Bulletin – August 2016

Wealth, technology and debt, debt, debt!

The three issues lamentably missing from all debates pre- and post-BREXIT, and leading up to the US presidential elections, (and we suspect these are also the primary root cause of so much unhappiness leading to random terrorist actions across the world) we believe are as follows:


A lack of wealth knowledge and education leads to protectionism, terrorism, BREXIT votes and a possible Trump presidency, and the huge disparity in material wealth across the world does not help.

We have major elections ahead: Italy is first in October and that could be very revealing as a swing towards BREXIT issues would confirm a changing world; the US in November; and then in France and in Germany within the next 12 months. We must hope that the world might learn from the BREXIT scream, for it came mainly from those who are less well-off than KMG clients, and also from those feeling disenfranchised by global mismanagement and misrepresentation. Theresa May’s opening speech addressed these points and we must hope that a new administration “gets it, and gets it quick”!


The speed of disruptive technology and compression technology (the speed at which what we have adopted is getting quicker, easier to user, more friendly and more efficient etc) is woefully misunderstood and ignored, especially the effect it is having on all our lives. We all enjoy the huge benefits that technology bring but it is taking away employment and consumption and changing what we do and how we do it far faster than we remotely comprehend.

Sadly, we suspect this leads to the misunderstanding that it is all to do with migration and this leads to racism in all its unfortunate forms.

Education is again to blame for we have not prepared ourselves for the rapidly changing shape of society and nor have we invested in a new world. So we sit on a railway line built in the 19th Century, (and now crumbling), looking at an app on our smartphone which tells us that in real time we are stuck because of engineering breakdown, guards on strike and poor people management. The latter being directly related to technology as we no longer need guards, or even drivers, e.g. Docklands Light Railway!


And then there is debt. As I write this bulletin, we are told the world, so far, has $13 trillion of negative yielding debt and as my bulletin last month tried to explain, no government or banking system can, in the end, survive this enormous conundrum for much longer.

Radio 4 produced a programme which you might be able to download, by Martin Wolfe, a Financial Times correspondent. It went out at 9am on Thursday, 21st July. Here are some of its key points:

  • There is a massive shortfall in demand and ever lower interest rates will not address this as is proven over and over again
  • A quarter of the world’s population live in countries with negative interest rates. What is the point of saving if nothing is earned on interest?
  • Large numbers in economic management are thrown around by economists with abandon, but the person in the street thinks about small numbers and they think very differently when it comes to living in the real world!
  • The more the economists get it wrong, the more worried becomes the population of the world who trust neither bankers nor politicians nor economists.
  • Low interest rates and quantitative easing are supposed to be a bridge to somewhere, but as is proven, the current bridge cannot see the other side of what it is crossing.
  • We have not shared technology gains and trade fairly.

Too many zombie companies remain because interest rates are so low that even though the loans are non-performing, no-one has the guts to write them off (Italy being the prime example of this piece in the jigsaw). But this in turn is one of many possible reasons behind lower productivity.

So to solutions:

  • Reduce taxation; this is the same as printing money
  • Invest in infrastructure: develop 21st Century facilities for us all to use, enjoy and be creative; in turn this creates employment, money in circulation, economic growth – eventually – and primarily a sense of well-being.
  • Stop printing money without defined purpose. Allow different counties with different histories to develop different stimulus packages (if there is one sign issue about the single EU currency that does not work it is that Germans are terrified about inflation (1930s etc), while the Italians and Spanish are far more relaxed; yet all of the EU has to follow the German psychological trauma.
  • Finally, despite thinking central banks should be independent of government, they never were, never will be and cannot function other than together.

So, let us hope that Carney and Haldane from the Bank of England, together with may and Hammond can thrash something out for us which might just be a model for the rest of the world to emulate. All eyes are on the UK post-BREXIT. We can either make a go of it or disappear into oblivion.

Patrick McIntosh


Technology and the changing face of the political landscape… ignore them at your peril!

The Arab Spring, Obama’s twin election, BREXIT, Trump’s rise and the Corbyn (UK Socialism) Sanders (US socialism) phenomenon, amongst a host of other political events have, we think, some themes in common. These strange, incompatible yet popular movements are driven by “politics on the streets”. Democracy has been torn away from parliaments and into the hands of ordinary people with apparent ease through platforms such as Twitter, and the following traits are very relevant:

Global connections

  • Between 2004 and 2014 data-flow grew 45-fold, and has now overtaken traditional trade in physical goods
  • It too more than 50 years for the telephone to reach 50m people, radio took 10 years, Apple took five years, Skype just 2 years and the mobile game “Angry Birds”, just 35 days to get 50 million users!

