The budget and barbecue seasons don’t normally coincide with each other. However, this July we may find ourselves discussing the Chancellor’s latest fiscal adjustments over a hot dog and maybe a beer (for which the Chancellor abolished the duty escalator a couple of years ago).

Speculation will heat up in the coming weeks as to what measures George Osborne will announce (alongside the usual stream of choreographed leaks). Given that the Chancellor now has a 5-year track record of unveiling fiscal measures it is worth reminding ourselves what he has delivered to date.

At a broad level, there are likely to be strong similarities to his approach to date and what lies ahead. Equally, there are likely to be some major differences such as raising revenue from new sources. With the shackles of a Coalition government removed, the Chancellor will be keen to deliver the Conservative’s manifesto pledges as he unveils the first Tory Budget since Ken Clarke in November 1996.

The Tempo of Austerity

Prior to the 2010 General Election we were warned by the Institute for Fiscal Studies that we would have two Parliaments of fiscal pain. As in 2010, a tough multi-year fiscal adjustment is required. Both the 2010 & 2015 General Elections have acted as speed cameras on the pace of austerity.

Looking ahead, the tempo of austerity over the next five years will broadly mirror what we have seen over the last five. The foot will go down hard on austerity accelerator for next 2/3 years before easing off ahead of the next speed camera – the 2020 General Election.

This is because there is a strong political incentive to frontload the most painful and unpopular fiscal measures. The public expenditure cuts will be deepest in the next 2 years with additional in-year cuts announced for the current financial year. Thereafter, the plan is for a return to real terms public expenditure growth in the run up to the next General Election. Meanwhile the government is also like to accelerate the sell-off of state assets.

The biggest tax changes are expected to be announced sooner rather than later. In June 2010, the “Emergency Budget” that followed the General Election raised the VAT rate from 17.5% to 20%. This was the most significant tax rise of Osborne’s tenure to date. The Tories have pledged not to raise the rates of VAT, National Insurance Contributions and Income Tax rates. These three taxes account for over 60% of all revenue.

Raising Income Tax

While the rate of income tax won’t be raised there is scope to raise income tax (& other taxes) in other ways. The sustained effort to clampdown on tax avoidance will continue. Meanwhile we are likely to see scores of tax reliefs abolished sooner rather than later. To offset this gloom we are likely to see the introduction of less expensive media friendly reliefs.

One of the most significant changes during the last Parliament was lowering the lifetime allowance for pension tax relief from £1.5m to £1m. What radical tax relief changes could we see going forward? A recent editorial in The Economist magazine railed against the current worldwide reliefs / subsidies on debt. One such example is Buy-To-Let (BTL) landlords can currently offset mortgage interest against tax. Perhaps we could see this scaled back / abolished. BTL landlords are likely to see more downward pressure on rents with further cuts to Housing Benefit payments expected.

Outside of the three biggest revenue generators we can expect to see a return to inflation busting rises on alcohol, tobacco, gambling duties etc. Osborne abolished the fuel & beer duty escalators. However, we are likely to see a return to fuel duty increases in the near future.

There is likely to be more focus on raising revenue from Capital Gains Tax (CGT) and property. Osborne radically reformed the Stamp Duty Land Tax (SDLT) and raised stamp duty on expensive properties. The focus on bringing revenue in from buying property could now switch to the ‘sell-side’. Introducing CGT on the primary residence for properties worth say over £1m (the proposed inheritance tax exemption threshold in the Tory manifesto) could bring in significant revenue. Politically it is a tax that doesn’t jar with the “working people narrative” and is more palatable than Labour’s Mansion Tax idea.

Multi-Year Freezes

2010’s Emergency Budget announced multi-year freezes across a number of fronts. Public sector pay (excluding annual increment pay progression) was frozen for 2 years (for those earning more than £21k p.a.) with a 1% pay cap introduced for the three years that followed. A similar approach was applied across a range of benefits (e.g. Child Benefit) with multi-year freezes followed by multi-year caps. Key benefits and tax thresholds were adjusted with a view to reducing public expenditure and / or raising revenue. For example, the threshold for receiving Working Families Tax Credit (WFTC) was lowered from £50k to £40k.

