Client Weekly Update – Friday 21 October

Prime Minister resigns

Yesterday Liz Truss resigned as prime minister after a record-breaking short stint in office, lasting just 44 days. Her first chancellor Kwasi Kwarteng’s sent markets into a tailspin and the ensuing U-turns, and his subsequent sacking, served only to diminish confidence in her government. After his successor, Jeremy Hunt, dismantled her mini-budget and her economic credibility appeared broken beyond repair.

 Danni Hewson, a financial analyst at AJ Bell, said that it was the uncertainty of the mini-budget that set the wheels for her resignation in motion: “To use a phrase that has no doubt been exhausted in the past few weeks, markets don’t like uncertainty, and losing another prime minister amid a cost-of-living crisis is far from ideal.” 

“However, Liz Truss’ credibility with markets was shattered when her former chancellor unveiled the mini-budget which effectively lit the touch paper on an explosive period for politics, and demonstrated the importance of taking markets with you when it comes to fiscal policy.”

“Sterling received a boost against the dollar on the speculation that resignation was imminent and the yield on 30-year gilts was nudged down, but the reality that number 10 is once again in need of a new inhabitant has led to minute-by-minute fluctuations.”

“With an eye on the future”, Hewson added: “Now the ‘will she, won’t she’ part has been taken out of investor equations, the FTSE 250 has rallied and with the prospect of a firm hand on the tiller, markets are now anticipating the Bank of England won’t have to raise rates as far or as fast when they meet next month.”

Azad Zangana, a senior European economist and strategist at Schroders, has also noted a positive reaction from investors: “The pound has risen against both the US dollar and the euro, while benchmark 10 and 30-year gilts have seen yields fall [and prices rise], outperforming other government bonds on the day.” 

However, he warned of over-confidence, stating that “significant challenges” remain for the UK, including how the Bank of England responds to this period while trying to lower inflation, which last month hit a 40-year high.

Stuart Clark, a portfolio manager at Quilters, saw a small resurgence in sterling as well as in the gilt market after Truss’ departure was announced. He added that this, coupled with the comment from the deputy governor of the BoE that the central bank may not raise rates as high as the market expected, elicits a “steadying feeling” after recent volatility. 

However, he warned that “fiscal policy is still very much up in the air, and with inflation continuing to ravage consumers’ incomes, the economic picture still looks challenging and will for some time, regardless of who sits in No.10”.

Charlie Parker, managing director at Albemarle Street Partners, followed that note of qualified positivity: “Now the attempt at radical spending has been tried and found to fail it will likely be many, many years before it is tried again, by either the left or the right. This reduces the risk of unfunded spending in future from either major party. ”

After markets digest the events of the past 24 hours, all eyes will turn to watch the cavalcade of would-be prime ministers set out their respective stalls – among them is expected to be Boris Johnson, although Hunt has already ruled himself out of the running.

A new prime minister will be chosen by Friday 28 October at the latest, just days before the chancellor is expected to announce his medium-term fiscal plan which could involve a lot of editing between Truss’ departure and her successor’s arrival. 

Just days later, the BoE monetary policy committee will meet to determine how high rates are set to get.

Anyone hoping for plain sailing as this tumultuous year (finally) comes to a close, is out of luck.

Jersey’s Chief Minister defends Island after Sunday Times article

The Chief Minister has defended the Island following a national newspaper article which painted Jersey as a tax haven playground for multimillionaires while others were struggling to afford enough food – but has pledged to be more ‘discerning’ when dealing with future high-value residency applications.

Deputy Kristina Moore said that her government was ‘actively seeking to improve Islanders’ quality of life and that the proposed Common Strategic Policy aimed to raise living standards.

An article in The Sunday Times highlighted the Island’s reputation as a haven for the super-wealthy while pointing out that the number of Islanders struggling to make ends meet and having to turn to food banks was increasing. 

