Good news - we are earning more: Bad news - we’ve got less to spend. I had better explain. It seems that the average gross household income has risen from £34,796 to £53,835 over the past ten years however, by the time we take off those “essentials” such as tax, national insurance and the mortgage (but excluding claret for some reason) we are left with just 32.6% of our gross income.

Back in 1997 this was 34.5%. The research comes from a uSwitch report which highlights that most utility bills have risen less than most people’s salaries (presumably having shopped around in the more competitive market). However, the key areas for cost rises have been in petrol - up 55%, telephone and internet costs up 77% and the cost of getting your first property having tripled. But let me especially underline the rise in the average cost of your local Council Tax from £688, up by 92% to £1321 – that is three times the rate of inflation. All that for getting your bins emptied less often. More money – less value.

Even pocket money has gone up, with a 13 year old on average getting £45 per month, rising to £80 at 16 and £120 at 18. With many topping this up with part time work apparently this has risen by 600% since 1987. Not bad for being generally unpleasant.

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I am pleased to say that concern over the regulation of the banking industry is still being maintained and that we are not letting the passage of time gently camouflage with Autumnal leaves the risks we are still running. I had the pleasure of meeting a senior retired banker last week at an Institute for Fiscal Studies event.  He had been attached to the Bank of England in the 1980’s and retold the tale of managing a British banking crisis then, quietly and effectively – and without creating the unnecessary panic we saw over Northern Rock.

It was thus also pleasing to read that the Governor, Mervyn King, pre-empted Alistair Darling last week by calling for stronger and more effective action. He wanted the Bank to able to act covertly in these cases, and in a speech last week in Belfast spelt it out by saying “Central banks operate as lenders of last resort. We need to be able to lend against good, albeit illiquid collateral and at a penalty rate, without destabilising further any bank to which we lend”, and further “we will explore ways to restore the use of discretion in central banks’ operations“.

 
Good.

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 I don’t think that the Government had its most effective period last week. Especially by introducing what appeared to be the wrong “pre-budget statement” – that is to say one for an election that was no longer going to happen. All it appeared to achieve was to highlight that the Government is borrowing more and spending more at a time when the economy is slowing. It also gave the Opposition a useful tag line of “where did all the money go?” Again - more money – less value.

 
However, one area did especially rile me. I thought Mr Brown had been focussing on supporting and fostering an entrepreneurial economy in an increasingly competitive world? And also encouraging longer term investment to get us away from “short-termism” and a boom and bust economy?

 
So what was this with the CGT rule changes and abolishing the taper relief? Managing the CGT taper relief system was universally agreed to be dreadfully cumbersome and unwieldy, with awful calculations being carried out in order to try and achieve the correct result. However, the knee jerk decision to ditch the entire structure reflects the unthinking attitude of a politician who seemingly has had no experience or understanding of the real business world.

 
Labour has in the past railed against the culture of short term greed and speculation, which in many ways I would certainly support. Surely it would be far better to foster an attitude in favour of longer term wealth creation and development. This would encourage job creation, investment and consequently encourage a far more measured management of company finances and, come to that, local economies. So it would seem that we have had a “volte face” in that longer term investment is, if not being penalised, then certainly not being promoted by the tax system.

 
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 And finally….are we now seeing the real cost of devolution in Wales? A couple in North Wales have received a phone bill of £74,589.39 for a seven minute call across the border to Chester. Just as well my daughter doesn’t live there.

 
Have a good week,

 
Justin A. Urquhart Stewart
Director
Seven Investment Management