More likely than not we will see another multi-year pay and benefits freeze announced next month with pay and benefits caps for the second half of this Parliament to be announced in subsequent budgets. Budget 2015 confirmed that proposals to abolish progression pay across the Civil Service have been agreed. Further detail on this could emerge on 8th July.

Despite the focus on cutting public expenditure and raising revenue over the last five years, there has been a tax cutting agenda too. The rate of corporation tax has been lowered from 28% to 20% and the 50% income tax rate for those earning over £150k p.a. was lowered to 45%. This move actually increased revenue. Meanwhile the personal income tax allowance threshold has been raised progressively from £6,475 in April 2010 to £10,600 in April 2015.

Looking ahead, elements of this tax cutting agenda are likely to continue. Indeed, George Osborne has pledged that next month will see a budget for “working people”. In their manifesto the Conservatives have pledged to raise the personal income tax threshold to £12,500 by 2020 and linking the minimum wage to this allowance so that no one on the minimum wage will pay income tax at all.

The Tories are eager to build a reputation as the party of the working people. Alongside this they will want to further develop their image as being tough on welfare spending. The last five years has seen significant welfare reforms and the introduction of a Welfare Cap. A further £12bn of cuts in welfare spending is planned. It is likely that in-work benefits will be further scaled back with the potential for a further lowering of both the WFTC threshold from £40k. Such a move, however, would jar with the budget for the “working people” narrative.

It remains to be seen exactly which cuts, palatable measures and tit bits are thrown on the Emergency Budget barbie. But politically and economically, there’s much at stake.

Post by Richard Ramsey, Chief Economist, Northern Ireland, Ulster Bank Group Communications.
An extended version of an article that appeared in today’s Belfast Telegraph Business Telegraph

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2014 saw Northern Ireland’s so-called ‘spreadsheet recovery’ broaden out into a more tangible household recovery, with the return of low inflation alongside modest wage growth leading to a recovery in disposable household incomes. A slowdown in the pace of austerity has also helped, and, in turn, households have begun to repair their battered household finances.

That said, people in Northern Ireland typically have the lowest disposal incomes of any part of the UK, according to figures recently released from the Office for National Statistics (ONS).

Last month the ONS revealed its latest estimates, for 2013, of gross disposable household income (GDHI) for regions and sub-regions within the UK – i.e. the amount of money that all of the individuals in the household sector have available for spending or saving after taxes and benefits have been taken into account.

In 2013, the typical disposable income available for Northern Ireland individuals to spend or save was £14,347. This was the lowest of all UK regions and was 81.7% of the UK average (£17,559) – the widest income gap since 2002. The equivalent figures for England, Scotland, Wales and the North East of England were £17,842, £17,039, £15,413 and £14,927 respectively.

Disposable Income Figures

Back in 2007 Northern Ireland’s gross disposable income per head was 88.3% of the UK average and was above that of Wales (85.6%), the West Midlands (87.3%), Yorkshire & Humberside (87.4%) and the North East (82.6%). However, this improvement was largely artificial, as it was boosted due to unsustainable house price growth being reflected in the income calculation.

Since then, Northern Ireland had a deeper and longer recession than any other part of the UK. Similarly, Northern Ireland’s recovery has been much weaker. Northern Ireland’s disposable income gap with the rest of the UK narrowed during the boom years, but has steadily widened since. Conversely; Scotland, Wales and the North East have narrowed their respective disposable income gaps with the UK since 2007.

Northern Ireland’s average disposable incomes fell in real terms, when adjusted for CPI inflation, for six consecutive years up to 2013. Northern Ireland’s GDHI per capita fell by 11.3% cumulatively over this period, which compares unfavourably with a decline of 4.2% for the UK. Furthermore, Northern Ireland’s decline was greater than that of any of the 12 statistical regions within the UK (the so-called ‘NUTS 1′ classification).

