Should Rachel Reeves keep her tax promises - or just break them?

0:03Welcome to This Is Money podcast sponsored by Charles Stanley Direct. I'm Georgie Frost and joining me and Simon Lambert today is Helen Crane. And coming up, the Chancellor needs money, but is bound by her election promises. So can she fill the 30 billion black hole without breaking them? The IFS thinks she can. Also today, the warnings of the market crash are getting louder. We look at how much you need to save as an emergency fund. Plus, struggling to get on the housing ladder themselves. How a record number of millennials are becoming landlords. Will the renter's rights bill get me out of my tenancy contract early?

0:37And who will win the battle for self-driving taxis? Don't forget you can stay up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. But first, a message from our sponsors. Ever feel like you're second guessing your money decisions? You're not alone. That's why Charles Stanley Direct created their financial coaching service. One-to-one time with a real expert who will help you feel confident about your finances. Start with a free 15 minute call at charles-stanley.co.uk forward slash financial coaching. Go on, take that first step. Remember, investment involves risk.

1:12Now back to the show. The Chancellor needs cash to fill a big black hole and meet her borrowing rules. We have a budget coming up. Who knew? In it, we are likely to get some tax rises. But there are three areas that Rachel Rees absolutely cannot touch, according to Labour's manifesto pledge. That is income tax, national insurance for workers or VAT. Or can she touch them? A leading think tank says there is still a way that the Chancellor can raise tens of billions of pounds more in revenue without breaking her party's election promises. Now, Simon Lambert, you and I just divulged a little secret because this is how we roll.

1:55Last night, we were reading the IFS report, all 41 pages of it. But before we get on to that, Simon, just remind us, why does she need more money? The OBR has come out recently and said, we're in a bit more of a pickle than we thought. Yes. And it should be noted for our listeners that Georgie divulged something else before we started recording as well. And I will say that in my defence, whilst I read the IFS report on the train, I at least only read it in my head. She, on the other hand, was subjecting someone else to it and reading it out to them in a car on a long journey back from Devon. People pay me good money for podcast stuff.

2:39They get it for free. And just to let the IFS know, Georgie is available for audiobooks of 41 page reports. And there is an audible there just waiting to listen to this kind of stuff on long car journeys. Let's move on because otherwise people will have finished their car journeys before we actually get to the point here, won't they? right so the chancellor has some fiscal rules where by the end of the term she needs to not be using borrowing to pay for day-to-day spending and she has made her fiscal rule hard and fast and this is what she found herself trying to sneak in in the spring statement when she left herself a minimal amount of headroom this is what she found herself trying to sneak in under in the last budget when again she left herself a minimum amount of headroom and things have moved against Rachel Reeves.

3:33She's been unlucky and also potentially you make your own luck and she hasn't helped herself. So there are a couple of problems. Firstly government borrowing costs have risen. This is a global problem. This is not just Rachel Reeves's problem but UK government borrowing costs are higher than other comparable countries. Inflation. We had an IMF report this week predicting that the uk is going to have the highest inflation in the g7 that again feeds through into higher interest rates higher borrowing costs there's been a couple of um instances of having to back down on attempts to cut spending one of which was wind fuel announce one of which was the welfare cuts that were made in order to sneak in the numbers for the spring statement and the global environment has changed growth isn't great businesses uh unfortunately have not been investing and have been you know there's been a laying of people off some of that is to do with employer national insurance thing everything like that the big picture here is that unfortunately we are in a situation where growth has not picked up which would have been the thing that rescued us from potentially Rachel Reeves coming back with more tax rises for us in order to now fill a black hole that is estimated to be 30 billion pounds.

4:50We say black hole because these are the Chancellor's words herself, because inexplicably, she came into power as Chancellor, as Labour came into power on a wave of optimism, and then decided to burst everybody's bubble immediately by wandering around talking about Tory black holes. And the black hole phrase has now definitely come back to haunt poor Rachel Reeves. The problem is that as a nation, we are not balancing the books and we're not delivering the growth we need to get ourselves out of the situation where we're not balancing the books. And so the IFS has said, there's a problem and she's going to have to fix it.

5:29Which is interesting because when you read the IFS report or listen to me do it on a podcast, Yes, do let me know if you'd like me to do that. It sort of says, actually, look, things are bad. But there is sort of optimism. According to, I believe, the IMF, actually, our growth is predicted to be higher than sort of our comparators, as it were. You know, while we are at record high tax levels as a percentage of, you know, our economy, our GDP, actually, we've got room for more. That will fill everyone with delight. but before we dig into the weeds of that one is the great quote that's been attributed to Keynes whether he said it or not I don't know but when the facts change I change my mind what do you do sir?

6:09These are self-imposed rules and actually we'll get on to that Labour's manifesto pledge of national insurance income tax VAT they've backed themselves into a corner now why can't you just scrap the rules? Again they are self-imposed The difficulty is and Rachel Rees is not solely to blame for this the Tories did this as well before her in the fact the recent economic history of Britain is one that has involved ourselves painting ourselves into a corner with our own fiscal rules making policy to meet those fiscal rules that is you can go back to the podcast after the spring statement to hear my full rant on this but ultimately based on projections that are guaranteed to turn out to be wrong.

6:57We're making decisions not based on what is right for the country, right for the tax system, and all those other things, but on hitting a number based on forecasts that are five years out and will almost certainly turn out to be wrong. And the greatest possible example of that was in the spring statement, where all of the decisions made in there appeared to be to hit this number and then a week later i think it was donald trump unveiled his tariffs the whole thing blew up and all the projections were completely wrong and it's just it's completely daft and so what we've ended up with and this is something that the ifs report talks about in detail is this tax system where we've just made it progressively worse it doesn't work properly it skews people's behavior it discourages work it discourages investment where there's all kinds of traps in there ranging from the you know the much complained about 60 tax trap on this podcast where there's this insane thing where basically people pay 60 tax between 100 000 pounds 125 000 pounds because their personal allowance is removed and so there is a cottage industry in those people trying to earn less money some of the most productive highly valued members of the economy are actively engaged in trying to do less work and earn less money.

