Russia’s invasion of Ukraine and the unprecedented sanctions and private sector decoupling are unleashing forces that slow growth and exacerbate price…
Russia's invasion of Ukraine and the unprecedented sanctions and private sector decoupling are unleashing forces that slow growth and exacerbate price pressures. As a result, the geopolitical crisis has become a key force shaping the economic climate. Commodity prices, energy, metals, and foodstuff have skyrocketed. The public health crisis in Europe, the US, and Canada is easing, but parts of Asia are still in a highly contagious vortex. The shuttering of economically large parts of China is weighing on growth and threatening to disrupt supply chains.
US and European equity indices sold off for the first two months of the year but stabilized and rebounded last month. However, the MSCI Asia Pacific Index fell for the third consecutive month. Official comments from China seemed to signal a significant policy shift and spurred some buying, but the CSI 300 still fell nearly 8% in March. Helped by a weaker yen, which bolsters the value of foreign income (not only profits, but coupons, dividends, royalties, profits, and licensing fees) more than exports per see, helped lift the Nikkei by almost 5% to lead the G7 equity markets.
Equities performed well in the face of the sharp jump in yields. The 10-year Treasury yield rose 50 bp in March, the most in six years, to finish slightly below 2.35%. European benchmark yields mainly were 30-40 bp higher. The dollar value of the negative-yielding bonds in the world (Japan and Europe) fell below $3.0 trillion, the least in six years. It stood at $11.3 trillion at the end of last year. Germany's 2-year yield briefly rose above zero for the first time since 2014 but finished March with a negative yield of a little more than seven basis points. Even at this late date, one still has to pay Portugal, among others, for lending to it for two years.
Interest rates have not only surged, but the yield curves (2-10-year) have flattened further in the US and Canada. In the US, the curve finished last year near 80 bp. It halved in January and February and briefly inverted in late March. Other parts of the coupon curve are inverted. The 2-10-year Canadian curve peaked in early January near 65 bp and is less than 15 bp at the end of Q1 22. The UK curve fell below five basis points in mid-February. Since then, however, it steepened back to more than 30 bp, slightly above where it finished last year. It ended March near 25 bp. New Zealand's curve, to round out the G10 that have hiked rates with deep bond markets (excludes Norway), was wandering between 40-50 bp most of the month before breaking down at the end of the month to 33 bp. It was near 45 bp at the end of 2021.
West Texas Intermediate crude oil was trading around $90 a barrel before the Russian invasion and jumped to nearly $126.50 before easing. However, using the 20-day moving average to smooth out some noise, it rose by 18.5% in March 15%, or about $17 a barrel. The Federal Reserve Chair offered a rule of thumb in recent testimony. A $10 increase in oil price boosts inflation by about 0.2% and cuts growth by 0.1%. Europe is more exposed. The 20-day moving average of the natural gas benchmark has risen by nearly 60% since the war began. And the 20-day average price of natural gas in Europe had already increased by more than 40% since the end of last year.
At the end of March, the Biden administration announced that it would sell around a million barrels of oil a day from its Strategic Petroleum Reserve for the next six months. This more than replaces the amount of Russian oil the US has been buying. In early April, other large oil-consumer nations may join. The earlier coordinated release amounted to 60 mln barrels, with the US providing half. A more ambitious effort is needed. At the same time, the Covid-related lockdowns in China and higher prices may reduce some demand.
Fiscal policy may not be as restrictive as previously indicated, and perhaps, an important partial offset to the tightening impulses from rates and energy. In Europe, some Covid-related stimulus will be replaced by energy subsidies, the investment necessary to decouple from Russia, and military expenditures. Japan's Prime Minister Kishida seems increasingly likely to propose a supplemental budget before the July election after the Covid restrictions and earthquake disrupted economic activity. Australia's Liberal/National proposed budget includes a six-month cut in the fuel excise tax, support for first-time home buyers, and an increase in road and rail spending.
Many US states are considering cutting the gasoline tax, and federal action is possible. It might make for good politics, but it is poor economic and environmental policy. Also, in the US, the federal gasoline tax finances the Highway Fund, which seems a bit like eating one's own corn seed. At the end of March, the Biden administration announced a 180 mln barrel drawdown of its Strategic Petroleum Reserves over the next six months or roughly 1 mln barrels a day. . It hopes that other countries make similar moves.