More Austerity

These headlines of the ONS data are likely to be seized upon by those arguing that the local economy cannot take more austerity or implement welfare reform measures. However, it is important to note that headline averages can conceal significant variations at a sub-regional level.

Furthermore, the steep declines in disposable incomes in Northern Ireland are also influenced by a marked fall in imputed rental income, which is linked to the steep fall in local house prices.
Politicians in parts of England, Scotland and Wales could be quick to point out that, according to the ONS figures, Northern Ireland, on average, fares relatively better than many of their constituencies. And that their constituents have also had the full range of welfare reforms imposed on them, with no mitigating measures to alleviate the impact.

Comparing Northern Ireland with the 40 regions that make up the so-called ‘NUTS 2′ statistical classification reveals that South Yorkshire and the West Midlands have marginally lower disposable incomes per head than Northern Ireland.

Going down to the next statistical level – the NUTS 3 classification of 174 regions in the UK – reveals that there are an increasing number of sub-regions in Great Britain that, from a disposable income perspective, are worse off relative than Northern Ireland.

For example, in the East Midlands, both Leicester and Nottingham have GDHI per capita that is just two-thirds of the UK average (NI = 81.7%).

Meanwhile Manchester, Liverpool, Birmingham, Sunderland, Wolverhampton, Portsmouth, Southampton, Blackburn, Coventry, Derby, Blackpool, Stoke-on-Trent, Luton and the Gwent Valleys are some of the other sub-regions that compare unfavourably with the Northern Ireland average.

GDHI Figures

Granted, Northern Ireland also has its own regional variations within its five NUTS 3 regions, with three of the five (Belfast, Outer Belfast and the East of NI) accounting for close to two-thirds of all NI’s total GDHI. Outer Belfast has the highest GDHI per capita in Northern Ireland at £15,208 (87% of the UK average) which is £2,300 above the sub-region with the lowest GDHI, the North of NI (73.5% of the UK average). Belfast and East of NI have similar levels of GDHI per capita at just over £15k (86% of UK average).

Meanwhile after the North of NI, the West & South of NI has the lowest GDHI per capita at £13,357 or 76% of the UK average. It is also noted that Northern Ireland’s GDHI in Belfast, Outer Belfast and the East of NI compares favourably with other city areas in England and Scotland, such as Glasgow and Tyneside.

Last month’s statistical release confirms that Northern Ireland has experienced something of a lost decade when it comes to closing the income per head gap with the rest of the UK. However, a recovery has been in train since 2014 and this should lead to some improvement that will be reflected in future ONS data releases. Disposable incomes have been boosted by the record falls in food and petrol prices over the last year or so, which are not reflected in the 2013 figures. (Although in recent months petrol prices have started to rise again.)

Next month’s Budget is expected to reveal a series of measures (e.g. cuts in ‘in-work benefits’ and increased fuel duty) that will impact negatively on disposable incomes. Meanwhile it also remains to be seen what happens with welfare reform. Again what does or doesn’t happen on this front will have a bearing on disposable incomes.

The headlines from last month’s statistical release could encourage Northern Ireland to wallow in its low levels of Gross Disposable Household Incomes and by extension encourage us to continue to plead special status and apply for exemptions from austerity and welfare reforms. However, it is clear that there are plenty of politicians the length and breadth of Great Britain who can claim that their constituents are worse off than the Northern Ireland average.

Post by Richard Ramsey, Chief Economist, Northern Ireland, Ulster Bank Group Communications.
This post originally appeared in the Irish News Business Insight.

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The digital world is taking over, and your company needs to follow suit. Many businesses are now ditching brick and mortar in order to take their company solely online. Others are ditching traditional marketing tactics in order to use only new digital options.

