JUST a short year after the prospect of a financial nuclear winter and there is a more confident feel about economic and investment prospects. Unfortunately, just as I believed the gloom in the spring to be being overdone, I now think that optimism has secured too much support.
The banks are still not lending, perhaps understandably because it is almost impossible to attract deposits with interest rates little more than a gnat's whisker. Moreover, after this week's manoeuvrings, some will not even know who they are. Credit
is in short supply and hard to obtain and I think this may show up in spring results. Companies are cutting back on capital investment programmes in fear of a sluggish demand cycle, thereby risking just such a possibility, but their caution is entirely understandable.
We are also now in the run-up to a general election, with 5 May, 2010 considered by most now as the likely date. As a result, the Chancellor's upcoming interim statement and his spring Budget will be pretty academic, with few believing his proposals will see the light of day.
So what are the prospects for 2010? We are certainly facing a political vacuum over the next few months, and periodic polls suggest the election will result in a hung parliament, hardly conducive to a roaring bull market. The spring results season may well produce its share of disappointments. The banks are going to occupy centre stage for some time, removing cash from shareholders, including the state, and perhaps also through a rash of primary issues as Chancellor Darling and his advisers appear from their workshop with a resprayed model of the past, cobbling together the better bits of the banks that they were not forced to sell by Brussels regulators. Hopefully, for the future, they will heed one of the more extraordinary statements that I have ever heard from the authorities: "Banks should be encouraged to lend only to those who have some prospect of repaying the loan." One might have thought that it was self-evident but it shows how far we have come down the road to a point where loans were increasingly regarded as a form of asset purchase by default.
For the individual taxpayer, the outlook is pretty grim. Unemployment will rise and, whichever party is in power, the more successful will be taxed at higher levels, once again confirming that the legislators do not seem to understand that cutting fiscal rates can actually generate a higher revenue. Unfortunately, the political climate, as much as the economic, suggests that such an enlightened approach will be ignored. Will a Conservative government, if it prevails, restore the Bank to the core of market regulation? Hopefully, but it will make the monetary policy committee, largely selected by the Chancellor, even more of a political and economic conduit.
Be that as it may, the individual tax burden is going to rise. I have never been convinced that individual savings accounts (Isas) are a must-have for all, as they provide limited shelter from income tax and any capital losses made within the wrapper cannot be applied elsewhere.
However, the increased contribution limit for 2010-11 of £10,200 is quite generous. I believe taxpayers should maximise their Isa investment and take advantage of their pension contributions before these, too, are capped. There is no excuse for not taking steps to provide some protection from the state's hunger for cash.
• Bryan Johnston is divisional director at Brewin Dolphin in Edinburgh.