8:16This happens lower down the scale with child benefit. It happens with companies as well. There's a suggestion that basically due to the VAT exemption limit, small businesses deliberately try to have lower revenue in order to not go over it. And so they don't grow their business because otherwise they're going to have to do VAT. There's all kinds of things going on. And one of the big problems is because we have shifted the burden onto a smaller number of taxpayers. So basically middle earners and lower earners pay a lower proportion of their wages, income taxes and national insurance combined, than they have done for many, many years.

8:53Like the untold story of the Tories was that they basically they taxed the lower and the middle paid less and they taxed the rich more. It's the opposite of the story that gets put forward. When we've taxed, tax the higher earners more. But there's a limit to how much you can keep doing that without starting to really skew people's behavior. And I think we passed that limit some time ago. So then we've also started tinkering around the edges, doing weird little things around the edges with weird little taxes. We're going to talk about it in a minute. But anyway, the Chancellor and the Labour Party, again, inexplicably promised not to raise the main rates of income tax, national insurance contributions or VAT in their manifesto.

9:31This was off the back of Jeremy Hunt cutting national insurance twice. Right. The first one we couldn't afford. The second one we definitely couldn't afford. And it was blatant electioneering. If I was the Labour Party, I would have just come back in and reversed it. Right. OK, gone. I'm sorry, we can't afford this. We couldn't afford the first one. you can keep the first one you can't keep the second one just reverse the second one but instead they said we're not going to raise these these rates of tax so what they've done is we're going to have like you know oh we're going to like fiddle with capital gains tax here we're going to fiddle with inheritance tax here we're going to fiddle with this tax here we're going to fiddle with that tax there you know then there's talk oh we'll hit the numbers with by freezing the thresholds a bit more so that we just drag more fiscal drag and they don't go up by inflation all these kinds of things just create a bad tax system and we have now reached the point where i don't think the tax system can take much more of that and that's the general point that the ifs is making this report because the report we're talking about here is when they put out the start of the week which basically was how she could raise the money she needs to raise without breaking her promises and the thing i took away from reading the majority of that report i didn't read the whole thing I didn't have George.

10:40It comes out now Simon. The train journey ended okay I had to go home it was eight o 'clock at night but the thing I took away from this was it's basically saying just because you could doesn't mean you should just because you could fill that gap by fiddling around the edges and not breaking your promise doesn't mean you should do that and I think And actually, that's the story of the British tax system over the past 15 years. Go all the way back to like 2010, possibly before that, actually, because some of this stuff comes from before then. Like, you know, almost all the way back to the financial crisis, I would say.

11:18It's a story of just because you could doesn't mean you should. And we've been ignoring that for a really long time. And we've ended up with quite a bad tax system. Exactly right. Right. And this is, I think, in sum, what this report was saying is that, you know, for goodness sakes, just don't make the system even more complicated, which is what seems to have happened. And it's sort of there's so much about this report which talks about the law of unintended consequences. And it seems like politicians at the moment and of recent past have just gone A plus B equals C. Well, we know that that's not the case.

11:54It's not that simplistic. Before we delve even deeper, though, and sort of look at some of the solutions, which seems to be an overall holistic decomplication of the tax system. Helen, who are the IFS and why should we care what they say anyway? Yeah, good question. So the IFS are a think tank. They say they're a independent, non-political think tank. I think I'm right in saying people think they're slightly left-leaning, the IFS. I heard them described the other day as carefully middle of the road. I'm never sure what we can say about think tanks anymore. I think they have been described as left-leaning.

12:36They'd say that they're very, very straight down the line and non-political. You know, we've had all of these kind of organisations coming out the woodwork in recent weeks to give their advice to Rachel Reeves on the budget. I think, you know, it is worth looking at what they've got to say because they obviously spent all their time delving quite deeply into the economy and working out how different things could work. And also the knock-on effects of these measures, as Simon says, you know, if you raise a tax, it isn't just bringing in more income. There's a bunch of different sort of knock-on effects that can have on people's behaviours.

13:12So, you know, these people are paid to think about these kind of things. I think one thing to say is they can kind of say, well, like, they never have to actually bring in these kind of policies or take any sort of responsibility for it. They could have some quite kind of wild ideas, but they are kind of listened to by the government. We've heard before when we've been talking about things like the stamp duty potential changes that people have talked about over the last few weeks that, you know, there was this economist at a think tank that wrote to rules have been listening to kind of quite closely.

13:43So, you know, they can be quite influential. So, you know, it is all kind of a bit of a pie in the sky thinking, but I think it's worth listening to their ideas. All right, then, Simon, let's listen to their ideas. So basically, we know, and they gave us a lovely little pie chart of how much money comes from those big main taxes, the Income Tax, National Insurance, or VAT. The next tranches like corporation tax, business rates, council tax, and one other, can't remember. It was a long career journey. It's a long report. but even problems with trying to raise money there. So what exactly did they suggest?

14:19How on earth can the Chancellor get herself out of this sort of muddle that we seem to find ourselves in? Yeah, so it basically highlights that those three big taxes account for two-thirds of total tax revenue because they are levied on very large tax bases. It also talks about the ones under that. She's also quite limited in her ability to raise. It says what is perhaps less well known is that Miss Reeves also faces significant constraints if she wants to raise money from any of the four next largest taxes, corporation tax, council tax, business rates and fuel duties. Fuel duty, that was it. She's made pledges that rule out raising the main corporation tax rate and has signaled an intent to make revenue neutral reforms to business rates.

