Bloomberg Audio Studios, Podcasts, radio news. Welcome bloom Maren talks Money Market Wrap, but we talk about the biggest moves in the markets this weekend and what's driving them. I'm Maren Something's Up, web editor at large for Bloomberg UK Wealth.
And I'm joined Stairviaks in your report for Bloombeer and author of the Money Distilled newsletter.
Almost thought you were't got to remember what you did there.
Touching is touching? Go?
Yeah, yeah, I mean there are instructions in our script. Sometimes I'm going to put one in your Synkeep breathing right now, it's just like lie the introduction, nice disciven, because we're not really going to talk about the biggest moves in the markets. What we're actually going to talk about is UK inflation coming in unexpectedly high brackets again, soot five percent for the year to the end of April, which is as high as it's been since last January
twenty four last January. So higher than expected, not madly higher than expected, but nonetheless this is not great. We want to see it coming back down towards two percent, which is where for reasons nobody knows it is supposed to be and that isn't really happening, right John, you wrote about this this morning.
Yeah, look, everyone knew there was going to be a jump, and to be honest, like three point five percent is higher than was expected, but it's well, we're in the realms of possibility. But I think the real problem for the Bank of England now is the base rate is at four point twenty five percent now in normal times, as in before two thousand and eight, the base rate
is higher than the inflation rate. And then if you do that like a tiny spreadsheet that's really easy to do and just take the average of what inflation normally comes in at each month over the last thirty or years. If you look at that, then inflation is very likely to stay an annual rate of between three point four and four in a bit percent this year for the
rest of this year. So the point is the Bank England really doesn't have very much breathing space to cut interest rates further without being at risk of CPI inflation going back above the bank rate at some point this year, and already RPI inflation. I know no one likes RPI, but it is still used to index link a lot of guilts and contracts.
Now like abi's still a really important number. I mean on student loans still index to RBI, yes, I'm afraid on them is RPI plus yeah and.
Four point five now and that's the first time it's been above the bank rate since the end of twenty twenty three, and before that again, during the pre two thousand and eight normal era, RPI was always below the bank route. So I think it's this is very uncomfortable politically for the Bank of England as much as anything else.
But it's policy and competent driven inflation, isn't it. I mean this is waterbild, syr's, build, energy, build, all that kind of thing. So it was uncomfortable for the Bank of England, but it should be extremely uncomfortable for our political leaders as well, what with them being in charge of all those vital infrastructure areas and their costs.
Yes, but there's there's very that's very little that they'll take any responsibility for and the something I mean for all that, I don't think the government is doing a very good job. This is compounded problems from years and years and years. Mess mind.
When I when I say the government, I don't even bement. I mean decades. Well, yeah, government, you know, I mean I keep reading about reservoirs, which I'm rather bothered about at the moment. Is you know, I live in Scotland where we have no short of water, but already there's conversations about, you know, where we will have to have hostpipe bands and new restrictions on those and restrictions on that.
But of course if we.
Just built some reservoirs, had built any reservoirs after over the last couple of decades, we wouldn't really need to worry about that kind of thing.
Oh maybe an aquid talk between Classgow and Edinburgh. Yeah, because you know you're never going to get a shortage in Glasgow.
That's absolutely true, is that? But you know we can't even.
Build roads bring back Roman times. That's why I say.
John, we are actually planning to do more economic history on this podcast, and we have got a few good economic history pods coming up. But John is jumping the gun slightly that nobody listened to John on Roman financial history at the moment. That time will come anyway. So the key question then is does this mean that that people who are waiting hanging on for interest rates to fall significantly over the next year because they think they'll get achieved and mortgage low rate on their loan, etc.
Should they stop waiting give up? What do you think is going to happen now?
I mean I think they should. I think you have to be very careful. I mean, obviously you should. Your personal finances should never be reliant or an interest rate variable change and to the point where it's going to ruin your life if it doesn't go your way. But more than that, I mean, if you look at what was harming and this is something Knee you look into
in more detail. We feel it has happened to long dated bonds, then the interest rates on long term debt, and this is across the world, is not just the UK, but the UK is quite vulnerable. Is going through the roof, actually, especially since the start of May. I mean for all that you know we kind of had the big panic about Liz trust Well, the thirty year gilt is now well above where it was in October twenty twenty two, and the ten year gilt is also higher than it
was back then as well. So it's long term interest rates are not coming down, they're going up the way. And those are the ones that will come from not the thirty year and the tenure. But I would not rely on your mortgage rate coming down in the very near future or any time. Really, that doesn't mean it won't. I mean maybe it will, but I certainly wouldn't better on it.
Okay, So John, you then approve of hope based personal finance.
I feel that hope is not a strategy, as I'm sure someone was said.
Fair enough. All right, Listen. The other thing that's been bothering both of us this week, and you've also written about, and it sounds niche, but it totally isn't is this business of Australian pensions and the idea that they are going to begin to tax inside pension wrappers unrealized gains above a certain asset base. And that's it's a it's complicated, difficult, confusing. The numbers are a nightmare. What do you do if you tax again that's never been realized and it turns
into a loss. All these things are very complicated. It's a very strange policy and it's a worry because we have Angela Rainer out there sending memos around the players asking how to raise more taxes on what she considers to be the well off in the UK, and I'm sure that she looks all around the world to pull up ideas and here is one, but a dangerous one, right.
Yeah, I mean this is very interesting, and I think, like every patient system, this showing system is complicated, and I'm sure that the nuances to the cly how appreciated, and the way the tax really works and all the
rest of it is slightly different, you know. But the pension, the strengthen system is regarded as being a sort of exemplar for the rest of the world, basically because they introduced auto enrollment in the nineteen nineties and then we're able to afford to keep putting it up, so their auto enrollment is something like twelve percent now, and it basically means the most Aussies have a decent personal pension.
