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Category: Campfire

Around the campfire: One or two percent – no one will notice

This is the time of year when UK (excluding Northern Ireland) property owners get their annual council tax demand for the next year. If ever there was...

18 March 2021

Jason Cozens

This is the time of year when UK (excluding Northern Ireland) property owners get their annual council tax demand for the next year. If ever there was a confirmation that inflation is back, it’s this – my council tax for April 2021-April 2022 is up by 4.8% compared to the previous year. One item – for the local police and crime commissioner’s services – has gone up by a whopping 7.4%!

Meanwhile, the government says the Consumer Prices Index (CPI) rose by 0.7% in the 12 months to January this year. The CPIH (which includes owner-occupiers’ housing costs, including council tax) rose by 0.9% in the 12 months to January this year, according to government figures. My council tax went up by 4.99% in 2019-20 and 3.99% in 2020-21. So over three years, this tax has risen by an average 4.59% a year. Across the country council tax this year will go up by an average 6.6%. Yet the government figure for the annual CPIH nationwide in 2019 was 1.4% and 0.8% in December 2020. There seems to be a discrepancy somewhere…

This creeping inflation and stealth tax hits us all; the poorest households hardest. Many have racked up debts during the Covid-19 lockdowns. Total UK household debt in the third quarter of 2020 was almost £1.9 trillion, 2.4% higher year-on-year. It’s difficult to accurately assess how many and what types of people are struggling in the UK – there are so many ways of calculating this. But the increase in foodbank use – up by 88% rise in demand during February-October 2020 compared to the same period in 2019 say independent food bank operators – gives a clue.

Yet at the same time, many UK households have managed to save during the Covid-19 lockdowns. Since March 2020 UK households have accumulated an estimated £125 billion in savings, according to the Bank of England (BoE).

 

Where will all this unusual savings go? It may well be just as quickly spent once the Covid-19 lockdown ends, although maybe it needs to be saved for rainy days ahead.

For the UK’s Chancellor, Rishi Sunak, has in mind a series of stealth taxes, by de-indexing the tax system. From 2022 through 2026 there will be no adjustments of income, inheritance or capital gains tax brackets, of pension lifetime allowances or of value-added tax (VAT) for small-business thresholds. This de-indexing will see him gather an additional £25 billion in taxes over four years and push 1.3 million new taxpayers onto the tax rolls by 2026 – with the majority at the bottom end.

Like a frog dropped into a saucepan of cool water that is actually being boiled up, a percentage here and a percentage there feels rather painless at the time. All of us facing an inflationary council tax bill will have to grit our teeth and bear it.

Is gold a good hedge against inflation? This debate rages. And opinion is deeply divided about where inflation is headed.

In any case at Glint, we promote gold not purely as a hedge against inflation, but as money, to be bought, spent and used as an alternative to paper money; since 1933 the US dollar has lost more than 90% of its purchasing power. And the amount of dollars in circulation is now 60 times greater than in 1933. Some of you may have more cash around as a result of policy decisions by your government; but holding it as cash or putting it into a bank account may not be the best use of it in these volatile times.

All the best,

Jason

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