15:04then also there's the point that council tax and fuel duties are already assumed to rise significantly across the parliament meaning that even greater increases would be needed to improve the public finances so in a in a really quick snapshot of what it says she could do and to be clear the ifs says as an illustration brackets but not a recommendation the not is in italics just to make it clear if that was us we'd have done it in capitals just to be clear and maybe in bold right but you know carefully middle of the road the ifs not us we'd shout the word not at you right absolutely as an illustration but not the recommendation she could raise 20 billion if she introduced a new council tax surcharge that acted to double council tax rates on ban g and h properties 4.4 billion abolished the residents nil rate band within inheritance tax 6 billion increased the bank surcharge to 6 percent 1.2 billion ended forgiveness of capital gains tax at death 2.3 billion abolished business asset disposal relief 0.9 billion and reduced the small companies tax gap by 5 billion this is where smaller companies are taxed less than large companies but if the chancellor wants to raise large sums and wants to do so without having to raise many smaller taxes she will likely need to turn to a tax on a larger base and therefore break at least in spirit her previous pledges now just to go through some of those things right very clearly that list of taxing people is going to fall on certain shoulders right and it's going it would get accused of effectively being wealth tax via the backdoor and maybe that's you know what we're going to try and do a council tax surcharge that acted to double council tax rates on band g and h properties now council tax is a is a weird one and it's something that i think we should dig into properly in a future podcast but it's like what do you do about problem like council tax there's this issue where it's based on valuations from 1991 but obviously it's a bit of a red herring that because the amount of money you pay in council tax has gone up it's not you're paying the same amount as you were in 1991 it's gone up a lot since 1991 and broadly speaking in most areas a house that was amongst the most expensive and largest properties in 1991 is still a house that's amongst the most expensive and largest properties in 2025 but that has shifted around a bit you know areas change um people have you know extended houses developed them and everything like that the real issue is that what you've got is you've got people in band h homes you know that then are paying the same amount as people in band h homes that are way way way more expensive and far oh yeah i am worth a lot more money but to the issue with this right is so my house is in band g right now i our house is substantially bigger than it was when we bought it we pretty much built a new a new house we knocked it down built a new house built a house a couple of years ago right now in theory you could say well you mr lambert are exactly the kind of person who should be going up accounts tax band the problem is is that when the valuations were done in 1991 for some reason our house was put into banjee and when we bought it and i don't really understand this it wasn't a particularly big house all the houses in the area in banjee our house was like a much smaller house than a house on the road next to us which is also in band g so why did they both go into the same band and if you move me up a band the only place i've got to go is band h and there's a house like on a road you know around the corner from me um quite a way around the corner just to be clear that would also be in band h and that's worth about two million pounds more so right why hang on that wouldn't be very wouldn't feel very fair on me Now, I understand we can't just make tax policy for what's fair on me, but I'm not alone in this position.

19:32This is a situation that would play out over and over and over in the country. But then also, even if you just kept them the same, which is what the IFS is talking about here, and doubled council tax rates, we pay£4 ,000 a year in council tax. i can't afford to pay eight thousand pounds a year in council tax i can't afford to pay another four thousand pounds a year in council tax like that it's like the four thousand pounds a year in council tax is already a lot of money every month coming out of council tax i can't afford to pay twice that my mortgage has just gone up by 500 quid and you're going to see that play out again and again and again abolish the residence nil rate band with the inheritance tax well i mean the problem is that the inheritance tax thresholds have been frozen for a very long time In fact, the only reason they've gone up is due to the addition of this extra fiddly residence nil rate band.

20:24Really, that should just be folded into the existing inheritance tax threshold. And you just have one and it doesn't make any difference. But you'd effectively be taking the inheritance tax free amount down from the one million pounds to 650. Now, that would be a huge cut and that would lead to a massive backlash for many people in large parts of the country. It wouldn't make any difference. but for people in a whole big chunk of the country where houses are expensive it would make a huge difference and they'd definitely be doubly unhappy if they'd also just seen their council tax double um increasing the bank surcharge banks are making really big profits people are saying we should tax the banks more you know maybe we should i i don't know but the problem is is then what happens when they stop making the profits for what you know we've got a mini stock market panic at the moment this morning due to some smaller u.s regional banks going on you know they might banks might be making lots of profits at the moment but like you don't have to look back that far to a point when banks weren't making lots of profits and the difficulty with these taxes that target certain sectors is they do have a habit of kind of skewing you know business behavior and things like that ending forgiveness of capital gains tax at death basically when somebody dies and passes on assets capital gains taxes is is wiped but the difficulty is is if you're then adding inheritance tax on top of that and you've just lowered the inheritance tax limit by the way then you're delivering like a double taxation thing so it's like well you know i've got some shares that i've held for the last 20 years and i die and they pass on to someone and there has to be capital gains tax charged on the rise in value over the last 20 years oh and there's going to be 40 tax levied on that as well then you've got abolishing business asset disposal relief that's not going to be popular and reducing the small companies tax gap by five billion pounds that involves getting small companies to pay the taxes that they owe because they reckon that there's a large amount of smaller companies that are under declaring and that there is this ginormous tax gap but again anything based on doing that kind of thing is always very difficult to make succeed and often tends to deliver less money than is thought and if you just to compare this to what you get from changing those big taxes.

22:42The IFS says if you increased all rates of income tax by one percentage point, it would yield an estimated 10.9 billion a year by 2029, 2030, with the bulk of the revenue coming from increasing the basic rate. Increasing individual national insurance contributions, so workers' national insurance contributions by one percentage point, would yield 8.5 billion a year by 2029, 2030. it's a bit less than income tax because not everybody pays national insurance because you don't pay it for example pensions don't pay it you don't pay it on savings interest you don't pay on rental income and so on uh increasing the main rate of vat by one percentage point would yield 9.9 billion pound a year by 2029 2030 so actually if you add all of those together and you just added one percent to income tax national insurance and vat you'd get your 30 billion um you'd also be incredibly unpopular and you'd manage to like definitely mark on that promise.

