you have to pay
22:54
Speaker 3: them whatever the valuation is of the property. And that's
22:58
Speaker 3: one of the problems with original help to buy schemes
23:02
Speaker 3: now that people are trying to sell and the prices
23:04
Speaker 3: of flats have gone down. Some of them find that
23:08
Speaker 3: the valuations only last for three months at a time.
23:11
Speaker 3: And if you end up selling it for less than
23:13
Speaker 3: the valuation, you still have to pay the government stake
23:18
Speaker 3: according to what the valuation was. So basically, if you
23:21
Speaker 3: get or something like that, you're still in a hole
23:24
Speaker 3: for whatever it was the government whatever it is you
23:27
Speaker 3: owe them, according to what the price should have been.
23:30
Speaker 4: Yeah.
23:30
Speaker 2: But even so, the government is going to end up
23:33
Speaker 2: losing money, right? I remember we said this right back
23:35
Speaker 2: at the beginning, it helped to buy, John. Everyone said, well,
23:37
Speaker 2: you know, price go up forever. We can't lose as
23:39
Speaker 2: a government.
23:40
Speaker 1: But actually, well, hello.
23:42
Speaker 3: Oh, yeah.
23:43
Speaker 5: I mean, yeah.
23:44
Speaker 3: No, you can lose. Yeah. And the problem is the
23:47
Speaker 3: sort of stuff that's been bought via helped to buy
23:49
Speaker 3: is generally kind of flat.
23:51
Speaker 2: Yeah. Well, it had to be. I mean, it had
23:52
Speaker 2: to be new build, right? And it's new build that
23:54
Speaker 2: has lost the most value in this list. which we
23:57
Speaker 2: call it correction so far.
24:00
Speaker 3: Yeah, aye. I can't remember, I was looking at the stats,
24:03
Speaker 3: but it was something like half of them that had
24:05
Speaker 3: been sold so far had sold for less than the
24:08
Speaker 3: price they were bought for. And that was like, you know,
24:13
Speaker 3: going back, it started about 10 years ago, didn't it?
24:17
Speaker 5: Yeah.
24:17
Speaker 3: But almost all of the ones that had been bought
24:19
Speaker 3: in the 2020s had been sold at a loss. It
24:21
Speaker 3: was quite striking.
24:23
Speaker 2: Miseries, miseries. Anna, is there anything else that we should
24:35
Speaker 2: talk about in the budget? Anything else that you found interesting?
24:38
Speaker 4: Well, it was in the Red Book.
24:40
Speaker 1: So to be.
24:41
Speaker 4: Discovered afterwards was that something quite encouraging, maybe. which is
24:46
Speaker 4: stamp duty on shares is going to be replaced by
24:49
Speaker 4: a securities transfer tax from 2027. And the best line
24:54
Speaker 4: in it, I think, is the government recognises the potential
24:57
Speaker 4: economic benefits of cutting stamp taxes on shares. And we'll
25:01
Speaker 4: keep this under review. Now, I know you guys are
25:04
Speaker 4: signed up to this idea, too. We have on the platform,
25:08
Speaker 4: we've got over 200 billion pounds it may stun you
25:12
Speaker 4: to know that over 20% of that is in direct
25:15
Speaker 4: UK shares and investment trusts. So, I think our clients
25:19
Speaker 4: are plenty invested enough in the UK. What we need
25:23
Speaker 4: to do is to attract international investment. And I think
25:28
Speaker 4: if we get rid of stamp duty, that does start
25:30
Speaker 4: to level the playing field because why does someone want
25:33
Speaker 4: to spend 0.5% buying a share in in, I don't know,
25:38
Speaker 4: Tesco when they don't have to pay anything if they're
25:41
Speaker 4: buying a share in Tesla or, you know, it's just,
25:46
Speaker 4: I think the UK, our UK domestic investors are there actually.
