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Investment view

About now, I should be commenting on the measures introduced by the Chancellor in his Budget. This year, we will have to wait until after the start of the new tax year before we learn what is in store. There is nothing sinister in this. The Chancellor&#39s personal tragedy denied him the opportunity to start the investigative process in due time, so the Treasury pushed back the date to allow adequate consultation.

Whatever he says, it is unlikely there will be much in the way of good news for taxpayers. While encouraging people to save for the future remains an imperative, the fact remains that tax incentives on savings and investments are taken up in the main by those who have least need of the relief.

Of more importance is the fact that there are growing and urgent calls upon the public purse at a time when a slowing economy is reducing the flow of revenue. The health service, education and crime have all crept up the agenda as areas requiring further investment. Transport remains a problem – likely to be costly to solve – while defence budget commitments make any trimming there impractical.

One option is to tax the better-off – but an additional,higher rate of income tax breaches the party&#39s manifesto promise and experience suggests this could well have the reverse effect to that intended. The more tax you pay, the more incentive there is to find ways of avoiding it. The better-off have both the opportunity and means to take evasive action, so there is no guarantee the tax-take will increase.

One option, which remains within the manifesto promise, is to restrict the value of the personal allowance to basic taxpayers. Even here, there would be problems. While significant additional revenue would arise – perhaps as much as £3.5bn – it amounts to a flat-rate charge to all higher-rate taxpayers. So the more you earn, the less it represents as a percentage of your total tax bill, meaning those in the middle-income bracket who only just stray into higher-rate tax will effectively suffer the highest burden. There is a general belief that it is just these sort of people, previously solid Tory supporters, that allowed two Labour landslides. Upsetting them will not be high on the Government&#39s agenda.

Of course, tax planning opportunities enhance the role of the adviser whenever the Chancellor tinkers with the tax system. Next tax year is unlikely to be any exception, but there is a window of opportunity – a little over a week – when it will be possible to act before any new rules are put in place. It seems unlikely that Mr Brown will make much difference to the type of action that should be taken but there could be a case for ensuring any tax-friendly savings and investment products are taken up early in the new tax year.

For equity-based products, this could be a sensible investment decision. Although the market is stubbornly refusing to break out of the present trading range, the fact remains that economic news is improving, even if concerns are mounting over the likely attitude of the Bank of England to our own consumers&#39 propensity to spend. Markets will undoubtedly continue to travel through testing conditions for the foreseeable future but the risks inherent in being out of the market are as great as those of being in.

There has been plenty to occupy our attention elsewhere recently. Spread betting has captured the media&#39s attention, as has the practice of giving colourful City characters nicknames. Often the nomenclature applied appears far from flattering but in my experience most recipients are more than a little pleased to revel in the notoriety conferred. I seem to have avoided this form of recognition although I was once nicknamed “Two-lunch Tora” for reasons all too embarrassingly evident. Please – no further suggestions.


Credit Agricole Asset Management – CA Funds Europe Equity Research

Tuesday, 26 March 2002 Type: Sicav Aim: Income and growth by investing in up to 70 European stocks Minimum investment: £0.01 Place of registration: Luxemburg Investment split: 100% in up to 70 European stocks Isa link: Yes Charges: Initial up to 4.5%, annual 1.6% Commission: Initial up to 4.5%, renewal 0.5% Tel: 020 7303 8042

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