Monetary policy is in flux. The risk is that with price pressures elevated and rising, the US, UK, Canada, and New Zealand may accelerate the pace of rate hikes. As a result, the odds have shifted in favor of 50 bp moves. The swaps market leans to a 50 bp hike by the RBNZ on April 12, followed by a similar move by the Bank of Canada the following day. The Federal Reserve and the Bank of England meet next in May. A 50 bp move is well discounted, but the market is divided about the BOE. After the 25 bp hike in March, the officials tempered expectations by saying that further tightening "might be" appropriate." After the February hike, it said higher rates were "likely." Norway has also signaled a more aggressive tightening course.
The swaps market has brought forward the first ECB move to July from October. However, this would still require ending the bond-buying earlier or changing the sequencing (stop bond buying before hiking rates). The ECB could push back against such expectations at its April 14 meeting. The market also sees the Reserve Bank of Australia moving in June. Previously, the swaps market had priced in an August hike. Sweden's Riksbank acknowledged that it will hike rates earlier than previously indicated (2024). The swaps market is pricing in a hike in September and November, though some banks see the April 28 meeting as possible. It will likely wind down its bond-buying efforts sooner.
The US response to Russia's invasion of Ukraine has boosted confidence in American leadership in most NATO countries despite the handling of the withdrawal from Afghanistan, according to a Gallup survey. In 20 of the 27 members survey, Gallup reported a double-digit increase in the US. Lithuania was the country that showed a decline in approval (to 22% from 28%). On the other hand, President Biden's domestic approval rating fell to its lowest level yet in the latest survey (March 21-22) by Reuters/Ipsos. PredictIt.Org continue to show that the Republican Party is easily favored to capture the House of Representative and Senate in the mid-term elections in November.
There are two European elections in April that garner widespread interest. First, Hungary goes to the poll on April 3. Prime Minister Orban and the Fidesz Party seek a fourth term. Although the opposition parties have united behind a single candidate, and Orban is more supportive of Russia than the general public, Fidesz is running ahead in the polls. A week later, on April 10, France holds its presidential election. It is doubtful that any candidate will secure an outright majority. This will result in a run-off on April 24, where Macron is expected to face and defeat Le Pen again.
Bannockburn's World Currency Index, a GDP-weighted basket of the top dozen economies, edged higher in March after falling in January and February. However, within the components, there was wide divergence. The Japanese yen was the weakest currency, falling by a little more than 5% and reaching levels not seen since 2015. At one point, it was down more than 7%. On the other side, the Russian rouble seemed to appreciate by around a third, though the trading remains distorted by the sanctions and capital controls. The Brazilian real appreciated by nearly 6% to bring the year-to-date advance to more than 17.5%. The Chinese yuan accounts for almost 22% of the index, and it eased by about 0.3%. The euro is slightly more than 19% of the index, and it was flat in March. Among the major currencies, the Australian and Canadian dollars rose (~2.1% and 1.4%, respectively), helped by the strong backing up of their rate, commodity exposure, and the greater appetite for risk reflected in rising equity prices. The MSCI All-Country World Index rose last month rose almost 4% after falling by around 7.5% in January-February.
Dollar: The preliminary indications suggest that although the US economy struggled at the start of the year, it is proving fairly resilient in the face of the jump in energy and food prices and the surge in interest rates. There has been a significant shift in interest rate expectations, despite the criticism heaped at the Federal Reserve. The minutes from the March FOMC meeting, due April 6, are expected to have more color on the timing and pace of the balance sheet unwind. Many expect the balance sheet to begin shrinking as of next month. At its peak, US 2-year yield rose nearly 100 bp last month, the largest increase since May 1984. The 10-year jumped over 60 bp. While the 2-10-year yield curve did not remain inverted (yet), other parts of the coupon curve did as many feared the Fed would not be able to achieve the proverbial soft-landing or lower inflation without driving the economy into a recession. The Fed funds futures market has fully discounted more than 200 bp in rate increases this year, implying at least two meetings with 50 bp hikes. The market sees about a 75% chance of the first 50 bp hike at the next meeting that concludes on May 4. The swaps market puts the terminal Fed funds rate between 2.75%-3.0%.
