A year, a tear and tax rise fear

Not much to celebrate for Labour this week, on their first anniversary in power. We had a reminder of how financial markets are driven more by human emotion and fear, than by Maths, as a tear caused a brief meltdown in the bond markets.

You’d have to have the hardest of hearts not to feel for Rachel Reeves, whose Bad Day on Wednesday made prime-time TV and brought out all the trolls. I don’t personally see tears as a sign of weakness and am embarrassingly known to cry at anything. I once cried when Harold and Madge got back together again in Neighbours and I obligingly cry at reality TV shows about dogs. My children find it mortifying.

The core problem which needs broader acknowledgement is that her job is impossible. There is simply not enough porridge in the pot to feed everyone and this is not the Magic Flipping Porridge Pot. So, everyone is ‘hangry’, no matter who is in charge at the kitchen. Chancellors may come and go, but we will continue to feel angry with all of them until we solve the productivity problem in the UK and face the difficult facts about what we prioritise and can afford as a society.

The anger will continue as we head towards the Autumn Budget - the welfare u-turn means the Chancellor needs to find £5 billion down the back of the sofa. Where will she start? Pensions are always an obvious place to look. And extending the frozen tax thresholds, dragging more of us into higher tax bands, also feels like an inevitable outcome. Watch this space.

Cash ISAs are also in the firing line.

Here’s a quick recap of the rules. At the moment, we can save and invest up to £20,000 a year into either a Cash ISA, a Stocks and Shares ISA, or a combo of both.

Some think that the Chancellor will announce plans to reduce the amount we can save into the tax-free Cash ISA (potentially to as little as £4,000 a year) in a bid to persuade more of us to use any remaining money to buy shares. The plan is to get more Brits investing. Right idea, wrong solution. We’ll get clarity on 15th July in her Mansion House speech.

Cash and investments both play an important financial role. Cash is the short-term pot – accessible, predictable, but a bit weedy. Shares are the long-term pot – bumpy, volatile, but more powerful over the long run. However, too many Brits are sitting in cash for the long-term, missing out on the power of markets because of a combo of fear and a lack of trust in the industry.

The plan to meddle with Cash ISAs is not a good one. You can’t encourage people to invest by shutting down their options for cash. This is like putting a quota on how many lentils a vegetarian can buy and concluding that they will immediately rush to Tesco and buy a rump steak. They won’t.

People will invest more if they get better help from the industry. More helpful suggestions. Reassurance that we’re not doing anything daft. The regulator this week published draft rules for something called ‘Targeted Support’, which will enable banks, pension providers and investment firms to send out pro-active suggestions and nudges to customers, on what ‘people in similar circumstances’ might consider. Despite the obvious pitfalls and conflicts of interest to navigate, I think this is hugely positive.

Platforms could tell users when a cheaper index fund was available. Pension firms could help people work out if their pension pot might run out. They could tell us what other people like us were saving and if we were on track or years behind.

Investment firms could help first-time investors to make a choice and have the confidence to start. It could make a difference to million of people and will be live, in action, from next year. It’s a game changer and I’m a big supporter.

A final aside, before I sign off. New highs on Thursday from both the S&P 500 and the Nasdaq, as chipmaker Nvidia rose closer to a blistering $4 trillion valuation and a surprisingly strong US jobs report animated investors. I expect more volatility next week, possibly even a sell-off, as the tariff drama resumes.

Over and out from a busy week. I will be (hopefully) getting my powerboat licence on the Solent, this weekend. If you're out and about on this stretch of water and see a speedboat approaching, driven by a sobbing person apparently out of control, I suggest you get out of the way!

Holly