25:50
Speaker 4: I think retail investors are pretty strongly there and what
25:53
Speaker 4: we really need to do is encourage pension funds to
25:55
Speaker 4: invest more and we need to encourage international capital here
25:58
Speaker 4: and let's just level the playing field. So I think
26:01
Speaker 4: there would be, we're seeing company after company leaving the
26:05
Speaker 4: UK market at the moment and, We don't want that
26:08
Speaker 4: to happen. That's also very poor for tax revenue raising
26:11
Speaker 4: for the government. And so I think that would be
26:14
Speaker 4: that would be great. And I really hope that that
26:17
Speaker 4: consideration continues and that they do take that away. So
26:21
Speaker 4: we continue to campaign for that because, I mean, obviously,
26:23
Speaker 4: our clients would like it to not have to pay
26:25
Speaker 4: a transaction tax. But as with anything, transaction taxes just
26:29
Speaker 4: clog the wheels.
26:30
Speaker 2: I mean, I'm just absolutely amazed that no recent government
26:35
Speaker 2: has done this already. There's been so much campaigning for it.
26:39
Speaker 2: There are more than enough academic studies showing how painful
26:43
Speaker 2: it is for the UK market to have this tax. And,
26:46
Speaker 2: you know, I wrote about it a few years ago,
26:48
Speaker 2: maybe five or six years ago. I wrote a column
26:49
Speaker 2: about it on duty, which I really thought international investors
26:52
Speaker 2: would find kind of niche or uninteresting.
26:54
Speaker 1: And I was amazed.
26:56
Speaker 2: By how many emails I got, particularly from America, saying, yeah,
26:59
Speaker 2: that's why we don't buy UK shares. Why would we
27:01
Speaker 2: pay half a percent on every trade?
27:04
Speaker 4: And if you're a high-frequency trader, why would you do it?
27:07
Speaker 4: I mean, that actually really does add up to doing
27:09
Speaker 4: quite a lot of tax.
27:11
Speaker 3: Yeah.
27:12
Speaker 1: Yeah, so that was that. No, I agree with you, Anna.
27:13
Speaker 1: That would be great.
27:14
Speaker 2: So far, a change of name isn't quite enough. We'd
27:17
Speaker 2: like to see actually an actual change. An actual change
27:20
Speaker 2: is what we'd like.
27:20
Speaker 4: But at least the comment is in there, the recognition.
27:23
Speaker 3: Yeah, that's good.
27:24
Speaker 4: Which is something, I think.
27:26
Speaker 2: Yeah, you know, that was one of the positives that
27:27
Speaker 2: I took out of this budget, my desperate attempt to
27:29
Speaker 2: find a positive, was that quite a lot of problems,
27:32
Speaker 2: while they haven't been solved or indeed even addressed, they
27:34
Speaker 2: have been recognised. And this is the beginning. Yeah, exactly. John,
27:39
Speaker 2: was there anything else that you saw that we should
27:41
Speaker 2: talk about?
27:42
Speaker 3: We've got a new marginal tax rate, 53% for state pensioners.
27:46
Speaker 3: It's my favourite. We get to add a new cliff edge.
27:48
Speaker 3: Maybe that should be a goal for chancellors, add a
27:51
Speaker 3: new cliff edge every single year.
27:53
Speaker 2: Don't encourage them.
27:55
Speaker 1: Tell us how that works, John.
27:57
Speaker 2: Tell the pensioners in the audience.
27:59
Speaker 1: How's the tax rate going to work for them?
28:01
Speaker 3: Well, look, I do have to be one of the
28:03
Speaker 3: people who is solely dependent on the state pension. And
28:08
Speaker 3: it's going up above the tax threshold next year because
28:10
Speaker 3: the personal allowance is £ 12, 570 and the state pension is
28:12
Speaker 3: going up to £ 13, 036. So to avoid nasty headlines in
28:15
Speaker 3: the papers... the Chancellor promised to make sure that anyone
28:24
Speaker 3: who is only reliant on the state pension will not
28:28
Speaker 3: pay any tax. And so in order to accommodate this,
28:32
Speaker 3: we have this elaborate kind of like taper, which is
28:34
Speaker 3: exactly like the one at the £ 100, 000 mark, where you
28:38
Speaker 3: get £ 1 taken away from your personal allowance for every £ 2,
28:42
Speaker 3: except this one is a tiny little extra allowance. And
28:45
Speaker 3: then you get £ 1 taken away for every £ 3 you're
28:48
Speaker 3: over it. So if you earn something like £ 13, 360, you
28:54
Speaker 3: will no longer get this. So there's a 53% marginal
28:58
Speaker 3: tax rate between about £ 13, 036 and £ 13, 300 and something pounds.