The new multi-nationals are micro: e.g. Alibaba and Amazon. In other words, they are massive organisations trading huge amounts of “stuff” at micro profit margins.

The ageing population

  • The greying phenomenon is also distorting political action: 80% of 60-year-olds voted in the BREXIT referendum against 36% of under 25s!
  • Ageing populations are a drag on global growth, but if you want power it is the grey vote that counts (and how the Remain campaign ignore this point to their peril). The grey vote is the most connected and spends the most time in front of the screen.

The technology takeover and more

  • The steep decline in productivity and inflation is misunderstood as we all become better off spending less and doing less as technology takes over
  • A 30-year-old needs to save twice as much today to stand any change of retiring in good financial health by comparison to 30 years’ ago.
  • As we invest in the future, so we are changing the politicians in whom we invest our vote. Historical complacency and contempt for “the old order” are what the Leave campaign proved by the bucketful.

My thanks go our client John Horley who helped to script this piece.

Patrick McIntosh


The cost of death could just get a whole lot more expensive!

The fee to obtain a grant of probate to administer and estate on death is proposed to increase. Currently, the fee is a flat rate of £215. However, there is a consultation to move to a banded fee proportionate to the size of the estate.

A new tax!

The government needs additional funds to modernise and improve HM Courts & Tribunals Service and the increased fees would help to reduce the public subsidy.

It is proposed that the new fee would only be charged where the net estate is over £50,000. However, the fees would increase up to £20,000 for an estate valued at over £2m.

Proposed fee structure

With the introduction of the new residence nil rate band from April 2017, some estates will be paying less inheritance tax and therefore the higher probate fee will still result in less total charges than would currently be paid today.

However, for those estates where the residence nil rate band is not available or where the value is over £2m and it is tapered or lost, the £20,000 fee will have an impact and needs to be paid by the executors themselves. The executors do not have access to the deceased assets until they get the grant of probate – so they have to find the money for this either personally and claim it back once they get the grant of probate, or, where this causes difficulty, many banks, building societies and financial institutions will allow the executor to access accounts of the deceased for funeral costs, inheritance tax and probate fees. Where there is not enough cash then the bank may allow a bridging loan to cover these.

If you would like to discuss this further, we would be very happy to speak to you and any other aspect of inheritance tax planning.

Suzan Harding


Financial services, and the global world we live in

Whatever the baffling economics and justification for a nuclear power station in Somerset are, one thing stands out: this is in part being funded by the French taxpayer, in other part by the Chinese and with collusion between the governments of the UK, France and China, it rather transcends BREXIT and makes the very real point that by the time this (possible) white elephant comes on-stream, we will have long-forgotten the short-term noise of an EU break up.

Infrastructure, as we well know, (thanks to the Victorians and indeed the Romans) lasts for centuries.

As Transport for London points out recently, the upgrade to London Bridge Station is the biggest project on the railway system since it was put in by the Victorians. Remember we exported railway systems across the world from our experience and expertise developed here in the UK, which leads to my next point:

Financial services: who has more to lose: the EU or the UK?

We used to enjoy 38% of our financial services income from the EU, but this has declined to 33%, and while this is a big number, is it set to decline further?

We all know countries need younger work forces to function normally, yet the EU has a shrinking population and this 33% comes with huge amounts of EU regulations and bureaucracy, and with massive expenses and costs.

Consider this: we enjoy 31% of our financial services income from the US, and 36% of our income just happens as we trade in the world as a leading financial centre. And this is without any of the negotiations and controls we have entered into with the EU.

On the assumption that the rest of the world would like to carry on dealing with the UK without entering in the huge complications the EU has created, it occurs that just maybe we will have as much power to negotiate a good trading deal with the EU as they have with us, and that if the EU is too difficult to negotiate with, it could send the wrong protectionist signals to the rest of the world.

The EU has much to lose, as has the UK, and negotiating skills will be upper most within both parties having a view to the distant future rather than on just the next few years.

Patrick McIntosh

The elephant is in the room

There are 200 words in the Ten Commandments, 1,400 words in the Magna Carta, 6,000 words in the American Constitution, 1 million words in the Bible, and 20 million words – and growing by the minute – in the incomprehensible UK tax manual!

Compression and both disruptive and constructive technologies are about to destroy tax revenue. Just ask for tax simplification and the tax office admit they are throwing pebbles into an ocean.