Euro: There are two knocks on the euro. First is the war in Ukraine. From February 10, when the US warned that Russia was set to attack Ukraine, until a week after the war started, the euro fell by about 6% against the dollar. Europe is vulnerable to the disruption caused by the war and the subsequent sanctions. Stagflationary forces seem particularly strong Second, the ECB will lag behind the Federal Reserve in adjusting policy. This is illustrated by the roughly 50 bp jump in the US premium over Germany on two-year money (to around 245 bp). The ECB's new forward guidance suggests that asset purchases could stop in Q3, widely seen as a precondition for increasing policy rates. The hawks are pushing for an earlier end. This may be the focus of the April 14 ECB meeting. The swaps market is pricing about 50 bp in rate increases before the end of the year. The first round of the French presidential contest is on April 10. Macron is the easy favorite to be re-elected in the second round (April 24).
(March 31 indicative closing prices, previous in parentheses)
Spot: $1.1065 ($1.1270)
Median Bloomberg One-month Forecast $1.1045 ($1.1300)
Japanese Yen: The 10-year Japanese government bond yield rose about six basis points last month, which prompted the central bank to defend its Yield-Curve Control policy cap. The dollar briefly traded above JPY125 as this took place in part because it underscored the policy divergence with the US. Between the Covid restrictions and the earthquake in March, the Japanese economy may have contracted in Q1. The government's budget for FY22 includes more measures to address Covid, an increase in social security, and military expenditures. Nevertheless, a supplemental budget is in the works. It is expected to be around JPY10 trillion (~$87 bln), and the main issue now seems to be whether it is financed out of budget reserve funds or new borrowing. While the economy is likely to begin recovering in Q2, inflation is set to jump starting with the April print as last year's drop in mobile phone charges falls out of the 12-month comparison. This will lift core inflation measures. In addition, rising food, energy, and metals prices pose a negative-terms of trade shock to the world's third-largest economy and boosts headline inflation. We suspect the exchange rate will enter a new trading range. Our initial guesstimate is that it is between JPY119.50 and JPY124.50.
Spot: JPY121.65 (JPY115.55)
Median Bloomberg One-month Forecast JPY120.40 (JPY115.00)
British Pound: Sterling was the second weakest major currency against the dollar after the Japanese yen, falling by about 2.65%. It has lost around a nickel this year, of which four cents took place in March. While the BOE delivered a 25 bp hike, the one dissent favored no change, and in the face of the high degree of uncertainty, it softened its forward guidance. It suggested that further tightening "might be" necessary. In February, it was additional hikes would be likely. The market has fully discounted a hike at the next MPC meeting on May 5. It has about a 20% chance of a 50 bp hike instead of 25 bp. Of course, it is subject to change based on incoming data and official guidance. However, the market judges that the BOE will not keep up with the Federal Reserve, and the US 2-year premium over the UK more than doubled in March to nearly 100 bp, which was around where it was when the pandemic struck. British consumers are experiencing a severe cost-of-living squeeze amid higher food and energy prices and a national health service tax increase (as of April 1). Without extensive fixed-rate mortgages, such as are available in the US, UK households are also more sensitive to higher interest rates. A break of $1.30 could spur a move to $1.2850. That seems more likely than a move above $1.3400.
Spot: $1.3140 ($1.3410)
Median Bloomberg One-month Forecast $1.3200 ($1.3500)
Canadian Dollar: The US dollar set the year's high in early March near CAD1.29 before falling about 3.4% to CAD1.2430 at the end of the month. The greenback lost ground for nine consecutive sessions through March 25, matching the longest drop since 2010 and recording the low for the year. The recovery of a small rate premium to the US, the rally in commodity prices, and the stronger risk appetite helped drive the Canadian dollar's gains. Robust economic data, including a monster jobs report ( ~337k in February and a drop in the unemployment rate to 5.5% from 6.5% and a higher participation rate), and comments by officials encouraged the market, which has almost a 60% chance of a 50 bp hike priced in for the April 13 meeting. The Bank of Canada may also begin allowing its balance sheet to run off. The political arrangement between the Liberal and the New Democrat Party ensures stability for Prime Minister Trudeau's minority government and more fiscal measures. The policy mix trajectory of tighter monetary and looser fiscal policy tends to support the currency.
