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articles > Weather the Storm
Article > Weather the Storm

Article kindly supplied by

James T Vene
Financial Journalist and Property Investor



The Coalition Government has made it clear that Britain is entering a new era of austerity which is likely to affect the spending and saving behaviour of millions of people. However, a little ingenuity can go a long way towards protecting you from the worst of it. In his June budget, the Chancellor, George Osborne, announced a package of spending cuts and tax rises designed to trim public borrowing by £40 billion a year with tax payers are being asked to make sacrifices worth £8bn a year. Economists are unsure if this medicine will work and believe that while the worst is past as the corner has finally been turned, the road ahead is rocky. Although there are risks that activity will turn down again, the likelihood of a double dip recession has reduced. However, the fragility of the upturn implies that there may be some more unemployment to come, that many businesses will still be operating in a hostile environment and that profits will continue to be squeezed. It is likely that households will have to cope with high debt, rising taxes, slow earnings growth and above average price rises in essential items such as food.

Of course the UK is not alone in its troubles. Many other Countries are in a similar plight to ours and the recent past provides some interesting comparisons. In the 1990s, Canada was on the brink of going bust due to crippling national debt. The Canadian Government imposed harsh public spending cuts in a short time from, similar to Osborne’s in his 2010 budget. Attempted remedies to the economic crises have not yet had enough time to be announced a success or a failure. The Greek Government for example, is trying to reconcile the conflicting demands of the International Monetary Fund, the European Union and its own people to stave off bankruptcy and restore stability and so has suffered strikes and protests over unprecedented budget cuts and reforms. Against the global backdrop it is clear that the UK's approach is unavoidably fraught with risks and uncertainties. The budget was well received but there is no guarantee of success.

So what can we all do to come through this period of austerity in good shape? In times of economic uncertainty, there can be a conflict between what we as individuals should do to protect ourselves and what we should do to support an economic recovery. While every pound we spend helps generate jobs, the cloudy outlook suggests that a belt tightening exercise is more what is needed. Save more, borrow less and spend less!

A Personal Action Plan

  • Look at all your outgoings to see if they can be cut or eliminated. How much do you spend on cappuccinos? Are you using your gym membership? Are you getting the best deal on your energy and communications?
  • Ensure you are paying the lowest interest rates on any loans and credit cards
  • Review savings and investments to check that you are earning the best returns consistent with the level of risk that you are comfortable with. If you feeling less adventurous, you could consider selling speculative investments and replacing them with more cautions investments.
  • Once you have the basics in place, bank deposits, low risk bonds or long notice savings and ISA's then consider equities and other investments. ISA allowances went up in April 2010 so why not use your allowance if you can.
  • A natural haven in troubled times could be found in shares paying high dividends from Companies supplying essentials such as food and energy. If you are unsure what to invest in, Equity Income funds can select these for you. Look also at investments outside the stock markets that are likely to maintain value of the next ten years or so, art and wine for example. Each requires careful selection with the help of professional advisers.
  • Gold is a classic hedge at times like this. While god price is near record levels it may still be worth considering for up to 5% of a widely spread portfolio
While is never a good idea to be driven entirely by tax, do not ignore the June budgets increase in Capital Gains Tax/. If you are selling investments, try to do sp gradually so that you annual gains stay below the tax free threshold of £10,100 for 20105-12. If you are married then consider transferring assets to your spouse so you can both use the annual allowance to your advantage. Gains on wine, art, antiques, jewellery and collectors items have a £6000 CTG allowance, while gains make on cars and exchanging foreign currency are exempt.

All investments carry risk although diversifying should help minimise risk. All investments carry an opportunity for growth over the long term but there is no guarantee of success as their value can go down as well as up. Also remember that the effectiveness of these measures will depend on your circumstances.






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