90s Nostalgia – An Oasis for Labour
In a shorter week following the late summer bank holiday, you may well have thought you had woken up in the 90’s, with Labour party taxes and Britpop band Oasis dominating the headlines.
Cigarettes and alcohol are very much on the agenda, with the Government looking at a smoking ban in outdoor spaces such as beer gardens which prompted an immediate backlash from pub groups, many of which are struggling to recover from the pandemic lockdowns and the cost-of-living crisis.
Chancellor of the Exchequer Rachel Reeves will be a force of nature if she moves forward with proposed aggressive tax reforms. Amongst the more subtle changes being discussed is the concept of “fiscal drag”, often referred to as a stealth tax. This occurs when inflation and rising wages push taxpayers into higher income tax brackets, effectively increasing the tax burden without any changes in the tax rates themselves. As wages rise, more people find themselves paying more tax, even if they’re not earning significantly more in real terms.
Those married with children will be disheartened to learn that Inheritance Tax also forms part of the master plan. Measures range from raising the IHT rates to curbing allowances. IHT is a very unpopular tax, however there are many ways to mitigate such as leaving your estate to your spouse, civil partner, children or to the community. Rachel Reeves could look to curb these or raise the thresholds.
Some might say tax reforms rarely translate well into growth prospects, and, conversely, may feel like a shock of lightening to the UK economy. Most feel growth will slip little by little from 2.5% to 1% as their tax policies may trigger a flight of wealth from the UK.
Capital Gains Tax, a tax charge on the profits made from selling assets, including stocks and shares, may also be adjusted to align it with Income Tax Rate thresholds, potentially increasing the higher rate from 20% to 45%.
German Inflation continued to slide away to 2%, its lowest level since 2021 and down from 2.6% driven by lower energy prices and lower prices for goods. The news is encouraging with Germany joining Spain with inflation at or below the European Central Bank’s 2% target rate, adding fuel to expectations the bank will cut Eurozone interest rates again next week.
Half the world away in the USA, Gross Domestic Product, a proxy for growth, was revised upwards to an annualised 3% for the April-June period, driven by personal spending, something the UK will see more of following the eagerly awaited Oasis tickets sale.
In corporate news, Warren Buffet’s Berkshire Hathaway enjoyed a champagne supernova moment by joining the Trillion Dollar club, the first company outside of the tech sector to achieve this feat. At the age of 94 he really is a rock n roll star of the investment world. At some point in the future, Berkshire Hathaway’s biggest challenge will be the task of finding a successor to one of the world’s greatest managers.
The world of football tells us that replacing an icon is a tall order. In the period since Sir Alex Fergurson left Manchester United in 2013, five full-time managers have fallen far short of achieving the same levels of success whilst the Gallagher brothers’ beloved cross-city rivals have won the Premier League title seven times.
When Ryanair’s CEO Michael O’Leary spoke last week, his comment that passengers should be restricted to a maximum two alcoholic drinks at airports before they fly grabbed much attention. However, markets were more interested in his forecast that airfares will fall around 5% over the winter months, less severe than many expected, and shares rallied nearly 5% on the week.
Meanwhile, in Colombia airlines had a more challenging week and were forced to cancel dozens of flights due to shortages of jet fuel, caused by an electrical failure at State-run Ecopetrol’s Cartagena refinery.
In other hotly anticipated corporate news, artificial intelligence chipmaker Nvidia released second quarter results. Revenue was USD 30 billion against a forecast of USD 28.75 billion, whilst profits per share were $0.68 versus expectations of $0.64. However, given stratospheric expectations from the Street, shares tumbled more than 6% owing to underwhelming sales guidance.
In commodities markets, gold touched all-time high of $2,531.60 an ounce last week amid increased hopes of US interest rate cuts from the Federal Reserve. Don’t look back in anger, but you may remember Gordon Brown making a Digsy’s dinner of that trade, selling half of the UK’s gold reserves at less than USD 300 an ounce around the turn of the century.
(Cover Image Source: Pawel Szvmanski)