29:03
Speaker 3: Oh my goodness.
29:04
Speaker 4: There we go.
29:06
Speaker 1: Excellent. I mean, it's interesting, isn't it?
29:08
Speaker 3: Your granny's paying 53% marginal tax.
29:10
Speaker 1: That's appalling. It's more than you're paying on your savings, John. Exactly.
29:14
Speaker 3: It's like one rule for the rich, one rule for
29:16
Speaker 3: your working class.
29:21
Speaker 2: So, John, I like your point that it's possible that
29:24
Speaker 2: chancellors play this game with each other that, you know,
29:27
Speaker 2: every new chancellor thinks, well, what cliffhanger can I put
29:29
Speaker 2: in place? Someone's done a 58, 62, 74. What can
29:30
Speaker 2: I get in here? But, for everybody else, every economist,
29:40
Speaker 2: every analyst, every journalist, we all agree that tax simplification
29:45
Speaker 2: is the answer to everything. But all chancellors clearly completely disagree.
29:49
Speaker 2: They think that tax complication is the answer to all
29:52
Speaker 2: their problems. It's unresolvable, isn't it?
29:55
Speaker 3: I guess it's the same story as rent controls, isn't it?
29:58
Speaker 3: It's basically politics versus economics. What's popular in one is
30:03
Speaker 3: completely wrongheaded in the other. And I don't actually know
30:08
Speaker 3: how you reconcile that, but that's why we're... I mean, fundamentally,
30:11
Speaker 3: that's why we're in the hole that we're in.
30:13
Speaker 1: OK.
30:13
Speaker 2: LAUGHTER So all the exciting stuff comes next year, I think,
30:18
Speaker 2: is where we agree. Next year, they've got to come
30:21
Speaker 2: up with some actual plans for welfare, some actual plans
30:23
Speaker 2: for defence, and maybe even an election.
30:26
Speaker 1: Something to look forward to. Excellent. Okay.
30:28
Speaker 2: Now, moving on, moving on, away from all that, what
30:32
Speaker 2: we can look forward to for the rest of this
30:34
Speaker 2: year is the anthropic IPO. Excited, John?
30:39
Speaker 3: I am very excited about this, actually.
30:42
Speaker 2: Yeah.
30:44
Speaker 3: Mainly because it gave me a kind of reason to
30:46
Speaker 3: actually look at AI and try and figure out how
30:49
Speaker 3: all the pieces bolt together. And actually, I still don't
30:52
Speaker 3: particularly know, but at least I can explain that Anthropic
30:56
Speaker 3: is basically like a sandwich maker, except it takes microchips
30:59
Speaker 3: and then turns them into clod and then sells clod.
31:03
Speaker 1: Poor clod.
31:04
Speaker 2: Poor clod.
31:05
Speaker 3: And then that's how you have to think about it.
31:08
Speaker 3: And then if you do want to sit down and
31:09
Speaker 3: value it yourself, at least you have a rough idea
31:12
Speaker 3: where all the moving parts are. If they can make
31:15
Speaker 3: the cost of making the sandwich lower than the money
31:19
Speaker 3: they make from selling the sandwich, then that's them.
31:22
Speaker 2: They're sorted. But the cost is very, very high.
31:25
Speaker 1: The cost is very, very high.
31:26
Speaker 3: It's as if they're making an awful lot of sandwiches
31:28
Speaker 3: at the same time and then hoping that.
31:30
Speaker 1: And nobody wants to buy them. Everyone wants them for free, right?
31:33
Speaker 2: Everyone wants the sandwich for free. And if they are
31:35
Speaker 2: going to pay for the sandwich, they're only going to
31:36
Speaker 2: pay for a tiny bit of it.
31:38
Speaker 3: You see, I mean, this is one place where I do...
