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24 Mar 2021
A review of the 2021 Budget
First impressions on the Chancellor’s financial feint.
As I reviewed Chancellor Rishi Sunak’s 2021 Budget, revealed on 3 March 2021, I found myself recalling the 1986 World Cup quarter final, between England and Argentina.
It was not the legendary ‘Hand of God’ goal or the result that came to mind, but a moment when, after 55 minutes of play, the late Diego Maradona collected the ball in his own half and appeared to dribble easily past the majority of the midfield players and defenders across the outfield, coolly scoring past the goalkeeper.
His path to glory thus became arrow-straight, and destiny beckoned once the ball left his foot on the way towards goal.
Though his ball-control skills were admittedly excellent, his true talent was merely to suggest his direction of travel, so that the much-less-gifted players he faced moved aside, obligingly accepting their position as a historical footnote. His path to glory thus became arrow-straight, and destiny beckoned once the ball left his foot on the way towards goal.
And so, to this year’s Budget. Pre-Budget suggestion of increasing tax rates or decreasing thresholds is such a well-used feint by central bankers and politicians alike that we should not be surprised by it. But, because there’s always the possibility that there may be a tweak here or a nudge there, we continue to ponder ‘what if…’ in the lead up to the announcement.
We were, therefore, reassured that Chancellor Sunak remained committed to manifesto pledges to leave unchanged the rates of income tax, capital gains tax, and inheritance tax, and pressed on with his aim to create a stable platform for personal investment planning. That there will be no inflation adjustment to these rates is a disappointment of sorts but given the threatened increases, many will be relieved. Arguably the goal he has scored can be celebrated by all investors.
As a side note that may also interest investors: the shirt worn by Maradona on that day was swapped after the match with Nottingham Forest’s Steve Hodge and is now valued at £1 million, a notional return of 10,000% (based on a generous estimate of £100 for the shirt itself). Meanwhile, inflation has eroded the purchasing power of £100 in 1986 to just £33.90 today.
It’s far more practical to take a long-term view of investment in a diverse range of companies and markets to achieve inflation-busting returns.
Since 1986, the UK’s FT All Share index has produced a capital return of 367% (excluding the generous dividend which constituent companies have historically paid)1. The more growth-orientated US S&P500 index has produced a very respectable 1,440% during this time2. If you’re not one of the lucky few who can swap shirts with footballing superstars, it’s far more practical to take a long-term view of investment in a diverse range of companies and markets to achieve inflation-busting returns.
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|Index Value 20 June 1986||Index Value 5 Mar 2021||Change|
|FT All Share||806.60||3771.00||+2964.4 (+367.52%)|
Source; Yahoo Finance