What does Boris mean for your investment portfolio?
How will the new Prime Minister change pensions and taxes?
Will a Boris Brexit be good or bad for the pound?
The answer to all these questions is, you guessed it, that nobody knows. Such is the nature of predicting the future. But that’s not to discredit what the experts have been saying – they have a far better idea of what could happen than most – this is simply to remind you not to go and change your entire portfolio based on a headline or soundbite. As we always say, invest for the long-term, ride out the bumps, and take your time to make confident decisions.
That being said, it can’t hurt to know what the industry is talking about. So here are the main points covered by analysts and advisers…
How could Johnson’s policies affect the stock market?
Richard Pearson, Director at Selftrade:
“Investors should hang tight before building a portfolio full of Boris’ latest ideas. With Brexit hanging over the market, and a possible general election on the cards, it’s likely to be some time before any of these policies come to fruition.”
Paul O’Connor, head of the multi-asset team at Janus Henderson Investors:
“With the economy looking like it is one stumble away from recession, a policy response is needed. A 2019 interest rate cut seems increasingly likely and a Johnson fiscal stimulus a near certainty. While both of these can help cushion the impact of Brexit-related uncertainty on the economy, a full restoration of confidence seems unlikely until the big issue gets resolved.”
Leigh Himsworth, portfolio manager at Fidelity International:
“Our eyes remain firmly fixed on Sterling, which is reacting, almost by the minute, to the deal/no deal narrative.
“We may well look back in a few years’ time and regard this period as quite simply one of the best opportunities that we have seen to invest in UK equity markets.”
Lower taxes for the richest and poorest people
One of Boris’s campaign promises was to let high earners pay lower taxes. Currently, income tax is 20% of your earnings up to £50,000, and 40% of your earnings between £50,001 and £150,000. If Boris keeps his promise (and how often do politicians do that?) then you’d only start paying 40% on earnings above £80,000.
Tom Selby, senior analyst at AJ Bell, says:
“It didn’t take Johnson long to get his imaginary chequebook out during the Tory leadership race as he promised to raise the 40 per cent [higher rate band] income tax threshold by over 60 per cent. This would represent a £9 billion tax boost to 4 million people, according to the IFS, benefitting the top 10 per cent of earners to the tune of almost £2,500 a year.
“Johnson also hinted the National Insurance thresholds could be raised to help pay for the measure. At the same time, he signaled his intention to increase the point at which NI payments kick in to boost lower earners.”
So, potentially, both the richest and poorest people in the country could end up keeping hold of more of their pay packets.
Here’s one we can all get behind – scrapping Stamp Duty Land Tax when you buy a home worth less than £500,000 – though it comes with a caveat.
Over to Tom Selby, senior analyst at AJ Bell:
“This would likely be one of a series of emergency Budget plans unveiled if the UK leaves the EU without a deal.\n“The proposed stamp duty cut would represent a major giveaway of up to £10,000 for first-time buyers and £15,000 for other property buyers.
“Clearly that’s potentially good news for those looking to buy a home, although stimulating demand in such a manner without building more houses risks simply stoking house price inflation.”
‘Fixing’ the pension tax crisis
There are a few ‘pension crises’ floating about these days, including the worry that the state pension might not exist by the time millennials are old enough to claim it, and the issue with tapering down the annual tax-free allowance for people earning more than £150,000 (which is leading to senior NHS doctors refusing shifts to avoid overwhelming tax bills). Johnson has promised to fix the latter.
David Everett, partner at LCP pension consultancy, says:
“We have no idea at this stage what he intends to do, but it is worth mentioning that the complexity and unintended consequences of lifetime and annual allowances we see today is a direct result of successive Government tinkering with the pensions tax architecture to create a source of funds following the 2008/09 economic downturn.”
In short, the new Prime Minister may choose to scrap the tapering-down of allowances, but he’d need to find around £1 billion to plug the Treasury’s hole. It’d be another cut for the richest in society which the rest of us may have to make up for, but we’d be a little more likely to get a doctor when we need one. In theory.
How do you feel about our new Prime Minister? Whether you’re pleased, concerned or ambivalent, read up on our tips for investing in turbulent times. And check out our new Investment Fees Calculator to compare platforms and fees before you invest.