Spot: CAD1.2505 (CAD 1.2715)
Median Bloomberg One-month Forecast CAD1.2520 (CAD1.2600)
Australian Dollar: The Reserve Bank of Australia signaled that the first rate hike could be delivered later this year, but the market is not waiting. The swaps market sees a hike probable (~85%) in June and definitely in July and almost 170 of tightening by the end of the year. The April 5 meeting will allow the central bank to adjust its forward guidance. Unemployment is at 4%, a 13-year low, economic growth is solid, and while wage growth is modest (2.3% Q421 year-over-year), inflation expectations in March (Melbourne Institute) were twice as high. The rise in commodity prices, especially coal, iron ore, and liquid natural gas, generates a positive terms-of-trade shock for Australia and a windfall for the Australian government. The pre-election (due before May 21) budget provides a six-month cut in the fuel excise tax, support for first-time home buyers, and infrastructure spending for roads and trains. The Australian dollar rose by about 3.2% in March and was the strongest of the major currencies. The gains were recorded in the second half of the month and lifted the Aussie to its best level since last October. Recall that it peaked in late February 2021 at around $0.8000. The $0.7500 area marks the midpoint of the subsequent decline. Technically, there may be potential into the $0.7550-$0.7600 area, but we suspect there is scope for downside consolidation in April.
Spot: $0.7480 ($0.7220)
Median Bloomberg One-Month Forecast $0.7455 ($0.7200)
Mexican Peso: The US dollar high for the year was recorded on March 8, near MXN21.50, and proceeded to fall 12 of the following 13 sessions. This included an 11-session slide, the longest in half of a century. By the end of the month, the dollar was probing seven-month lows near MXN19.80. Mexico's central bank raised rates by 50 bp for the third consecutive month in March. Banxico meets again on May 12, and the swaps market is divided between a 50 and 75 bp move. It has about 160 bp of tightening discounted over the next six months and around 100 bp in the following six months. The peso is also a liquid and accessible proxy for other emerging market currencies and especially those in Latam, which outside of the Russian rouble account for five of the top seven performing emerging markets. The South African rand joins them, and what they have in common are generally high interest rates and commodity exposure. After such a strong run and the coming debate over the controversial electric bill that gives preference to the state-owned utility, the peso may consolidate. This next phase could lift the dollar back into the MXN20.10-MXN20.20 area.
Spot: MXN19.87 (MXN20.35)
Median Bloomberg One-Month Forecast MXN20.10 (MXN20.50)
Chinese Yuan: The US dollar recorded a four-year low against the yuan on March 1 near CNY6.30 and spent the month mostly trending higher. The policy divergence reflected in the collapse of the 10-year Chinese premium over the US from over 100 bp at the end of February to almost 30 bp in late March reduces the attractiveness of Chinese bonds for some investor segments. In addition, Beijing's zero-Covid policy has led to lockdowns in several important economic cities, including Shenzhen and Shanghai and steel and auto-making regions. Chinese officials have signaled a shift from structural reforms to growth, but the market awaits concrete action. A cut in required reserves has been a tool frequently used and could be cut again without warning. However, officials may be reluctant to reduce them much more given the challenges from the property sector and economic slowdown. The benchmark medium-term loan facility rate is 2.85%. It was cut by 10 bp in January after being kept at 2.95% since April 2020. When the pandemic first struck, the one-year medium-term lending facility rate was cut by 30 bp. With less than 1% inflation, there is scope for lower rates. It will be set in the week of April 12. A cut would likely signal a reduction in the one-year loan prime rate, which will be determined on April 19. Q1 22 GDP will be reported the day before. Estimates are around 1% quarter-over-quarter, but the risks would seem to be on the downside.
Spot: CNY6.3400 (CNY6.3175)
Median Bloomberg One-month Forecast CNY6.3540 (CNY6.3800)
Former Project Veritas & O’Keefe Media Group operative and Pfizer formulation analyst scientist Justin Leslie revealed previously unpublished recordings showing Pfizer’s top vaccine researchers discussing major concerns surrounding COVID-19 vaccines. Leslie delivered these recordings to Veritas in late 2021, but they were never published:
Principal scientist at Pfizer, Kanwall Gill in 2021:
“We had no idea how it’s going to look like. MRNA vaccines have been there for 50 years, but nothing went to clinical trial because MRNA have been known to have side effects.”
Featured in Leslie’s footage is Kanwal Gill, a principal scientist at Pfizer. Gill was weary of MRNA technology given its long research history yet lack of approved commercial products. She called the vaccines “sneaky,” suggesting latent side effects could emerge in time.
Gill goes on to illustrate how the vaccine formulation process was dramatically rushed under the FDA’s Emergency Use Authorization and adds that profit incentives likely played a role:
Pfizer's principal scientist in 2021:
“It takes 10 year for a vaccine to come out. It takes years of observations... we are doing everything at the same time."
