BUDGET 2023 AND THE BANK THAT WENT BUST

Jeremy at no.11 has spoken. The self-proclaimed ‘boring budget’ wasn’t so boring on the personal finance side.

Everyone is boosted by inflation returning to normality and the energy price freeze until July. New parents and prospective parents got a huge boost with additional free childcare provided.

High earners and those with big pension pots should also be feeling good about themselves. Read on for more info and ‘lessons from the bank that went bust’.

 

Good news you say …

 

Inflation

The Office for Budget Responsibility (OBR) have forecasted that inflation should return to 2.9% by the end of the year. Prices should stop increasing at the rate they have been, meaning you get to keep more of your earnings.

Energy prices

The energy price guarantee will remain in place until the end of June 2023. This locks the price of energy for an average household at around £2,500 a year.

Childcare

The provision of ‘free’ childcare is being expanded … gradually. In the current system, workers who earn c.£24,000 to £100,000 a year receive 30 hours of free childcare for 3-4 year olds.

The plan is to extend this to children from 9 months up to the same age. Full implementation requires a higher capacity in the childcare system and won’t be available until September 2025.

Pensions

  • Annual allowance (max pension contribution each tax year) to be increased to £60,000. You can put more in your pension!
  • Lifetime allowance (max amount in pensions without a tax charge), currently at £1.073m to be abolished. Tax free cash will be fixed at £268,250. You should put more in your pension!
  • Adjusted income limit (where amount you can put in a pension starts tapering) increased to £260,000 Minimum tapered annual allowance increased to £10,000. YOU REALLY MUST PUT MORE IN YOUR PENSION*!

(*Providing it is affordable. p.s. if you’re earning £200K+ a year it really should be affordable to out a bit more in)

 

Lessons from the bank that went bust

 

You may have read that the Silicon Valley Bank (SVB) went bust over in the USA. The bank was the largest in the US before its downfall.

SVB had invested in long-dated investment bonds and the recent interest rate increases meant the prices of these bonds fell sharply. The loss of value coincided with lots of depositors wanting their money out, meaning SVB had to sell the bonds at a loss. Eventually, SVB could not meet its deposits and went bust.

The US government has bailed out SVB and depositors in the US have been told their money is safe. The UK arm was sold to HSBC for £1. In both countries, the bailouts meant people who held their cash with SVB were protected and didn’t lose any money.

Investors however, did lose their money. All of it. If you held SVB bank as a single stock you lost 100%. The good news is, MUVADO’s recommended 100% equity portfolio held 0.011% in SVB bank. The loss is barely noticeable in the daily fluctuations expected from the portfolio.

The collapse of SVB has meant the stock market has declined slightly as some investors worry, and sell their positions. Although seeing declines isn’t nice, history has taught us to stay invested and try not to predict the markets.

Lessons we can learn

  • If you want low risk investment bonds, keep them short dated. MUVADO recommends defensive investment bonds dated below 10 years.
  • Don’t sell at a loss unless you have to… and ideally, never ‘have to’. Investing is a long-term game. You should hold cash to meet your short-term expenses.
  • Hold a diversified portfolio. Single stocks can (and sometimes do) go bust, and mean a total loss of capital.

This update was written by Gregory Deer on 15th March 2023 and is based on best understanding of the current and proposed legislation. Tax limits and allowances can and do change. Investments carry risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.