31:40
Speaker 3: wonder because maybe this is because at first you look
31:44
Speaker 3: and you think is there a moat here and you
31:46
Speaker 3: think well no because there's there's kind of you know
31:49
Speaker 3: open source ai and all the rest of it but
31:52
Speaker 3: if you get in there first and you get companies
31:55
Speaker 3: to start using it and you know lots of people
31:57
Speaker 3: clearly do swear by claude because i see people talking
32:00
Speaker 3: about it all the time yeah particularly the kind of
32:02
Speaker 3: techie people but no yeah i mean these are people
32:05
Speaker 3: they may not be paying enough i think that's fair
32:09
Speaker 3: But presumably on the other side, the kind of cost side,
32:15
Speaker 3: if you can squash down basically the amount of compute
32:19
Speaker 3: you need to use to create a half-decent AI production unit,
32:24
Speaker 3: then that's what... I mean, again, I think you can
32:27
Speaker 3: be sceptical about this either way, but I'm trying to
32:30
Speaker 3: recognise that I also didn't buy the Google IPO and
32:33
Speaker 3: that was probably the biggest investment mistake ever. I've made
32:38
Speaker 3: of many, obviously.
32:40
Speaker 2: Obviously, we've all been reading about Anthropic, we've all been
32:42
Speaker 2: looking at the risks, all been thinking about it, etc. Now,
32:44
Speaker 2: my favorite bit in the whole thing is the idea
32:50
Speaker 2: from the Anthropic founders that we shouldn't look at investing
32:54
Speaker 2: in the shares in purely transactional terms. Now, I think
32:58
Speaker 2: that we should look at buying them in only transactional terms.
33:02
Speaker 2: And it seems to me that when we've got to
33:04
Speaker 2: the point in a cycle when people start telling us
33:07
Speaker 2: that we should be investing not on the basis of businesses,
33:10
Speaker 2: however good they are, and numbers and valuations, but on
33:13
Speaker 2: something a bit more woo-woo, I.
33:16
Speaker 1: Start to worry.
33:18
Speaker 3: I mean, I absolutely agree. Obviously, Anthropic has got that
33:24
Speaker 3: kind of slightly hippie element to it and it's always
33:28
Speaker 3: hard to work out how much of that is kind
33:31
Speaker 3: of cynical hype and how much of it is earnest
33:33
Speaker 3: belief and I think it's probably about 50-50 but yeah
33:37
Speaker 3: I mean whenever you're being asked to take all these
33:39
Speaker 3: things on faith but there's so many kind of top
33:42
Speaker 3: of the market signals for we've had them all this
33:48
Speaker 3: year there's been stuff coming along.
33:50
Speaker 2: This moves us neatly neatly to Alphabet and to Google
33:55
Speaker 2: And the NASDAQ as a whole is off 4.5%, 5%
33:57
Speaker 2: since the beginning of the month. So there's quite a
34:00
Speaker 2: lot going on here. Anna, have you been looking at
34:03
Speaker 2: Google Alphabet now and see what's happened to that?
34:05
Speaker 1: Yeah.
34:06
Speaker 4: I mean, it just shows you, I think, that the
34:08
Speaker 4: investors are feeling a bit nervous and it doesn't take
34:12
Speaker 4: many cracks in a business to be punished by the
34:15
Speaker 4: stock market. So the shares are down more than double digit.
34:19
Speaker 4: And Where we are seeing huge growth is still in cloud.
34:22
Speaker 4: I mean, it's over 100% growth. That's pretty strong. But
34:27
Speaker 4: the core of the business is still search. And that
34:29
Speaker 4: was a bit weaker than people looked for.
34:31
Speaker 2: But really, just a tiny bit weaker, right? I mean,
34:34
Speaker 2: it's really not much.
34:35
Speaker 4: But I think in an environment where not long ago,
34:39
Speaker 4: they did quite a big equity raise, didn't they? So
34:42
Speaker 4: you've got potentially, you've just got that nervousness that's coming
34:46
Speaker 4: through saying, Well, I mean, the whole point about these,
34:49
Speaker 4: if you remember back in the halcyon days, a couple
34:52
Speaker 4: of years ago, that these guys could really afford to
34:54
Speaker 4: invest in AI because they were just cash flow machines.
34:57
Speaker 4: A lot of them are going cash flow negative. And
34:59
Speaker 4: if the core parts of the business, no matter how
35:02
Speaker 4: great they are, just seem to be crumbling a little bit,
35:05
Speaker 4: what does that say about the security of that long-term investment?