23:39And that's assuming no behavioural changes, etc. So it probably won't bring in quite as much. What was interesting is it did suggest perhaps pensioners paying national insurance, because currently when you're at state pension age, you don't pay national insurance and your employee income. And actually what it was saying was in the past when national insurance was linked to the benefit of state pension, etc. It's contributory, it sort of made sense. But really, we've become so far away from that, it's just a second income tax, then actually, is there any justification anymore for not having people of state pension age who are still working, not paying national insurance?

24:12But Helen, look, in sum, shaking it all up, taking a look at what the IFS have said, what's the big kind of takeaway, assuming that the Chancellor's not going to commit political suicide and break her election promises, unless she can find some sort of convoluted way like she did with the national insurance on employers way of explaining it. But what is likely to happen? What have they basically said? Reform the tax system? Yeah, great. Good idea. Not have an almost 35-year-old outdated council tax system? Yeah, brilliant. Get on with it. Well, I think that's the thing, isn't it? You know, they've obviously suggested that there should be this huge shakeup.

24:55And, you know, I think that's right. We talk all the time on this podcast about things that are wrong with the tax system and that could be changed. It would be great if they could do it. But I just don't think it will happen for several reasons. I mean, to do a huge shake up of the tax system, A, the government would need to hire more people to work on it. You know, the huge undertaking to change all these taxes, they'd have to hire more civil surveillance, more advisors, people would hate that people hate to see the size of the government kind of increase. So that would be the first difficult thing.

25:27And I think also, bluntly, you know, this would take a long time. And are Labour still going to be around in four years time to finish this work to even kind of get started on this work to see any of the benefits of it? I think their kind of position is a bit too shaky to really undertake this massive kind kind of reform because it won't, I mean, it won't get done. They won't, they probably won't be around to kind of see it be finished. And I think it's a difficult kind of thing to sell to people as well, because policy wise, if you're saying, you know, we're going to reform the tax system, that's not the same thing as saying to people, you're going to pay less tax.

26:07And that's very politically popular. They're kind of saying we're going to make the tax system fairer. But I think that's difficult to explain to people who aren't people like us who know a lot about taxes and policy and you know care about think tank reports about these kind of things yeah i think it's difficult to sell to a normal person oh we'll make make the tax system feel fair well what does that mean what are you saying specifically to people because a lot of these taxes uh you know aside from if they don't change income tax and national insurance and vot they're taxes that only crop up every now and then in your life right so you know stamp duty capital gains tax you know it's difficult to say to someone oh yeah well when you move house though you'll pay less taxes i don't know when the next time i'm going to move house is going to be so that doesn't kind of matter to me right now i think it's just a kind of difficult policy sell to say we're going to make loads of different small changes that might kind of affect you at some point in your life but probably not now and yeah i think the whole thing is very very tricky aren't you just simon not raise taxes because i know i've sort of gone around the houses on this one but i just keep thinking just let things lie for a little bit just have a do it chill out take a day off maybe you know we know that things like the bond markets and all that bond market vigilantes and all that they don't like huge changes and stuff so just just chill have a day off just have a duvet day so do you know i mean just i thought about it i read this report says rachel but i just thought nah not to go back over old ground but the problem is is that we're now in a situation where the chancellor has to be seen to do something because the chancellor one of her first moves was to draw lots of attention to a problem with the uk's public finances and until she did that nobody had a problem with the uk's public finances i mean that's not to say that they wouldn't have developed one over the like intervening period but you know bond investors weren't overly concerned markets weren't concerned about you know the uk and in fact they quite liked the new government when it came in and and that was we squandered that and we then now found ourselves in a position of constantly trying to play catch-up and the concern is that if rachel reese doesn't do something to balance the books then you know there's the worry of a list trust quasi-quarting well isn't that the point but that was exacerbated by issues to do with pension funds and esoteric pension investments and specific problems in the market at the time um however you know we are in a situation where inflation is above target we're forecast to have the highest inflation we are in a situation where the premium we pay for borrowing and government debt is higher go back a couple of podcasts if you want an explanation of of guilts and government of borrowing um we are paying a bigger premium um than other comparable countries and there is a concern if we don't do that then basically bond investors are going to go do you know what you need to pay me more money in order for me to lend you more money because we are issuing quite a lot bonds at the moment and that means that we're then going to have to pay higher interest rates which is then going to feed through to the bank of england struggling to cut interest rates itself which is going to feed through to higher mortgage costs nobody wants to see the kind of mortgage price spike that we saw after that Liz Trust quasi-quieting budget.

29:32Again, there were external factors going on there. So we painted ourselves into a corner. We put ourselves in a position where we can't do the right thing and say, do you know what? We should just bide our time because actually it would be more damaging to the economy to make a series of iffy tax rises than to just go, do you know what? We're going to wait for things to turn around. When growth does pick up, we will do better the problem which she's also got is that the obr is probably going to downgrade its productivity forecasts which have been notoriously over-optimistic and having been called out on it the obr is going to lower those and that that's creating another bit of this problem but yeah arguably the best thing to do would be to just go do you know what i'm just not going to do anything exactly just now it's a big look at the tax system there you go we will look at it consultation governments love those sorts of things i think anyway is this if that That wasn't sort of bad news, you know, tax rises and all that coming down the line.

30:29There's sort of that little thing of maybe some market crash that we've talked about. And the echo of experts saying troubled times ahead for our finances seems to be getting louder. The market wobble that we saw last week was a reminder, said one expert in your article, that share prices can often become volatile in the latter phases of a bull market. Gave comparisons, as we've spoken about before. The same happened, of course, 25 years ago in the final year of the dot-com bubble. We saw big gyrations in prices there. Good news is, though, that forecasters aren't expecting an immediate crisis.