The divide between what we know and see, and what is possible in political-land means that:

  • We all know the logic, the system is heading towards the buffers very, very fast
  • We are all managing to keep the emotional non-logical side of our brain ignoring the facts… but for how long before revolution as government goes bust?!

Let’s talk BREXIT

Now that the voice of the UK has spoken, we need to come together as a democratic union to ensure all future decisions benefit our strength and economic growth.

Will Britain be better off?

There were many concerned voices raised from government and the media about the financial consequences, should the UK break away from Europe – basically, evolving around money, funding and what free movement of labour really means. Leaving the EU would “wreck the UK economy”. There would be “a downturn because of uncertainty” while other financial experts predicted that we would simply adapt and develop new trading patterns to enable the economy to strike out anew.

Interestingly, some recent figures from the International Monetary Fund (IMF) show that:

  • The UK’s economic growth is better than the USA – we have one of highest economic growths in the world at 2.9% (the USA stands at 2.4%; Japan 0% and the Eurozone at 0.9%)
  • The UK has the lowest youth unemployment in Europe at 13.4% compared to Greece at 48.9%.

Whatever is going on in Europe, it does not seem to be working that well. Jean-Claude Juncker, the Head of the European Commission has actually said that “Europe’s best days are behind us”.

What is staggering is that for all of the emotions it provokes, few people know anything about it. For example, who knows who their own MEP is?

At the end of the day, no one knows how things are going to turn out. Voting to leave the EU may be one of the best or worst decisions the people of the UK have made, and now we have voted, we need to hope that the government and the new Prime Minister will move forward and negotiate the best possible deal for Britain’s exit from the EU.

The real effects will only be seen in hindsight, perhaps many years after the event. But recent investment in Hinckley Point (although now on hold), the purchase of hugely expensive London offices by Wells Fargo and massive investment by the pharmaceutical giant GlaxoSmithkline, all lend real credence to the idea that in the long run, it does not matter after all.

Kate Greenwood


UK versus the world or the digital age cometh

The cycles turn, and history teaches us all. We have seen it before. The agricultural revolution saw millions of peasant farmers displaced from fields as the seed drill, crop rotation and crop breeding programs hugely improved output.

The industrial revolution saw steam engines, spinning jenny’s and factories increase output with a fraction of the manpower.


Well, we are on the cusp of yet another such seismic event, the digital revolution, possibly the 2nd digital age. It does not happen all at once, we have seen machine plants used in car assembly for several decades, but we are at a point where robots, artificial intelligence, driverless cars, algorithms, are spreading.

We will see more. Repetitive tasks, data mining, work in decline, finance and more are all being done with the help of robots.

We should not get carried away, there are innumerable things which are better done by humans, but an increasing array where machines with perfect memories, no need for sleep or toilet breaks are being put to use.

There is a simply enormous range of tasks that can and will, ultimately be automated. Look at the railways, the Unions will fight, but in the not too distant future, trains will not only have no guards, but no drivers either. Cars and lorries will follow.


Work patterns and opportunities are changing for two reasons:

  1. Globalisation.
  2. The digital age.

Much has been made of immigration and the resulting resentment in widespread English towns and villages as a result of lost or worsening life opportunities. I do not think it is immigration and much more to do with these two forces on the economy.

There will always be those prepared to work for less than we would demand ourselves. It is great when it means we pay less for things, but not so good when it impacts us directly, much as you would agree that more house need to be built, but you do not want them near you!

The future is bright

The UK is uniquely placed to take a central role in this, just as we have in the past.

We have some amazing minds, we have brilliant universities with some of the world’s leading scientists and technology developers. The UK leads the world in the internet economy, at 12.5% of GDP (the next closest is South Korea at 8%).

We have more business start ups then ever, up threefold on the average at 600,000.

We have other advantages too; our language is spoken across the world; our central time zone offers a unique position to deal with countries around the world. We have a legal history unparalleled elsewhere.

We need the soft skills to go with it; we need the education system for the future rather than the past. As much as 50% of the jobs done today could be replaced by automation. Just as the seed drill and the plough made millions unemployed, so will digital developments in artificial intelligence.

What we need is the wider education to expand the benefits across society. We need the ability and vision to hang onto ideas to build the truly monumental organisations that are dominating the world’s economy of the future. Perhaps we lack the desire, the ambition or maybe the necessary hard work is too difficult in our cosseted world.

A rebalancing of wealth from West to East is underway, and the pendulum continues to swing one way then the other over the centuries. Perhaps we cannot stop it, but if we are not careful, the change could be a lot quicker than we think.

Nick Matthews