"It’s going to affect my heart, and I’m going to die. And nobody’s talking about that."
Leslie recorded another colleague, Pfizer’s pharmaceutical formulation scientist Ramin Darvari, who raised the since-validated concern that repeat booster intake could damage the cardiovascular system:
Pfizer's pharmaceutical formulation scientist, Ramin Darvari, in 2021:
“They’re engineering it specifically for me to take the next one, so increasing my consumption."
“It’s going to affect my heart, and I’m going to die. And nobody’s talking about that.”
None of these claims will be shocking to hear in 2024, but it is telling that high-level Pfizer researchers were discussing these topics in private while the company assured the public of “no serious safety concerns” upon the jab’s release:
Vaccine for Children is a Different Formulation
Leslie sent me a little-known FDA-Pfizer conference — a 7-hour Zoom meeting published in tandem with the approval of the vaccine for 5 – 11 year-olds — during which Pfizer’s vice presidents of vaccine research and development, Nicholas Warne and William Gruber, discussed a last-minute change to the vaccine’s “buffer” — from “PBS” to “Tris” — to improve its shelf life. For about 30 seconds of these 7 hours, Gruber acknowledged that the new formula was NOT the one used in clinical trials (emphasis mine):
“The studies were done using the same volume… but contained the PBS buffer. We obviously had extensive consultations with the FDA and it was determined that the clinical studies were not required because, again, the LNP and the MRNA are the same and the behavior — in terms of reactogenicity and efficacy — are expected to be the same.”
According to Leslie, the tweaked “buffer” dramatically changed the temperature needed for storage: “Before they changed this last step of the formulation, the formula was to be kept at -80 degrees Celsius. After they changed the last step, we kept them at 2 to 8 degrees celsius,” Leslie told me.
The claims are backed up in the referenced video presentation:
I’m no vaccinologist but an 80-degree temperature delta — and a 5x shelf-life in a warmer climate — seems like a significant change that might warrant clinical trials before commercial release.
Despite this information technically being public, there has been virtually no media scrutiny or even coverage — and in fact, most were told the vaccine for children was the same formula but just a smaller dose — which is perhaps due to a combination of the information being buried within a 7-hour jargon-filled presentation and our media being totally dysfunctional.
Bohemian Grove?
Leslie’s 2-hour long documentary on his experience at both Pfizer and O’Keefe’s companies concludes on an interesting note: James O’Keefe attended an outing at the Bohemian Grove.
Leslie offers this photo of James’ Bohemian Grove “GATE” slip as evidence, left on his work desk atop a copy of his book, “American Muckraker”:
My thoughts on the Bohemian Grove: my good friend’s dad was its general manager for several decades. From what I have gathered through that connection, the Bohemian Grove is not some version of the Illuminati, at least not in the institutional sense.
Do powerful elites hangout there? Absolutely. Do they discuss their plans for the world while hanging out there? I’m sure it has happened. Do they have a weird ritual with a giant owl? Yep, Alex Jones showed that to the world.
My perspective is based on conversations with my friend and my belief that his father is not lying to him. I could be wrong and am open to evidence — like if boxer Ryan Garcia decides to produce evidence regarding his rape claims — and I do find it a bit strange the club would invite O’Keefe who is notorious for covertly filming, but Occam’s razor would lead me to believe the club is — as it was under my friend’s dad — run by boomer conservatives the extent of whose politics include disliking wokeness, immigration, and Biden (common subjects of O’Keefe’s work).
Therefore, I don’t find O’Keefe’s visit to the club indicative that he is some sort of Operation Mockingbird asset as Leslie tries to depict (however Mockingbird is a 100% legitimate conspiracy). I have also met James several times and even came close to joining OMG. While I disagreed with James on the significance of many of his stories — finding some to be overhyped and showy — I never doubted his conviction in them.
As for why Leslie’s story was squashed… all my sources told me it was to avoid jail time for Veritas executives.
Feel free to watch Leslie’s full documentary here and decide for yourself.
Fun fact — Justin Leslie was also the operative behind this mega-viral Project Veritas story where Pfizer’s director of R&D claimed the company was privately mutating COVID-19 behind closed doors:
BREAKING: @Pfizer Exploring "Mutating" COVID-19 Virus For New Vaccines
"Don't tell anyone this...There is a risk...have to be very controlled to make sure this virus you mutate doesn't create something...the way that the virus started in Wuhan, to be honest."#DirectedEvolutionpic.twitter.com/xaRvlD5qTo
“[…] our findings support the hypothesis that the intrauterine environment, particularly essential and non-essential metals, affect epigenetic aging biomarkers across the life course.”