31:02But for those who have significant sums invested, Helen, it might be worth taking stock of their finances and how much money they've set aside for a rainy day. This is about cash, having a bit of cash when markets are on the way down. Exactly. So I will say when I was editing this article earlier in the week, the initial headline that we had on it was, is it time to start doom prepping your finances? Doom prepping is when you're those people who kind of prepare for the end of the world. So the people got a basement with bottled water and tinned food and, you know, water purifiers and all these things.

31:44So when the world earns and we're all kind of living in a cave somewhere with no electricity or money. I don't think it's quite that bad. Just to say, I don't think we're doing prepping for the end of the financial world. um however as you said there has been uh these stories over the last week or so about you know tough times in the stock market ai bubble and i think what we're saying here is it's not armageddon um but it's a good time to have a think about if you do have a lot of money investments uh if you take income from investments so for example if you're drawing an income from your pension or um dividends or you just have a lot of money kind of invested in general it's really worth thinking about how much you hold in cash your rainy day fund your emergency fund and whether you've got enough there to just kind of ride out a bit of a kind of down in the market so this is some some stats that have been put together on how much you need in that emergency fund so I think generally the advice that we've said before is you're spaced out if you're a person who's working and not retired it's essentially you need three to six months of income put aside just in case you lose your job or something happens just so you've got that kind of backbone to to get you through however if it kind of depends on your situation so you know if you're retired maybe you need a bit more to kind of ride this out so what we've got got here is some statistics from um harvey was lansdowne and they've calculated exactly how much you need in that emergency fund kind of depending on where you're at what your regular income is um because you know it depends on the life you're used to living right so if you have quite a heart what you consider an essential might be more than someone who is on um a lower income so the way that they say you should work this out is to basically look at what you earn now, calculate your essential kind of expenditure each month, and then work out kind of how much you might need that for, say three months, six months, or if you're retired, maybe a year or three years, because obviously you're not bringing in that kind of new income.

34:02So a minimum, someone whose household income is less than£15 ,000 a year, and they need three months worth of essential spending, that might be just£2 ,332. But the other end of the scale, if you're used to having a big income of more than£150 ,000 a year and you want enough backup money for three years, that could be almost£250 ,000. So huge range. Yeah, they're the numbers that have been run by Hardways and Lansdowne. So do take a look. It's just good for giving you an idea of what that backup fund should look like. should things kind of go a bit wrong. We should have one anyway in case things sort of go a bit wrong.

34:43But Simon, assuming that one can't save, I don't know, tens of thousands of pounds in the next few months before we have a big crash, is it worth taking money out of your investments at the moment if they're riding super high? What's the thought there? If people are tempted to go, oh my God, I need a bit of cash, haven't got it available, got a fair bit in my investments, let's take some money out now so i've got some cushion well i mean it's all about time in the market not timing the market as the old saying goes however you know if you've made a load of profit on something and you are of the opinion that things look a bit bubbly a bit toppy that they might come you know crashing down and that you would rather take some of those profits from that investment than see it fall by 10 20 30 for example then there's nothing wrong with taking some profits you can still remain invested within it you don't have to sell the entire investment so say for example you've got an individual stock right that has gone up by a huge amount say you were someone who was lucky enough to have invested in nvidia a few years ago and sitting in your investment portfolio, you've got the word NVIDIA with a really big number next to it in green, indicating that it's gone up a lot.

36:14You might think NVIDIA is the world's largest company. It's one of the world's best companies. It's making an absolute ton of money. But you might also think, it's also like right at the center of this. And is it priced for perfection? is there a scenario where nvidia disappoints and that share price fall substantially it's up roughly 30 this year for example and if you've held it for a couple of years you're going to be up a huge amount you might think well do you know what actually i'll take some of those profits because actually also nvidia might now be a really big part of your portfolio um i mean nvidia is a really big part of the global stock market but you know if nvidia is 10 of your portfolio for example 20 of your portfolio because you got really lucky and you held it you bought it five years ago and you're up 1216 percent um then it probably might be time to think about taking some profits but the same is true of a fund you know for example if you've got an s &p tracker and you've held it for a few years and it's uploads if you've got a global fund and it's up by a lot you might think okay well i might just take a bit of profits and move a bit of money into something else you might go for something more cautious um be a more defensive investor last week we talked about that on the podcast to listen to that for more detail or you might just think i might go for something a bit cheaper a bit a bit less you know pricey that's that might be more undervalued i might go i'm going to put a bit more into the uk stock market i'm going to put a bit more into a fund investing in the Japanese stock market.

37:48Or you might just go, do you know what? Actually, I'm an investor who believes in doing the simplest possible thing and remaining involved in a broad global stock market tracker. And I'm just going to stick with that. And if the market falls, the market falls because the market will go back up. That's it for part one.

38:12I'm joined now by Rob Morgan, Charles Stanley Direct for our weekly Investing Explained feature. Rob, we have a question here from a podcast listener. I'm 34. I've been paying into my pension from the age of 17, mostly matching what the company contributes. Recently, I've upped my contribution even more. So I have a healthy pension pot gathered up already. During COVID, I also got into investing and put money away every month into a stocks and shares ISA, which I knew about investing earlier, our listener says. I have a good amount built up in that also. I'm coming to the end of my five-year fixed rate mortgage and in between fixes can pay off a lump sum without any penalties.

38:51My question is, would I be better selling my ISA shares to pay off the mortgage in full and then invest more monthly in the future or keeping the mortgage and keeping hold of the existing shares and investing more on top of that pot now that's quite a long question and before you answer it i should obviously say that it is not financial advice here that you are giving you are merely responding in general terms to what this kind of question would mean for someone the floor is yours rob yeah thanks simon i think this is a common dilemma really facing a lot of homeowners who are also investors and i and the answer you know i believe lies as much in your own feelings and how much risk you're happy to take as it does the mathematics.

