It’s the season to be jolly careful, if you’re listening to Boris Johnson. The end of 2020 can’t come soon enough for many of us, but the aspects that have made this year so challenging pay no heed to the calendar and they look set to rumble on into 2021. Covid-19 and Brexit negotiations, chiefly.
At the start of the year, many people probably thought they wanted something other than Brexit to dominate the news. Covid-19 has not just dominated the news, it has caused misery for millions across the UK and is fundamentally altering the fabric of our society, all in less than a year.
It’s not all doom and gloom though, and the end of the year is a good time for some perspective and balance because in many ways, the world is far more advanced than it was a year ago.
The good news
On the positive side, the first vaccinations against Covid-19 have happened and will continue throughout the coming months, in what has been an incredible feat of pharmaceutical engineering, dramatically slashing the time it usually takes to design and approve a vaccine. We’ve also seen a rapid push in the use and adoption of technology and millions have been able to see the benefits of working from home and remote collaboration with colleagues.
Depending on which news source you read, and at which time of the day, you might also believe a Brexit deal with the EU is forthcoming too. A comment piece on the outcome of Brexit has been in draft for several weeks as deadlines come and go and, for the time being, it will remain unpublished. However, if there really was no prospect of a deal, you would think that Boris Johnson and the EU would have walked away. The increased intervention of Ursula von der Leyen amid sabre-rattling on the enforcement of the UK’s fishing rights and the Prime Minister’s climbdown on breaking international law in Northern Ireland, suggests that the EU believes it can be done and wants a deal to be done.
We’ve also seen a rapid push in the use and adoption of technology and millions have been able to see the benefits of working from home and remote collaboration with colleagues.
The news cycle in 2020 is such that it’s easy to forget that a few weeks’ ago, the US elected Joe Biden as its next president. For all the hyperbole that Mr Trump generates in the US and some of his notable successes in empowering the conservative right and bringing North Korea to the table, his rumbustious approach to international relations is unlikely to be missed by global leaders and climate campaigners, as Mr Biden looks to repeal the US’ departure from the Paris Climate Accord.
Investors have, by and large, had a fair year in 2020. Despite the lows of March, globally diverse investors are likely to end the year up. The irrepressible rise of technology stocks in the US, and China’s swift recovery from Covid-19 have fuelled a turnaround that seemed unlikely in the days of the first lockdown. This really drives home the value of diversification and time in the market, which was central to our messaging earlier this year. Those who liquidated their investments in March would have missed out on some of the best periods in recent memory for gains.
UK equities and the FTSE 100 have had a challenging year, weighed down by the severity of the UK lockdowns and the balance of the companies in the index, particularly Shell and BP, as oil price wars took their toll. However, as the world returns to a more ‘normal’ state, where travelling and spending in retail and hospitality increases, the performance of the leading UK stocks could improve.
The not so good news
The downside is that it will take some time for the entire population to be vaccinated so the regional Tier system seems set to continue, causing disruption to businesses and knocking consumer confidence. News of a new strain of the virus and rising infections has made the Government sufficiently nervous to move millions of people in England into Tier 4 restrictions, with equally tough measures in place in Wales,. Scotland and Northern Ireland.
A Brexit deal is may continue to prove elusive and a state of limbo could continue into 2021, or the UK could leave acrimoniously. The contents of the deal itself and the impact of it on the UK’s global growth plans will not come to bear for some time either. Key to this appears to be the degree to which the UK can effectively compete with the EU to win international trade without incurring tariffs or other disputes that will sap government time and resource.
The elephant in the room in the fightback against Covid-19 is the cost of it. Not just the headline government borrowing numbers, which are eye-watering, but the knock-on effects of rising unemployment and taxation policy changes that will be required. Capital gains tax (CGT) has been mooted as one change, while a one-off wealth tax has been suggested by the Wealth Tax Commission as the fairest and most efficient means of generating income for the Treasury.
Higher rate tax relief for pensions is another area that has seen a lot of attention in recent months with flat rates of 25% put forward as a solution.
Politically, these suggestions might be palatable to voters, but free market advocates will argue that innovation and job creation is the way out of the public finances black hole. Penalising entrepreneurs could backfire for what seems to be relatively little gain, while the wealth tax is a gamble on those likely to need to pay the tax remaining in the UK’s tax jurisdiction. If the pandemic has proven anything, it’s that working anywhere in the world is possible thanks to technology.
As financial planners, we will be watching this extremely closely as changes could have significant impacts on previous planning assumptions. As soon as we know what’s going to happen, we will act quickly to protect our clients and plan using any new rules that are introduced.
Reasons to be cheerful?
Christmas will be unusual this year but it ought to provide everybody with brief respite from the oppressive nature of the news cycle (even if most of this year’s Christmas cracker gags are Covid-related) and hopefully allow us to enjoy traditions that have not been disrupted by the pandemic, within the rules of course.
Furthermore, once the vaccine programme gathers momentum and the UK’s relationship with the EU is resolved, we ought to be able to look forward to travel and collectively focusing the UK’s power towards improving the lives of its citizens, which seems to have been on hold for years.
Here’s to 2021 being a year of positive change, growth and celebration.