Credit: 2024 Bozack et al.
“[…] our findings support the hypothesis that the intrauterine environment, particularly essential and non-essential metals, affect epigenetic aging biomarkers across the life course.”
BUFFALO, NY- March 12, 2024 – A new research paper was published inAging (listed by MEDLINE/PubMed as “Aging (Albany NY)” and “Aging-US” by Web of Science) Volume 16, Issue 4, entitled, “Associations of prenatal one-carbon metabolism nutrients and metals with epigenetic aging biomarkers at birth and in childhood in a US cohort.”
Epigenetic gestational age acceleration (EGAA) at birth and epigenetic age acceleration (EAA) in childhood may be biomarkers of the intrauterine environment. In this new study, researchers Anne K. Bozack, Sheryl L. Rifas-Shiman, Andrea A. Baccarelli, Robert O. Wright, Diane R. Gold, Emily Oken, Marie-France Hivert, and Andres Cardenas from Stanford University School of Medicine, Harvard Medical School, Harvard T.H. Chan School of Public Health, Columbia University, and Icahn School of Medicine at Mount Sinai investigated the extent to which first-trimester folate, B12, 5 essential and 7 non-essential metals in maternal circulation are associated with EGAA and EAA in early life.
“[…] we hypothesized that OCM [one-carbon metabolism] nutrients and essential metals would be positively associated with EGAA and non-essential metals would be negatively associated with EGAA. We also investigated nonlinear associations and associations with mixtures of micronutrients and metals.”
Bohlin EGAA and Horvath pan-tissue and skin and blood EAA were calculated using DNA methylation measured in cord blood (N=351) and mid-childhood blood (N=326; median age = 7.7 years) in the Project Viva pre-birth cohort. A one standard deviation increase in individual essential metals (copper, manganese, and zinc) was associated with 0.94-1.2 weeks lower Horvath EAA at birth, and patterns of exposures identified by exploratory factor analysis suggested that a common source of essential metals was associated with Horvath EAA. The researchers also observed evidence of nonlinear associations of zinc with Bohlin EGAA, magnesium and lead with Horvath EAA, and cesium with skin and blood EAA at birth. Overall, associations at birth did not persist in mid-childhood; however, arsenic was associated with greater EAA at birth and in childhood.
“Prenatal metals, including essential metals and arsenic, are associated with epigenetic aging in early life, which might be associated with future health.”
Read the full paper: DOI:https://doi.org/10.18632/aging.205602
Corresponding Author: Andres Cardenas
Corresponding Email:andres.cardenas@stanford.edu
Keywords: epigenetic age acceleration, metals, folate, B12, prenatal exposures
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About Aging:
Launched in 2009, Aging publishes papers of general interest and biological significance in all fields of aging research and age-related diseases, including cancer—and now, with a special focus on COVID-19 vulnerability as an age-dependent syndrome. Topics in Aging go beyond traditional gerontology, including, but not limited to, cellular and molecular biology, human age-related diseases, pathology in model organisms, signal transduction pathways (e.g., p53, sirtuins, and PI-3K/AKT/mTOR, among others), and approaches to modulating these signaling pathways.
Please visit our website at www.Aging-US.com and connect with us:
National insurance, income tax, VAT, capital gains tax, inheritance tax… it’s easy to get confused about the many different ways we contribute to the cost of running the country. The budget announcement is the key time each year when the government shares its financial plans with us all, and announces changes that may make a tangible difference to what you pay.
But you’ll likely be hearing a lot more about taxes in the coming months – promises to cut or raise them are an easy win (or lose) for politicians in an election year. We may even get at least one “mini-budget”.
If you’ve recently entered the workforce or the housing market, you may still be wrapping your mind around all of these terms. Here is what you need to know about the different types of taxes and how they affect you.
The UK broadly uses three ways to collect tax:
1. When you earn money
If you are an employee or own a business, taxes are deducted from your salary or profits you make. For most people, this happens in two ways: income tax, and national insurance contributions (or NICs).
If you are self-employed, you will have to pay your taxes via an annual tax return assessment. You might also have to pay taxes this way for interest you earn on savings, dividends (distribution of profits from a company or shares you own) received and most other forms of income not taxed before you get it.