35:09
Speaker 4: So I think that I mean, Alphabet has got a
35:12
Speaker 4: lot of strings to it, but strings to its bow.
35:16
Speaker 4: And it's got the TPUs that it can now sell.
35:18
Speaker 4: It's got huge growth in the cloud. But it's just,
35:21
Speaker 4: it shows you wobbles around the business, wobbles that investors
35:25
Speaker 4: really take quite seriously, which is those engines that were
35:28
Speaker 4: driving the growth. They're not, if they seem to be
35:31
Speaker 4: floundering a little bit, I wouldn't be surprised investors take
35:33
Speaker 4: pause for breath on that.
35:35
Speaker 2: And are your investors taking pause? And when you look
35:38
Speaker 2: at your most bought, most sold, etc., are people still
35:40
Speaker 2: going into tech, still going into America, or are they
35:43
Speaker 2: moving into things slightly more defensively?
35:45
Speaker 4: We still have investors buying low-cost ways into the market,
35:49
Speaker 4: very diversified trackers, global trackers. And actually, if you think
35:53
Speaker 4: about it, the UK market has been a wonderful counterfoil
35:57
Speaker 4: to that, the sort of non-AI trade, which is running
36:01
Speaker 4: neck and neck with the S & P this year.
36:03
Speaker 4: FTSE has done just as well. So, maybe not on
36:05
Speaker 4: share price terms, if you add in that dividend. So
36:07
Speaker 4: it's been a lovely little counter to that. So we've
36:10
Speaker 4: still got investors buying low-cost exposure to that. And just
36:15
Speaker 4: to let you know, on SpaceX, we were, I would
36:18
Speaker 4: like to say, the number one place for IPOs this
36:21
Speaker 4: year for Hargreaves Lansdowne. We had a lot of retail
36:24
Speaker 4: investors going in. They're doing their first ever share trades
36:28
Speaker 4: in SpaceX. And we spent a lot of time talking about,
36:31
Speaker 4: this should be a small part of your portfolio. This
36:34
Speaker 4: is for the long term. And, you know, nearly 80%
36:36
Speaker 4: of those buyers are still holding on to those shares.
36:39
Speaker 4: So I think that actually shows that sometimes that messaging
36:43
Speaker 4: is getting through. So we're seeing big, you know, diversified plays.
36:47
Speaker 4: We're seeing lots of gilt buying, as I said. And
36:50
Speaker 4: we are still seeing some UK shares are still very popular.
36:54
Speaker 4: But also they like the tech trade. And SpaceX, for example,
37:00
Speaker 4: is a good example of that. Yeah.
37:02
Speaker 2: I've still got my SpaceX shares. I'm trying to make
37:05
Speaker 2: enough money for them to take John out to a drink.
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Speaker 4: But John's very expensive.
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Speaker 2: John's very expensive. We know that. And I only got
37:11
Speaker 2: a very small allocation, so I've got to hang on
37:13
Speaker 2: a bit longer, I really hope.
37:16
Speaker 3: I'm glad you said I'm expensive, at least.
37:18
Speaker 2: That's good. We can get out of bed for less
37:20
Speaker 2: than £ 10 million a day, will you, John?
37:22
Speaker 3: Exactly.
37:23
Speaker 2: Everyone knows that. On that happy note, thank you both
37:28
Speaker 2: very much for joining us today. Thanks for listening to
37:35
Speaker 2: this week's Merrin Talks Money Markets Wrap. If you like
37:37
Speaker 2: our show, rate, review and subscribe wherever you listen to
37:40
Speaker 2: your podcasts. Also be sure to follow me and John
37:42
Speaker 2: on X or Twitter. I'm at Merrin SW and John
37:45
Speaker 2: is John underscore Stepak. This episode was produced by Sam
37:48
Speaker 2: Asadi and Moses Andam. Questions and comments on this show
37:50
Speaker 2: and all our shows are always welcome. Our show email
37:53
Speaker 2: is merrinmoney at bloomberg.net.
37:55
Speaker 1: Special thanks to Anna MacDonald.