Wednesday 18 March 2015

3 Things to Note From the 2015 Budget Announcement.

Chancellor George Osbourne with his red Budget Box of policies. [EPA]
It's Budget Day! Today saw the announcement of the British Coalition Government's budget for the forthcoming fiscal year, by Chancellor George Osbourne. The Budget, in essence, evaluates the past year and sets out the plans for the next year with regards to economic policy; things like whether taxes on certain things should be raised or lowered, whether the government will invest further in a project and so on.

The whole event gives itself much reason to be sceptical; they are often used as more politically charged electioneering events, and even moreso with Britain just a couple of months away from an election. Here are three things I took away from the Chancellor's speech today.

1) Britain's economy is doing relatively well.
As Osbourne proudly announced today, Britain had the fastest growing economy of any developed nation in the world, as deemed by the International Monetary Fund, who estimated Britain's unemployment and inflation rates to be lower than they turned out. These two numbers are in fact lower than ever, with unemployment expected to fall to just 5.3% this year and inflation below 2%. But with regards to employment, there is a problem; because many of the jobs 'created' have been what are known as 'zero hours contracts'- these are job contracts within which the employer is under no obligation to give no minimum number of hours to its workers.
According to the Office of National Statistics, 697,000 people (over 2% of the British workforce) are employed under ZHCs, and over one third of them are unhappy about the number of hours they are receiving. These employees often receive so few hours that they are unable to afford the rising cost of living, but their employed status puts unemployment benefits out of their reach. Their lack of status as a full employee then puts them in a position where they can't access benefits such as holiday pay, leaving many in a worse financial situation than they would be if they were out of work. A significant proportion of the jobs created under the Conservative government have been ZHOs, with over 100,000 being created between 2013-14. So employment may be higher, but with cases such as those of Zero Hour Contracts, one must think more about the quality of employment being created than the job alone.

2) "Football, beer, and above all gambling, filled up the horizon of their minds. To keep them in control was not difficult."
I'm often reminded of this poignant quote from George Orwell's literary masterpiece, 1984, whenever rumours are abound of government plans to reduce taxes. No doubt Osbourne and Co. have announced this with the election fast approaching in mind, and with the Chief Executive of the British Beer and Pub Association calling him a "hat-trick hero" because of it, there's no doubt it will work in gaining Tory support with many. As Osbourne announced tax duty of a pint of beer and cider are to drop by 1p and 2p respectively. For the third year in a row, Osbourne announced tax duty of a pint of beer and cider are to drop by 1p and 2p respectively. He claims it has the potential to create 3,800 jobs in the forthcoming year, but I wonder: is this really the way we should go trying to create employment?
The government seems to be continuing (rightly IMO) its efforts to minimise the nation's consumption, following up on its previous promise to increase tobacco duty by 2% starting today, but why is it doing the opposite with alcohol? Alcohol is an equally damaging drug, if not more damaging due to how much more common it is and its association with events such road accidents and street violence. One-third of the visitors to our already suffering A&E facilities are there due to alcohol- even more during the weekends. 2014 saw almost 6000 more people having to receive alcohol treatment than 2013. The total cost of alcohol-related harm to society is £21bn, and it is costing the NHS £3.5bn a year.
The state of our society with regards to alcohol, why it may not be spectacularly poor on a global stage, has much much to improve. And in my opinion, lowering taxes on alcohol, making it cheaper, is no way to solve the problems that are worth far more than 3800 jobs this could bring.

3) Google and Co. will soon have to pay their taxes
In 2012, Starbucks made profits of over £400m in Britain- yet paid £0 to the Treasury as corporation tax that every registered company operating in the country is obligated to pay. Google had a turnover of £395m in the same year, yet paid just £6m. And it's not just these two companies; six major technology firms including Apple, Google and Facebook made profits of over £14bn in Britain, but paid just 0.3% of this in the form of tax. It sounds scandalous, but the thing is that these companies didn't technically break the law- they didn't evade tax, they avoided it thanks to loopholes that allowed them to store their profits in accounts abroad, avoiding the tax radar of Britain. This left the government pretty powerless to prosecute, but what Osbourne has announced here today is a plan to close that loophole to prevent such behaviour continuing.
Dubbed the 'Google Tax', the 'Diverted Profits Tax' plans were announced today- to put it simply, companies will have to report themselves to the HMRC (Tax authorities) if they are making annual turnovers of over £10m, and will have to comply with investigations that determine how much of the profits have been moved abroad, and pay the taxes determined as a result. The government expects to make £3.1bn from this move over the next five years- not a significant amount, considering the scale of government finances, and it is something that clever corporate lawyers are probably going to flout sometime soon. But nevertheless, it's an important move from the government to let multinationals like Google and Starbucks know that there is no place for tax avoiders in Britain.

Recommended reads: 

Budget Calculator: How Will The Budget Affect You [BBC]

The Budget- Official Document

Alcohol treatment in England 2013-14
Lone Editor

Tuesday 10 March 2015

Why You'd Be Mad To Buy A $17000 Apple Watch.

