Our content this month are as follows:-

• Market News Roundup
• What the Papers Say
• Books we have read
• Quotes of the month

Still not a great deal of good news this month. Unemployment is rising with more to come following the demise of Woolworths and the problems at MFI. World markets have rallied a little of late but there remains a great deal of volatility. The major event of the month was the pre-budget statement from Alistair Darling which has aroused very little excitement and was a litany of bad news for most of us. The main points are as follows:

•An increase to the personal allowance from 6 April 2009 by an inflationary amount of £310 and an additional £130 to give a total allowance of £6,475 for people aged under 65.

•From 6 April 2011, the main National Insurance rates are to increase by half a percent for both employed and self employed individuals, to 11.5% and 8.5% respectively. At the same time, Employer's National Insurance will also increase by 0.5% to 13.3%. The higher rates of National Insurance for both employees and self employed individuals will also increase to 1.5%. To further compound the problem, the basic/higher rate income tax threshold will also be frozen in 2011/12. This means that the above inflationary increases in these amounts given now will be compensated for by future freezes.

•From 6 April 2010, the personal allowance for those earning over £100,000 will be restricted. For those earning between £100,000 and £140,000, the personal allowance will be restricted by £1 per £2 of income over £100,000, until a maximum reduction of one half of the full personal allowance is reached. For those earning over £140,000, the personal allowance will be further reduced at the same rate to zero.

•From 6 April 2011, a new top rate of income tax of 45% will be introduced on income above £150,000. A new top rate for dividends of 37.5% will also be introduced leaving three rates of tax applicable to dividends, 10%, 32.5% and 37.5%.

•The higher rates of income tax (45%) and tax on dividends (37.5%) will unfortunately apply to trusts also.

•The lifetime allowance and annual allowance for individuals' pension contributions will be frozen from 6 April 2011 for five years, rather than rise in line with inflation as was anticipated. From then on, the maximum amount individuals can contribute each year into their pension is £255,000. A 40% tax charge is levied on amounts contributed in excess of that limit. Furthermore, the maximum pension pot value cannot exceed £1.8m without suffering a punitive rate of tax when taking pension benefits.

•Gordon Brown announced in his last Budget as Chancellor in 2007 that companies with taxable profits below £300,000 would face an increase in their rate of tax from 19% to 20% from 1 April in 2007, 21% from 1 April 2008 and it was expected that the rate would be increased again to 22% from 1 April 2009. Alistair Darling has now said that the expected increase from 21% to 22% will be deferred until 1 April 2010.

•Buried in the Pre-Budget Report was the statement that the Government has deferred implementing the proposed income shifting rules, which were due to take effect in some form from April 2009. These proposed rules came on the back of the Government's defeat in the Jones v Garnett case (also known as Arctic Systems Ltd). The Government was seeking to implement rules to prevent what it perceived as 'unacceptable tax avoidance' where individuals (particularly spouses in family businesses) can structure their remuneration to maximise the use of lower rate tax bands.

•A temporary reprieve for business rates on empty property for the financial year 2009/10. Business rates are levied where a commercial property is left empty and disused for three or six months. The threshold for when the rates become due has been increased to properties with a gross rateable value above £15,000. The reprieve is set to last a year.

•The Chancellor announced that from 1 December 2008 the standard rate of VAT would fall from 17.5% to 15%. The reduction is temporary and will be reversed from 1 January 2010.

An interesting article in the Financial Times of 15th November concerning the ability of "alternative assets" to do what their supporters say they are supposed to do, i.e. diversify away some of the risk of equities. The article was by Steve Lodge and quoted Graham Harrison of Asset Risk Consultants who said, "Almost without fail, everything that was meant to provide protection, did not". He went on to say that more traditional portfolios of shares, government bonds and cash have had more success and have proved to be the "way to play the bear market". As advocates of the shares, government bonds and cash approach we do not agree that it is the way to "play" the market, but it is the way to sensibly construct portfolios from the outset, maintaining their balance through regular rebalancing.

It was reported in more than one newspaper this month that Barclays, in particular, have detected "strong demand" from investors for guaranteed or structured products. This is of course "bankspeak" for selling these things for all they are worth to unsuspecting investors. We have pointed out before that a City of London Business School research paper concluded that these products have an expected return of 0%, as well as having very high charges, most of which are used to pay high commissions to the banks. The Financial Times of 1st November carried an article from Alice Ross headlined, "Peace of mind product savaged". In the article Andrew Wilson, head of investment at Towry Law comments about guaranteed products, "They tend to be a very expensive way of getting not very much. They are being marketed highly because the banks make money out of them." These products are often sold as near cash and should be avoided by a wide margin.

This month's recommendation is “The Snowball" by Alice Schroeder. It is, of course, the authorised biography of Warren Buffett, the world's most successful investor. He is nothing like an investor and very like a tycoon, albeit one who goes about his business very quietly. He has been enormously successful taking some huge risks when he was younger, which happily paid off. This is the story of a driven man, with a one track mind - money.

Obviously the author has not been chosen to say bad things about Mr Buffett and the book is very long at almost 1000 pages, but it is an interesting read, even if we all know the ending! It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact vickie@indexwm.co.uk.

" A gentleman is one who has too much good sense to be affronted by insults, is too well employed to remember insults, and too indolent to bear malice."
Cardinal Newman

"All I ask is the chance to prove that money can’t make me happy."
Spike Milligan