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Stephen Hughes comments on the recent Budget
Stephen Hughes, Director at Foreign Currency Direct comments on the recent Budget announcement:
Base rates in the UK compared to those overseas:
Base rates are not decided by the Government but by the Bank of England’s Monetary Policy Committee. However, the Government is looking to increase levels of saving by upping ISA allowances from £7,200 to more than £10,200 for the over-50s this year and for everyone else next year. In real terms, this only represents a benefit of about £90 if money is saved in an ISA paying 3% AER. With some overseas banks are offering interest rates of up to 11.5% (in Turkey for example), saving your money overseas may still prove more fruitful,.
Credit crunch and the global recession:
The IMF is suggesting that economic decline in the UK may be far worse than the Chancellor allowed for in yesterday’s Budget.
The Chancellor predicted that the UK economy was set to contract by 3.5% this year, and return to a 3.5% growth rate by 2011. However, half an hour after Alistair Darling’s speech the IMF was already contradicting his figures and predicting that the UK economy will shrink by 4.1% in 2009, and by a further 0.4% in 2010. In comparison, France’s economy is predicted to shrink by 3% this year, and rise to 0.4% in 2010.
These uncertainties coupled with yesterday’s announcement of an all time high in Government borrowing spell uncertain times ahead for the UK economy.
With other national economies (e.g. France) predicted to make a quicker return to economic growth, Britons may consider investment overseas to be a safer long term option.
Brits and the housing market both in the UK and overseas:
The Budget has attempted to re-ignite the much maligned UK housing market by injecting an extra £20bn in home loans with a further £50bn pledged towards a security-scheme to guarantee loans between banks in order to get credit moving. They also announced that the stamp duty holiday on properties less that £175,000 in value will be extended by 3-months, £80m of funding for first time buyers and £500m to kick-start housing projects.
In my opinion, as long as people, especially first time buyers, have the ability to borrow then we could quickly see the housing market pick up and prices start to stabilise and eventually increase. It was the equity that people had in their properties that enabled them to start looking overseas to live or have second homes and I am confident that trend will soon appear again. With lower cost of living, a better climate, less overcrowding and better quality of life the appeal of France has never been greater.
Trends of Britons leaving the UK for a better life overseas:
Britain’s top earners will face the highest tax rates since the 1970’s after it was announced in the budget yesterday that a 50% income tax rate will be imposed on the 350,000 people earning over £150,000 a year. With increases to National Insurance contributions and reductions to personal allowances, part of their income will be subjected to taxes of 61.5%.
This rate, one of Europe’s highest, may force the most talented abroad actually costing the Government more in lost taxes than in gains from high earners who choose to stay. In France, top earners pay a maximum of 40% tax, and it may not be individuals who choose to relocate. Companies looking for new locations will undoubtedly look at this possible “brain drain” as a reason to look at locations outside of the UK.