When it comes to marketing your business, whether internally or externally, it’s very important that you have a handle on the right routes to take. You need to be sure that your business is using graphic design to your advantage. Having a graphic designer on staff, or outsourcing your graphic design needs, will help ensure consistency and attractiveness throughout your marketing collateral, whether digital or print. According to Multi Image Group, an app design and web development company, “The driving force behind decisions is emotion. It’s what makes us human, makes us tick, and defines how we react to different situations.” Using a graphic designer will ensure that emotion is highlighted on whatever type of collateral you want to create.

Graphic design can be used in a variety of different ways throughout your company, and the following are a few options to help you jump on the graphic design bandwagon.

Website

The most obvious place that graphic design will benefit your company is through your website. At this point, your company should currently have a website. If you don’t, now is the time to invest in one, as many of your customers are looking for companies just like yours online.

If you do have a website, you need to make sure it’s branded, user-friendly, and attractive. This is where a graphic designer comes in handy. Your graphic designer will be able to design the website so that it incorporates your company’s branding (colors, fonts, etc.). They will also be able to lay the site out so that it’s easy for your audience to use. A graphic designer will also be able to make the site attractive to the eye. If the site is jumbled or unattractive, your visitors may leave after landing on your site.

Digital Ads

Along with websites, your graphic designer will also be able to create digital ads for your company too. If you market your company on other websites, then your graphic designer will be able to create ads that also represent your branding as well as the messaging you want to use. Having a professional graphic designer create an ad will ensure the piece is much more attractive than it would be if you used just text. An attractive ad will be more likely to be seen by your potential customers, and if you’re using a PPC advertising tool, then you’ll likely earn more clicks and more traffic because of it.

Apps

Many companies are now using apps as a way to market their business and attract their customers. If your company is interested in creating an app, then a graphic designer will be able to help you. You can talk with a graphic designer about what type of app you want to create as well as how you want it look and what you want it to do. They’ll be able to use the information you provide in order to create an app that fits your wants and needs and is attractive and user-friendly for your audience as well.

Print

Even though you may not create as many print collateral pieces as you once did, a graphic designer can still help. They will be able to design whatever type of piece you want them to create with the messaging you want to use. Plus, they’ll be able to add fun graphics or design elements to ensure it doesn’t just look like a boring piece of paper. So if you want a one-page brochure, a booklet, or even a white paper, a graphic designer will be able to take it from bland to grand.

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Last Friday for the first time ever a developed economy missed a repayment to the IMF. As an alternative to a technical default, Greece requested to roll four payments into one for June 30th and hold further credit negotiations. We also saw the worst performance of German ‘safe-haven’ rates since the 2008 recession, and culminated in the worst three-day performance in US Treasuries since the ‘Taper Tantrum’.

Last week concluded with robust economic prints in both the Euro-area and the US; as Euro-area (CPI) inflation bounced to 0.3% after being -0.60% just 5 months prior, and US nonfarm payrolls broke higher to 280K in May and more encouragingly hourly earnings rose by 0.3%, which moved the year on year rate up from 2.2% to 2.3%, matching the upper end of the range that has been in place since 2009. The stronger than expected number brought the year to date job growth over the 1million job threshold, and was the 56th consecutive month of positive readings, a new record of continuous payroll gains.

US unemployment data

While the German bund certainly set the tone through the most of last week, the importance of the US unemployment data cannot be underestimated and leaves the door open for US monetary policy and ‘data dependency’ to drive EURUSD into the end of the year.

For me every new data point brings the US economy closer to a rate hiking cycle with my preference for 2 rate hikes prior to the end of the year the first coming in September followed by a further 0.25% hike in December. The initiation of the rate hiking schedule and improving US economy relative to the challenges in Europe in finding a solution for Greece and the expanding balance sheet from Quantitative Easing ultimately leads in my opining to investors and market participants “Queuing (Q) For (4) Parity” in the last quarter of 2015 (Q4).

Key milestones between spot today 1.1224 and parity are:

1. 100 day moving average = 1.1062
2. 38.2% Fibonacci retracement from the 16-Mar-15 low = 1.0800
3. 16-Mar-15 low of 1.0458 (which is a 12 year low)

EURUSD Performance YTD

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