Another year is about to end, with its successor promising political upheaval in the UK and continued uncertainty about the health of the wider global economy for our clients.
A government that has delivered low inflation, an unemployment rate the envy of the developed world, a strong pound and an economy expected to grow by three per cent in 2015 may still be turned out of office in the May general election. We are indeed experiencing the Chinese curse: ‘May you live in interesting times’.
The Government, we all, should be feeling more confident, and politicians are normally rewarded for solid stewardship of the economy. But this is not a normal time.
The economic recovery has not settled wider unease over aspects of civil life, from immigration to devolution. There is also uncertainty about the foundations of the recovery, dependent as they are on continued low interest rates stimulating consumer spending. There is also the certainty of deep public spending cuts, whoever wins the keys to Number 10 in spring.
The rise of UKIP, particularly in Kent and Essex, is further testimony to a distrust of ‘the establishment’ ; and so is continuing pressure for more powers to be given to Scotland and other parts of the UK.
Localism is another consequence, with powerhouse cities and regions now flexing their muscles.
As an economic set piece, the Autumn Statement was utterly political, but produced welcome reforms for all that, particularly to Stamp Duty. The option now to transfer ISAs on death to a surviving spouse, the review of business rates, further taxes on non-UK citizens and the promise of more money for the NHS all had one eye to May’s poll.
The same could be said about the tax on diverted profits, the so-called ‘Google tax’ designed to bring in more money from multi-nationals on their UK profits.
Against this backdrop just what is going to drive UK growth in the next few years? The slowdown of growth in the Far East and poor performance across the EU make an export-led recovery all but impossible.
Our markets are simply flat on their backs, with only the United States seeing sustained growth. It will continue to be the single most important market for our exports. Growth will need to be driven by our domestic household consumption, so I hope we will start to see business investment to create more jobs.
But the risk remains to restated: We will be relying on low interest rates to keep mortgage and lending at reasonable levels at a time of flatlining income rises.
There is more our leaders could do to drive our economy forward.
- Encourage house building, which the Stamp Duty changes may facilitate.
- Focus on innovating and lending to encourage its development.
- Reform taxes internationally to deal with ‘fair’ taxing and ensure a level playing field.
- Invest in infrastructure, for jobs and to ease logistical bottlenecks that hamper trade.
We know from our clients that they have generally fared well in 2014 compared to the year before. Hard work, resolve and commitment have paid off.
We know, too, that there is more confidence about investing and borrowing. Our strong and strengthening international links mean more clients are coming to the UK from overseas to establish businesses here.
Ours is not a firm founded on aggressive tax avoidance of the sort highlighted in the media. But we do believe that the top rate of tax at 45 per cent is far too high, particularly when Inheritance Tax is levied at a further 40 per cent. The latter is a hated tax because it penalises prudent families where money has been saved to provide for themselves and their dependents, frequently freeing the state from having to do so.
But despite the unease and uncertainties we all feel as we emerge further from the discomfort of the worst recession in living memory, the iniquities of some taxes and the political churn ahead there are causes for optimism. Simply put: The economy is in its best shape for years.
There will be much else to celebrate and think about in 2015: A sibling for Prince George will arrive. June marks the 200th anniversary of the Battle of Waterloo, an event that altered the shape of Europe and could not be more appropriate to ponder as its shape is questioned again.
Those who know me will not be surprised that I shall also be marking the 175th anniversary of the Penny Black, the world’s first postage stamp.
I think it remains true to say that the United Kingdom remains the inventive, creative country it was 175 years ago. I am also sure that we will continue to thrive together in 2015 and beyond.
On behalf of everyone at Reeves may I wish all our clients, contacts and friends a happy Christmas and a prosperous New Year.