39:37Much will depend on the rate of the mortgage, the interest rate. Lots of people remortgaging right now previously secured some good low rates in the midst of the pandemic when interest rates were cut to rock bottom and they're now facing a higher cost on their debt generally. So for sure you'll save thousands of pounds potentially in interest by paying off the mortgage. at the same time that comes with an opportunity cost so in other words had you invested the money could you have achieved a return in excess of the interest on the debt and investing especially in well-managed and growing companies has historically at least been a reliable way to grow wealth ahead of interest rates and ahead of inflation over the longer term at higher mortgage interest rates there's arguably less of an opportunity cost it's one thing bettering a two percent three percent interest rate say with investment returns especially if they're they're tax-free in an ISA but if you if you're needing to get sort of six or seven percent consistently that's that's a lot more difficult so the higher the interest rate the more it makes sense to repay the mortgage but assuming the interest rate is reasonable I would say generally the mathematical answer is to to keep the mortgage keep investing for the long term and I think you do need to commit for the long term and in your 30s you do have that opportunity and that's so that compounding really works for you there's more chance of a positive return than say over a short-term period for let's say less than five years and invest sensibly of course without taking excessive risk so make sure you have a diversified portfolio and that's certainly the case based on history although we have to point out that history is not necessarily a guide.

41:18So I think all that's reasonable, but you do need to accept that the markets always come with those risk of losses and that uncertainty can be a factor in itself, possibly a deciding one for some people. And the peace of mind from raising mortgage costs and not having to worry about the performance of financial markets might outweigh the potential advantages of investing, even if that's in your own mind. So I think it comes down to your exact situation, your own priorities and how different routes make you feel so it's a situation where there's the the mathematical answer and there's the behavioral answer and our listener is in the fortunate position of having already shown the kind of discipline that would indicate that they would continue to make those investments um but it's that question of like what are you going to do and do you want the guaranteed option or the potential option?

42:11Yeah, that's right. It's not necessarily a right or wrong answer and it will come down to, like you say, your own discipline and how much risk you're happy to take rather than just the spreadsheet answer. Rob, thank you very much. Thank you. Welcome back. Millennials are now leading the charge in buy to let. Despite many struggling to buy their own home, The group born between 1981 and 1996, which I think covers everybody here, now comprise a record 50 % of new buy-to-let investors in England and Wales in the year to date. Now, that's according to estate agent Hamptons, who described the rise of younger landlords as striking.

42:51Helen, what's going on? hmm so i mean in a way this isn't in a way isn't that surprising because obviously as people get older they're more likely to a have a little bit more money uh and b you think about you know where they might want to invest do they maybe want to be a landlord also have they become an accidental landlord have they perhaps bought a property on their own met with a partner and now they have an extra house that they might decide to rent out. So, you know, people do become landlords as they get older. However, Hamptons has said that this is a interesting increase, a striking increase, as you said.

43:34So back in 2016, just 24 % of those signing up to become new buy-to-let landlords were millennials. In 2020, that was 40%. And this is, I should say, this is landlords who are setting up new buy-to-let companies so they're owning their properties within a limited structure so yeah there's been a big rise and obviously that's interesting because we hear a lot from millennials that you know they've really struggled to get on the housing ladder it's a challenge to get a deposit together so how are they how are they doing this I think part of it is as I said accidental landlords you know people are ending up with a property that they kind of don't quite know what to do with you know I know some people at my edge already who've ended up in this kind of fortunate situation where they've bought maybe a cheaper sort of one bed property when they're on their own um they've luckily over the last years made a bit of money on that and then when they've got to go as a partner they've bought another place maybe they've had a place on their own as well I did kind of keep one of them um as a bit of investment uh so So another option, so we talked to Chris Norris from the NRLA, the Landlords Association, and he said also a lot of younger landlords might have inherited properties.

44:48So they got a property from maybe a parent or a grandparent and decided to rent that out as a sort of source of income, maybe rather than living in it themselves. It's also worth remembering that, you know, maybe older millennials, they're kind of at the peak of their careers. So they are sort of earning a bit more, thinking about maybe what they can do with that money. But I think it's interesting because people of my agenda have a lot of gripes with landlords. It's very common to hear people moaning about landlords, landlords they've had in the past. And I do think it's interesting that they're now deciding to kind of go down that route themselves.

45:24I mean, you'd hope that they're saying, you know, I'm not going to do the same as my horrible landlords. I'm going to go in and get it to be a nice one. um so yeah i mean it's it's quite cheering in a way for this or buy to let sector because we've heard a lot about you know landlords are leaving because of all these new restrictions which i think we're going to get on to talking about in a minute so you know landlords maybe aren't not everyone is leaving and there are new people who are getting into it and and you know a younger generation who apparently do do want to uh do want to be landlords you know as we said before Or people don't often like landlords, but we do need them because people who want to buy a house do need somewhere to live.

46:07Absolutely right. And I imagine, Helen, we're going to see a lot more of this, aren't we, in the future. There's great wealth transfer that we talk about, more accidental landlords, a sort of in the millennial age range, maybe, and slightly older, perhaps. Yeah, exactly. Well, especially if you're going to be taxed more when you sell property, something we've talked about a lot lately then maybe if you do inherit one rather than selling it on and uh you know paying capital gains that maybe you will just keep it and run it out and earn a bit of cash and i know you have to pay tax on your sort of rental income as well but you know keep it and and kind of get a bit of extra income yeah same massive tax bill it's certainly something i think people will think about all right we're going to stick with this theme because you've got a reader question here is this um about the renters rights bill so i'm looking for my next rental property after my landlord gave me notice last week.