Deputy Moore said: “This weekend, I helped Grace Trust serve their Saturday lunch at St Paul’s Church to more than 50 people who needed the charity’s support, and it was a chance for me to learn more about what government can do to support Islanders with the challenges our community is facing. I know that people in Jersey care particularly about having access to sufficient affordable homes for themselves and their families, and are worried by the rising cost of living.”

“Dealing with these key issues is at the core of our ambitions for this government. People want to move to Jersey because we have a fantastic social and natural environment, a wonderful safe community, and because of our location close to the UK and Europe.” 

“This will not change, and Jersey will remain an attractive jurisdiction. We will continue to value our high-value residents and we want them to contribute appropriately to the Island. We are not going to change the regime for anyone who arrived before 2018, but we have committed to updating the 2(1)e policy so that it can further enhance the economic and social benefits to the Island from a fewer number of applicants in future.” 

“Our approach is to be more discerning. We expect to raise greater revenue from a smaller number of high-value residents, and in fact, we have recently turned a number of applicants down.”

The article in The Sunday Times also questioned Jersey’s tax structures, stating: “The Island’s low tax rates and finance industry may be legal and compliant, but the Island is still enabling individuals and businesses to avoid contributing billions to HM Treasury and the public finances of other nations. Just because doing so is ‘all within the rules’ doesn’t mean Jersey’s reputation remains untarnished.” 

Currently, those offered 2(1)e status pay 20% tax on their first £725,000 of income – totalling £145,000 – and 1% on all income above that amount.

Deputy Moore added: “We are reviewing the 2(1)e regime. Our Government Plan increases the personal income tax charge to the maximum possible of £170,000 to reflect inflation, with all income exceeding £850,000 taxed at 1%.”

“We are reviewing the scheme to change the criteria for new applicants. We recognise that 88 Jersey residents are not part of the high-value residency scheme, who each paid just over £220,000 in tax in 2020 – in other words, they pay the full Jersey tax rate of 20% of their income.”

As of last December, there were 184 people living in Jersey who had arrived under the scheme since 2005. From 2018 to 2020, an average of 19 applications were approved each year, while 23 applications were approved in 2021.

Eligible Islanders urged to get autumn Covid booster vaccine

Islanders who are eligible for an autumn booster vaccine have been urged to get their jab by the deputy medical officer of health. Dr Ivan Muscat said that it was important to appreciate that the pandemic was not over, despite the return to normality, or near-normality, that most Islanders have enjoyed. 

He said: ‘Winter always brings an increase in viral infections such as flu and respiratory syncytial virus (RSV), and also now we have Covid to contend with, so there’ll be a mixture of these viruses this winter. We don’t anticipate any significant restrictions, so people and viruses will be co-circulating, which is what you’d expect.” 

After low levels of flu over the past two winters, Dr Muscat said it was possible that the 2022/23 ‘season’ could see greater activity. This was partly based on patterns seen in the southern hemisphere winter earlier this year, as well as on a late-summer spike witnessed in Jersey.

He added: “There was an earlier peak and higher overall numbers in Australia during their winter, and there was evidence locally here of a rise in cases in September, before the start of the annual vaccination campaign. Numbers here have dropped again during October, but we expect them to go up again later in the winter.”

Dr Muscat urged Islanders who were eligible for an autumn booster vaccine – those aged 50-plus, or anyone with underlying health conditions – to get vaccinated. 

Currently, around 70% of this group have yet to have their jab. “We should not regard Covid as being over and I would urge people to take all reasonable precautions, one of the most important, being, to get your booster if you are eligible,” he said. 

“Those who are over 50, or younger people who are more vulnerable, are at greater risk of more serious illness, and their immunity from previous vaccinations will have waned more significantly.”

He added: “Don’t wait for winter, or for a big wave in cases – if you do wait, then appointments might not be available straight away, and even when you’ve had your jab you won’t be protected immediately. Covid and flu will also have a more deleterious effect on health if they occur together, or in close proximity to each other.”