VAT and excise duties are taxes on most goods and services you buy, with some exceptions like books and children’s clothing. About 20% of the total tax collected is VAT.
3. Taxes on wealth and assets
These are mainly taxes on the money you earn if you sell assets (like property or stocks) for more than you bought them for, or when you pass on assets in an inheritance. In the latter case in the UK, the recipient doesn’t pay this, it is the estate paying it out that must cover this if due. These taxes contribute only about 3% to the total tax collected.
You also likely have to pay council tax, which is set by the council you live in based on the value of your house or flat. It is paid by the user of the property, no matter if you own or rent. If you are a full-time student or on some apprenticeship schemes, you may get a deduction or not have to pay council tax at all.
This article is part of Quarter Life, a series about issues affecting those of us in our 20s and 30s. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.
Put together, these totalled almost £790 billion in 2022-23, which the government spends on public services such as the NHS, schools and social care. The government collects taxes from all sources and sets its spending plans accordingly, borrowing to make up any difference between the two.
Income tax
The amount of income tax you pay is determined by where your income sits in a series of “bands” set by the government. Almost everyone is entitled to a “personal allowance”, currently £12,570, which you can earn without needing to pay any income tax.
You then pay 20% in tax on each pound of income you earn (across all sources) from £12,570-£50,270. You pay 40% on each extra pound up to £125,140 and 45% over this. If you earn more than £100,000, the personal allowance (amount of untaxed income) starts to decrease.
If you are self-employed, the same rates apply to you. You just don’t have an employer to take this off your salary each month. Instead, you have to make sure you have enough money at the end of the year to pay this directly to the government.
The government can increase the threshold limits to adjust for inflation. This tries to ensure any wage rise you get in response to higher prices doesn’t lead to you having to pay a higher tax rate. However, the government announced in 2021 that they would freeze these thresholds until 2026 (extended now to 2028), arguing that it would help repay the costs of the pandemic.
Given wages are now rising for many to help with the cost of living crisis, this means many people will pay more income tax this coming year than they did before. This is sometimes referred to as “fiscal drag” – where lower earners are “dragged” into paying higher tax rates, or being taxed on more of their income.
National insurance
National insurance contributions (NICs) are a second “tax” you pay on your income – or to be precise, on your earned income (your salary). You don’t pay this on some forms of income, including savings or dividends, and you also don’t pay it once you reach state retirement age (currently 66).
While Jeremy Hunt, the current chancellor of the exchequer, didn’t adjust income tax meaningfully in this year’s budget, he did announce a cut to NICs. This was a surprise to many, as we had already seen rates fall from 12% to 10% on incomes higher than £242/week in January. It will now fall again to 8% from April.
While this is charged separately to income tax, in reality it all just goes into one pot with other taxes. Some, including the chancellor, say it is time to merge these two deductions and make this simpler for everyone. In his budget speech this year, Hunt said he’d like to see this tax go entirely. He thinks this isn’t fair on those who have to pay it, as it is only charged on some forms of income and on some workers.
I wouldn’t hold my breath for this to happen however, and even if it did, there are huge sums linked to NICs (nearly £180bn last year) so it would almost certainly have to be collected from elsewhere (such as via an increase in income taxes, or a lot more borrowing) to make sure the government could still balance its books.
There are likely to be further tweaks to the UK’s tax system soon, perhaps by the current government before the election – and almost certainly if there is a change of government.
Wealth taxes may be in line for a change. In the budget, the chancellor reduced capital gains taxes on sales of assets such as second properties (from 28% to 24%). These types of taxes provide only a limited amount of money to the government, as quite high thresholds apply for inheritance tax (up to £1 million if you are passing on a family home).
There are calls from many quarters though to look again at these types of taxes. Wealth inequality (the differences between total wealth held by the richest compared to the poorest) in the UK is very high (much higher than income inequality) and rising.
But how to do this effectively is a matter of much debate. A recent study suggested a one-off tax on total wealth held over a certain threshold might work. But wealth taxes are challenging to make work in practice, and both main political parties have already said this isn’t an option they are considering currently.
Andy Lymer and his colleagues at the Centre for Personal Financial Wellbeing at Aston University currently or have recently received funding for their research work from a variety of funding bodies including the UK's Money and Pension Service, the Aviva Foundation, Fair4All Finance, NEST Insight, the Gambling Commission, Vivid Housing and the ESRC, amongst others.
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