46:59The problem is I'm planning to buy a home next year, so I don't want to be tied into a rental contract for more than 12 months, a common issue I would imagine. I found I'm losing out as landlords prefer those that are willing to sign up to two-year tenancies. I've heard that fixed-term tenancies will be banned under the upcoming Renters' Rights Bill, though. Would this mean that if I signed a two-year contract today, I'd be able to exit without any penalties once that becomes law. Now, Simon, this is a bit of a change. Obviously, I am the die-in-the-wool renter as I was up until about two years ago, a year and a half ago.

47:32I have signed one contract, which was two years, with a break at 12 months and made sure it had a break at 12 months. But is this more common that landlords are wanting longer? Because I've not really experienced that as an issue. It's 12 months and that's really it. No, it is quite common. It depends where you are and depends how much demand there is for the rental market in your area. But landlords are, you know, in many cases, landlords are presented with a selection of options when it comes to renting a property in an in-demand area. And they'll have tenant A, you know, who looks like, who wants, whose financial situation looks in a certain way and wants to rent it for 12 months.

48:14They'll have tenant B, whose financial situation looks in a different way, and was happy to rent it for 24 months. They might even have tenant C who's happy to rent it for 36 months. And then they're going to make a decision as to which one they want to go with. The biggest risk to landlords finances is void periods. You don't want your property sitting empty. And they might be able to go, well, do you know what? Actually, I'll take the longer term tenant. Or they might even be in a position where they're able to push for it to go, well, do you know what? To sign up, you have to sign for a longer lease.

48:45And it's not overly common. It doesn't happen all the time, but it is happening more and you are getting more of it. And it's understandable in a way. But what's interesting about this, obviously, is that we're coming from a position where there's often been a complaint from renters that they want more security. They want they don't want to move. And I mean, a year rolls around incredibly quickly, doesn't it? Oh, yeah. And now we're in a position where they say, well, hang on, I don't want that much security. It's finding that middle ground. but you know there is this rule change that's happening um that perhaps many letting agents and landlords are not aware of that it does mean that people are going to be able to get out of this the renter's rights bill will put an end to fixed-term tenancies with all rental agreements converted into rolling periodic ones this means a landlord can't tie a tenant into a 12-month contract where they're obliged to pay the rent for the whole period even if they leave instead all tenancies will be rolling meaning a tenant can leave at any time provided they give the required notice of two months.

49:46I mean, flexibility, that's what it's about, Helen, isn't it? So in that case, if this person signs a two-year contract today and this renter's rights bill comes in, are they allowed to just break it or is this not a retrospective thing? It does apply retrospectively. So this person would be able to break that contract and they do have to give the two months notice in the same way that the landlord would have to give them two months notice if they wanted them to leave. But no, once, even if you're in the middle of a rental agreement, even if it doesn't have a break clause, they should be able to serve that two months notice and leave once the renter's right bill comes into force.

50:28So that is the question at this point. We don't quite know when that will be, but the bill should pass its final stage in Parliament quite soon, probably before the end of this year. But the government said there's going to be something called an implementation period before the law is actually enforced. So that's a time to sort of give landlords and agents and tenants time to adjust to it. And we don't know how long that's going to be. So that's a difficulty for this person. You know, if they sign this contract and then it will probably be about six months before it comes into force. But no one quite knows.

51:02So the risk that they're taking is, do you want to sign a two year contract now? And then maybe it's a year before this comes into force. So that could maybe mess with their plans to buy a house. I do kind of feel for this person because I was in this exact situation. We bought a flat about a year ago and we were obviously renting before that. And we got to the contract renewal time and we said, look, we'd really like to just sign a contract for six months if possible because we're already starting to look at flats. And just trying to kind of be upfront and a bit honest about it. We're happy to take a year with a six month break.

51:38And we'd signed a two year contract before that had just ended. and we're like, oh, could we just, you know, we've been good tenants. Could we have a six months? And the landlord said, absolutely not. You must sign for a year. So he went back and forth for ages and we whittled it down to a nine-month contract, which is just ludicrous. He was like, the absolute most I will let you have is nine months. Okay, fine, we'll do my months. And then obviously we moved into our flat within six months and had to pay rent and a mortgage at the same time for three months, which was so rippling. It's so bad.

52:11I just think that's, sorry, I'm going to say it. What an arse. Come on. Because you could have ended up staying much longer. It's just let's have some flexibility when people are trying to buy. This is what's really frustrating. And we could have just sublet it to some random, but we didn't. Right? But yeah, you know. It's terrible because it's so expensive to move house as well. Anyway, anyway, moving on. The race is on to bring self-driving taxis to Britain for the first time next year. Now, I first experienced this in January when I was doing some work out in San Francisco. And there was this, what looked like a Lego police car.

52:47And then I was like, what on earth is that? It's got like some wavy thing on top. I'm not very good at describing these things. And I was like, yeah, that's a Waymo. And you're peering in, you go, God, that's true. I didn't know we were even close to this sort of driverless in the streets. But yes, yes, we are. A battle has emerged between Waymo, owned by Google's parent company Alphabet, and ride-hailing giant Uber to put driverless cabs on London streets. Now, Waymo has announced its autonomous ride-hailing service, already active in five US cities, as I've already seen, and it will arrive in the capital in 2026.

53:26So this will make London the first European city to get its self-driving taxis. But Uber could beat it to the punch, having already confirmed in summer that it would take part in government trials. Now, putting aside the fact that these big tech companies are taking over absolutely everything in the world, Simon, this one's for you, isn't it? Have you ever gone in a driverless car? A Lego police car. Yeah, didn't it? If it was a Waymo, that Lego police car was a Jaguar, Georgie. Was it? That was a Jaguar electric car. They have made them look a bit like Lego police cars. You are right. What do you mean?

