September 2024 monthly update

Read our September monthly update – a roundup of the latest financial news and economic headlines.

‘British ISA’ plans recalled by government

Government sources claim that the Labour Party has dropped the Conservative Party’s plans for a ‘British ISA’. While the Treasury stated that a final decision has not been made, it did confirm that Westminster will provide more information “in due course”. Regardless, the possibility of scrapping this idea has been welcomed by investment firms.[1]

In theory, such a product would have helped to boost British businesses. It would funnel savers’ money into London-listed stocks by allowing for an extra £5,000 to be invested into UK equities only. Economists criticised the idea even during former Chancellor Jeremy Hunt’s tenure, however, and called it “rife with issues”. They warned that savers may be able to invest in companies that do not actually operate in the country. Moreover, they urged the government to focus on raising the £20,000 Annual Allowance over introducing further elements to investing rules.[2]

“Labour’s reported scrapping of plans to create a British ISA is a sensible move,” commented Shaun Moore, tax and financial planning expert at Quilter. “The proposals ran the risk of consumer confusion or poor outcomes. For example, limiting the ability to transfer out of a British ISA to a different ISA may not be fully understood at the time of opening. Furthermore, the investment universe of a British ISA would be naturally limited.”[3]

Other experts shared this sentiment. They claimed that this “gimmick” would make investing more complicated for individuals, even deterring them from using the tax-free wrappers. Michael Summersgill, chief executive of AJ Bell, also proposed the idea of one ISA product instead of several. In his view, “too much choice can lead to people feeling overwhelmed”.[4]

UK house prices hit two-year high

According to property website Rightmove, the average asking price of homes has jumped by £3,000 this month. The value of properties coming onto the market increased by 0.8% (£2,974) to £370,759. A price hike is typical in September but this year, it is double the long-term average.[5]

Year on year, the number of sales being agreed is up by 27%. This is a significant rebound when compared to last year’s more subdued market. Rightmove postulated that this is likely due to “a release of pent-up buyer demand”. As such, homeowners appear to be more confident about bringing their properties to market. The number of new sellers listing houses is up 14% compared to this time last year. Furthermore, the average number of available properties per estate agent is now 33; the highest level since 2014.[6]

Tim Bannister, Rightmove’s director of property science, stated: “the autumn action has started early with a strong rebound in activity from both buyers and sellers compared with the subdued market at this time last year, continuing the momentum from the better-than-expected summer market.”[7]

In his view, “the certainty of a new government” followed by the first Bank of England rate cut in several years revitalised the market which opened “a window of opportunity for movers to act”. Bannister also said that he expects the market momentum to continue but with a caveat. He warned of “question marks” over how next month’s Autumn Budget will affect the sector.[8]

Chancellor rejects austerity and pledges capital spending increase

Chancellor of the Exchequer Rachel Reeves has promised that the country will not return to austerity and has called for higher government capital spending. Furthermore, the new government will not enact widespread spending cuts despite previously issuing warnings of a “tough Budget” to fix the foundations of the economy.[9]

The fiscal rules that Labour have pledged to follow are to balance the current budget (excluding investment), and to decrease government net debt as a share of GDP. They aim to achieve the latter between the fourth and fifth year of its forecast. Treasury insiders confirmed that Reeves wanted to ensure that these rules do not block vital government spending.[10]

In a speech to the Labour Party conference, she stated: “growth is the challenge and investment is the solution.” Therefore, she believes that her upcoming Autumn Budget will herald “an end to the low investment that feeds decline”. Economists were more sceptical, however, with several penning a letter to the Financial Times. Lords Gus O’Donnell and Jim O’Neill (former Cabinet Secretary and Cameron-era Treasury minister, respectively) and Mariana Mazzucato (Economics professor at UCL) warned that the current debt rules were responsible for an “inbuilt bias” against investment.[11]

Reeves noted in her speech that she wants to find better metrics to measure the benefits of investment in Treasury planning, with this possibly allowing greater spending on roads, rail, and green infrastructure. The Financial Times suggested using “public sector net worth”, which analyses a range of government assets. The International Monetary Fund (IMF) has argued that this is “more conducive to public investment and economic growth” than traditional approaches.[12]

As of now, the Chancellor has refused to reveal details of what the public can expect in the Autumn Budget but stipulated that there would be some hardship. She cited “a number of difficult decisions around tax and spending and welfare.” However, she also stated: “people understand that there are difficult choices ahead, but what I’m setting up today in my conference speech is the prize if we can bring stability back to our economy.”[13]