And the problem is, obviously, is that once you reach a kind of tipping point, the government stops trying to encourage you to save and then starts looking at all those pots that you've built up and starts saying, well, i'm isn't it that's all money? Because you know, that's just the way the governments think. And so the fact that there's a kind of handful of people who've built
up like really massive amounts in these savings pots. Means that the you know, the current government is thinking, well, there must be a way for us to get our hands on that. And so the issue is that they've introduced this or that they are trying to introduce this new band on savings of above three million ausy dollars, which is about one point four million British pounds. And again the issue is that they are for the first
time they're taxing unrealized capital gains. So it's a very complicated the way they work it out, but basically, the portion of your money that is above three million, they then attribute the same portion of gains in a year to that that bit of your pot, and it means that you get hit with a tax bill for that, whether or not you've sold the assets that are involved.
And one of the big problems for the Australians in particular is that the farmers there often keep their farms in their pensions, so they're sort of facing the similar issue to the inheritance tax over here, whereby the farm is worth a lot of money, but it doesn't generate any real money, and so you know that you're going to come across all these liquidity problems and all the
rest of it. But really the big issues the principle, as you say, it's the idea that you know, the governments have generally shaded away from this because it tends not to watch whenever they've tried it. But the fact that was another say call of trying all of these stupid ideas again.
Yeah, the whole idea of tax system make them simple and straightforward, which is why we normally tax stuff at the point of exchange, right. We tax transactions, so you touch money when it's moving, when it's going from employer to person, when it's going from company to person, vira a dividend, when it's been called out of a pension, when you sell something. Trying to tax things when they're when they're not exchanging hands is very difficult, which of
course why wealth taxes never really work, etcetera. Why we always replace it, well taked with the transaction tax of some kind in the end, so it does seem a very backward facing move. But but but but back to Angela Raina and her members. You know, we gather that she was looking for richul Reeves, have a good another three or four billion a year by doing you know,
some stuff a bit like this. There are other things like scrapping tax free dividend allowance and extending the freeze on the forty five percent thresholder this kind of thing is eventually inevitable because I mean, it's fiddling around the edges. Of course, the only answer to raising a lot more tax in the UK is to expand the tax base, and that's a much longer conversation than we're going to
have today. But the other thing that apparently she's keen on is this idea of reentertating the lifetime allowance on UK pensions, which is not quite the same as you've just described, but again leads us into a into ad men.
Hell yeah, you're reintroducing it whenever he's scrapped in the first place, because it was causing all of these problems at the top end of the public sector. That's why they got ready in the first place. And I mean, I mean, this is the issue with pension schemes across the world actually, because there's a there's an element of
this in the Australian one as well. It's the public sector employees all of dB pension schemes, and usually whenever you mess about with the can a lifetime cap and all the rest of those are actually the first people that get caught by it because their pensions are so generous. And so then there's the whole political cannot fight over actually we can't tax these people, but we want to tax these people in the private sector, and it's like, well,
how do you do that? I mean, that's why we ended up with employer national insurance getting raised in the budget rather than anything else, because that only falls on private sector employees and companies, and you know, the public sector was kept safe from it. Again, it's one of these issues that starts to tea you down, and the idea does a favored group of people and an un favored group of people who will pay for everything.
Oh, we know, we know that's true, though, I mean.
That's always just getting more divisive, like that is getting worse and worse the more obviously, the more stretched to the public finances become. There are so many people who are untouchable.
It is interesting, this whole idea that the rich don't pay enough tax, the highly paid don't pay enough tax, etcetera. And they must pay more and more and more. And you know, there's been discussion around this idea that everything was better back in the sixties and seventies when tax
rates were higher. And then, of course is it Dan Needle who's done this number showing that back in the late nineteen seventies, seventy eight, seventy nine, and when the highest income tax rate was eighty three percent and the highest tax rate on unearned income was ninety eight percent. For Haven's sake, the top one percent one percent only paid eleven percent of the tax in the UK, whereas now many many many years later, with rates ostentaibly significantly lower,
they were twenty nine percent. The top one percent paid twenty nine percent.
That's wild that it used to be eleven percent. And I've got it Dine's thing on my long reading list.
It is worth reading. You know, one percent paying nearly thirty percent. I think maybe that broad his shoulders are carrying quite a lot there.
Yeah, top and especially in terms of the income tax, there's the super super wealthy and the zero points zero one percent of who still do pay a lot of tax. And also generally, you know, create a lot of jobs, build things, et cetera, et cetera. But once you're get down the one percent and the pain thirty percent income tax that that can be you know that that is pa ye employees at the peak of their career and
lots of ways. And this sort of goes back to the thing that we discussed in one of the podcasts earlier this week where we got an email from a youngish guy who was basically earning lots of good money but feeling, actually, what is the point in carrying on working hard because I'm going to get better in the back say that every single ton if I earn any more than I get just now. So, yeah, it contributes to that that lacked desire to, you know, maintain your.
Ambition incentives, incentives, incentives and centers. And I think sadly John and I have very little optimism that this one will turn around. So watch out for more slightly admin heavy and irritating and probably pointless taxes coming in the UK. And before we go, one of thing to say is if you're interested in what John was mentioning earlier about Bondiel's around the Developed World rising, please do listen to tomorrow's pott where we will be talking about that at some length,
it's very very important. Thanks for listening to this week's Maren Talks Money Market round Up. If you like us show, rate, review, and subscribe wherever you listen to podcasts altho I have you show to follow me in John on ex or Twitter at marins w and John Underscore Stepic. This episode was produced by some Asaudi production of support and sound designed by Moses and Questions and comments on this show and all our shows are always welcome. Our show email is Merenmoney at Bloomberg dot net