54:01The I-Pacer's already a slightly kind of quirky looking car in that it's a bit sort of like, you know, jag at the front, slunky at the back. It's the thing on top that's like a siren almost. Yeah, it's got strong Lego police car vibes and it's got stuff in size and everything. But this is to say the car can navigate its way around the place and keep itself safe and keep other people safe as well. But yeah, look, it's quite interesting this. And actually I read a really interesting article on it talking about how apparently they're not cheaper. They're actually more expensive than normal taxis and that they've increased taxi use.

54:41They thought that you would see a decline in driven taxi use, like traditional taxis. but actually what's happened is that people are using the driverless taxis but using normal taxis more as well so it's actually overall increased like that everybody's got a bigger slice everybody's got a slice of a bigger pie and they reckon that that's because it's it's sort of encouraging people to use taxis who wouldn't previously have used taxis because maybe they wouldn't have wanted to sit in one with a driver but this is quite often why people you know it's like well i've to drive myself but people are just using these to like move around because they don't have to deal with another human being which is a sorry statement thought we're miserable aren't we yeah like the self-checkout phenomenon a huge line at the self-checkout because no one can be bothered to deal with any human beings well yeah you think oh you think oh well and it will take longer for the human being even though you know that the self-checkout is unlikely to process every item that you have without something happening and you therefore needing human intervention and the human intervention you're fighting for the attention of with every other mug who's decided to use the self-checkout but they've closed all the other checkouts so there's a massive line for the checkout with the human and then you're doing the calculation in your brain and so on now in this situation you actually genuinely do have a choice of taxi that doesn't need any human intervention it's not like a self-checkout because you won't get halfway through your journey and then it stops have to call and then you have to like flag down a passerby and say could you just get in and drive me to my destination because it turns out there's something wrong with what i'm doing that means i can't do it if you could just jump in and do it and they're like yeah yeah but i've just got to drive those other people to their destination first oh i'm sorry sir yeah a bottle of wine in your bag i'm just gonna need to put code in um so you've got you've got that situation right why are people willing to pay a premium for something that actually you're thinking hmm no driver is that safer well arguably apparently they are safer it's actually safer than having a driver and i must admit no offense to like yeah offense to taxi drivers broad church i know what you're gonna say i've had some amazing taxi drivers in my life but i've also had some where i could see how a driverless car would be safer i still think would i get in one would i get in the driver's car and i've had autonomous cars driving me around i first drove a tesla model s nearly 10 years ago and 10 years ago that car could steer itself around corners right you have to keep your hands on the wheel as well but you can take them off for a little bit you're only meant to use the autopilot on the motorway but i went to not quite wales uh to see my cousin and we went around some country roads and it reads the white line and we did it it got us to steered us around the corners obviously get my hands quite close to the wheel but i can't let's give it a test and it actually did it so it did you know the technology has moved on dramatically over the past decade but i don't know i think there's a part of me that thinks i'll i'll go for the old taxis with the drivers also because i'll that's someone's living that's a person trying to earn a living not a big tech company and these two companies we're talking about are big tech companies and I'd rather use that driver and support them and I will keep saying this right up to the point where I call a driverless taxi on an app on my phone because it's just easier when I get in it yeah I think there's also sorry I was just thinking there and like you said a lot of drivers are safer and I was thinking I do love a good gossip with the drivers because I'm a bit chatty but then I've just realized that I think some and particularly women may not feel particularly safe.

58:24So look, I can see why people might like them. But I just feel like it's so soon. 2026, this is mad. So who's going to win? Or could it be another company that comes in and steals a march on Uber and Waymo? Well, we don't know. They're both probably going to arrive at the same time. I mean, one of them will manage. Why can't we have both? One of them, because they're both operating as part of this pilot, but the race is to see who can offer one to a member of the general public first, right? That's the thing. And you're going to start seeing these big Lego police cars on the streets of London soon being driven around with a person behind the wheel because they're going to be doing these dummy journeys.

59:07And then next year, if they can take part in this pilot scheme, they're going to take part in this pilot scheme. And you will be able to call one up on an app and you will be able to get one somewhere. I think probably the next stage in this is maybe we start looking at what taxi drivers want rather than what you or I want. And we maybe shift towards a system where as well as having driverless taxis, we also offer the option of passengerless taxis so that they can just drive around the car empty and not have to deal with the annoying passengers. Agreed, agreed, agreed. All right, Simon, start of the week.

59:44350 kilos 350 kilos of rice to be specific that is what the royal garden hotel in kensington around the corner from our office has had to order in due to the arrival of the grand sumo tournament in london which is taking place at the royal albert hall and we have been spotting the sumo wrestlers out and about near the office i saw a few of them walk past on the road to our offices on uh only yesterday i think they'd just been to dishroom for lunch and i don't know how you noticed them simon wandering around in their in their kimonos and their flip flops and you know boy these are some big guys yeah so they've ordered in all this extra rice apparently the royal albert hall has had to reinforce its toilets um uh they've been spotted having like unbelievably large mcdonald's breakfasts um there's even a great photo of one of them enjoying a pint uh out in uh in a pub in soho uh and my favorite one is the pictures and i recognize this shot because it's the one on high street kensington of one of the sumo wrestlers having a browse in TK backs.

1:01:01Nice, nice. I have to say you missed out there what was perhaps the highlight of their trip and that was taking a selfie with Jeff Prestridge of your church. Right, that's it. You can keep up to date with all the latest Breaking Money news. Just go to thisismoney.co.uk or download the app. And if you have any comments or questions for the team or anything you'd like and took into, Simon. You can email us at podcast at thisismoney.co.uk and thank you for all the emails from energy nerds last week okay we've got some absolute fantastic stuff from energy nerds um you know who you are if you've emailed us if you are an energy nerd and you're doing amazing stuff to get your bills down email us uh ang is going to be in touch with those who have emailed us um because we've got some great great stuff going on there yeah so email us podcast this is money.co.uk and come to this is money.co.uk forward slash podcast join in the debate and read the comments.

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