Damaged ship forces Condor to find alternative sailings for passengers

Condor has had to alter its half-term sailing schedule between the Channel Islands and the UK after one of its freight vessels was damaged in a shipyard. Commodore Goodwill, which is undergoing a month-long biennial check in Spain, sustained damage to a propellor and drive-shaft while it was in a dry dock and will return to service later than scheduled.

The unplanned repairs mean that the company is having to continue operating Commodore Clipper, its freight and passenger ship, on Goodwill’s overnight schedule. Extra high-speed sailings are being put on between Poole, Jersey and Guernsey to try and accommodate passengers originally booked to travel on Clipper. 

John Napton, Condor’s chief executive, said: “Every year we carefully plan our maintenance programme to ensure continuity of freight and passenger services to the [Channel] Islands so the problems caused by the shipyard are infuriating. The damaged equipment has now had to be sent to Scandinavia so the ship will unavoidably return to service later than planned.”

“We do not want to make these changes and are aware of the seasonal weather but are keeping Clipper on the nightly schedule to maximise the volume of lifeline freight supplies into the [Channel] Islands in the mornings.” 

He added: “The autumn half term is a busy travel period and we recognise its importance in the calendar so, through these measures, we are aiming to minimise disruption to everyone. We will be proactively notifying passengers over the next few days who are booked to travel on Clipper and transferring them to alternative sailings.”

Jersey Opera House to remain closed until 2024

The Opera House is to remain closed for another two years – its planned reopening next summer was delayed by 16 months after serious defects were discovered in its roof. 

Economic Development Minister Kirsten Morel confirmed that £11.5 million in the Government Plan – which the States will be asked to approve in December – will allow for a new roof, and for other critical maintenance not included in a refurbishment scheduled for early next year.

But it means that the theatre is now not expected to reopen before the end of 2024, almost five years after its last public performance. 

“As the building has been investigated, we have discovered more work that needs to be done. The single biggest issue is the roof and we had the choice to re-open next summer, but if we did we would then have to close it again in the near future to complete work on the roof,” Deputy Morel explained. 

He said he completely understood Islanders’ frustration about the continuing closure of Jersey’s largest theatre, but added discussions taking place about the future relationship between the government and the Opera House would include consideration of ongoing maintenance funding so that they did not find themselves in the same situation again.

Even though an independent company has been running the theatre since its reopening in 2000, there has been no agreement with the government over responsibility for the fabric of the States-owned building. Deputy Morel acknowledged that the theatre “had not been maintained properly for 20 years”.

Jersey Opera House Limited chairman Pierre Horsfall welcomed news of a full refurbishment:

“The Opera House is a much-loved venue, not only in the performing arts community but for all Islanders. A great deal of work has been happening behind the scenes to reach this point and I am delighted to see the government commit to providing this much-needed funding,” he said. 

While the building remains closed, Deputy Morel said he was hopeful that the Opera House would offer an artistic programme at other venues, organised by an interim director who was likely to be appointed later this year. Such a programme could run from mid-2023 onwards, he explained.

The government has also published a report into the future use of the Opera House, providing proposals as to its future use. 

Deputy Morel said: “Jersey has a wide range of venues and we want to ensure that the Opera House plays a key role as a vital platform and hub for sector development. This report provides us with options which will be considered over time with the industry.”

Mixed markets

European markets are broadly lower today with shares in France off the most. The CAC 40 is down 1.53% while Germany’s DAX is off 1.39% and London’s FTSE 100 is lower by 0.79%.

The Dow Jones Industrial Average fell 90.22 points, or 0.3%, to 30,333.59, the S&P 500 lost 29.38 points, or 0.80%, to 3,665.78 and the Nasdaq Composite dropped 65.66 points, or 0.61%, to 10,614.84.

Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.13%, while the Nikkei 225 led the Hang Seng lower. They fell 0.43% and 0.38% respectively.