So just earlier today, Apple announced to an excited bunch of journalists in San Francisco their plans to release their new Apple Watch in the coming months. The much awaited product is to go on sale on April the 24th, with a wide range of watches and accompanying straps ranging from £300 to a whopping £13500 ($350 and $17k in the USA respectively).
The lower end of that price range gets you an Aluminium watch case, and a 'Sport Band', something that appears to be essentially rubber/plastic strap (though probably one very well made). But it gets more spicy looking at the higher end of the range- for £13500 you can get an 18-Carat Rose Gold Case with a 'Rose Grey Modern Buckle' (a leather strap, pictured). Especially considering this watch performs no more or fewer functions than its £300 sibling, it seems a steep price to pay indeed.

But no, Apple are not going crazy with their pricing strategy. The watch is one of the widest ranging products in the world; you can get a £10 classic from your local Argos, or opt for something like this Blancpain Tourbillon (I'll let you check the price of that one for yourself). Watches can be quite extraordinarily luxurious goods, along with things like Fountain Pens and perhaps cars.

So why spend such extravagant amounts on a timepiece? An argument that holds for most other consumer goods is that the product's function is better if more is spent on it. A basic example is how spending more money on a TV will probably get you a bigger screen, or how a more expensive sports car is likely to be faster than a cheaper one.
However this fails to hold for most luxury goods, simply because there is usually a limit to just how good something can be. Much is made of the precision and smoothness of higher end timepieces, but for most people this is a bogus excuse for buying a watch. The owner of a cheap watch is very unlikely to be disadvantaged in comparison to a Rolex owner because his time is a few seconds inaccurate, or his watch hands don't move in a buttery smooth way. Being honest, the function of a cheap and expensive watch is usually identical; yes, more expensive watches may gain you extra gauges and measurements, but the basic function (that is, telling the time) is not improved upon in a way that reflects the extra premium.

However, the design is, of course, a significant area of difference between cheap and more expensive watches, as is quality of material- and this is indeed a more significant reason why people buy expensive watches. They are more likely to look good, and the quality is likely to be such that they last for a much longer time. This allows, in many cases, for watches to be passed on as family heirlooms, as items passed down through generations.

The Six Million Dollar Patek Phillippe
And that long-term aspect brings me onto a significant economic reason for buying an expensive watch. Expensive watches are arguably very strong investments to make; if they are kept safe and maintained well enough, their price can rise exponentially over time as they become rarer and more cherished. The world's most expensive watch was a vintage Patek Philippe- sold in 2010 for almost $6m, kept since the 1940s. Investment is where expensive watches are necessary- firstly a cheaper watch, even if it is 100 years old, is unlikely to have much visual or brand appeal, and secondly it would be far less likely to be in working order after a long period of time. Expensive watches, integrated with various precious metals and crystals to keep it durable, are thus far more likely to be appreciating assets.

This brings me to the $17000 Apple Watch Edition. Here are just a couple of reasons why you may want to buy it, and my opinion why you'd be mad to:

1) The looks. Not only do you want the latest Apple device on your wrist, but the most expensive and shiny one. You overlook the fact that the actual software, function and quality of timekeeping of your watch you spent thousands on is pretty much identical to the $350 base Apple Watch, and not so different from a cheaper smart watch either. Not $17k different, anyway.

2) Investment. Though a more credible reason than just simply wanting to show off, you'd have to use it pretty conservatively to keep it maintained for a significant time enough for it to appreciate. Being a used luxury product it is likely to steeply depreciate for the first few years, after which numerous iterations of the Apple Watch are likely to have been released and yours will be running far from perfectly (anyone who owns an Apple product more than 3 years old will know this). Vintage watches are usually running as they were when new- but being a battery operated, software-running device, it is unlikely that there will be much interest in a laggy 20 year old Apple Watch, if it even still works. Too much modification to the watch (new batteries, hardware) will be likely to remove the original 'vintage' appeal of the watch and thus fail to increase its value, if anything decrease it.

3) You are an Apple fan with genuinely too much spare money to spend, and you buy it knowing you're gonna buy the next Apple Watch when it comes out anyway. If so, good for you mate.

Of course, this isn't to say you shouldn't buy an Apple Watch Edition or an Apple Watch generally. If you have the money and the interest in the product, go ahead, as I'm certain many people will. The functionality and competence of the watch against its smartwatch competitors would be unquestionable, Apple is likely to be at the forefront of this new technology with companies like Pebble, Samsung and Motorola.

But it would be wrong to treat it as a 'traditional' clockwork watch. It seems unlikely that it will be anywhere near as effective in appreciating over time. It appears the watch is evolving as we speak- we are indeed entering the new generation of timepiece, for better or for worse.


Apple Watch: Timekeeping

Why Watches Are A Timely Investment

Top 5 Best Investment Luxury Watches

Is A Rolex A Good Investment?
Lone Editor