Letters to MoneyWeek: Do our politicians understand the EU?
A selection of letters, and their replies, sent into the MoneyWeek office.
As a regular MoneyWeek reader, I am compelled to respond to the Viewpoint column by Christopher Booker from the Sunday Telegraph featured on page 7 of issue 850.
It is quite bizarre to read a piece by a journalist complaining of an "elementary technical error" from the political class, when he himself is making an elementary error in stating that a country cannot belong to the customs union without being a European Union member. There are in fact three countries in the customs union from outside the EU: Turkey, Andorra and San Marino. So Philip Hammond was quite right to say that the UK could become the fourth such country.
There are four options for post-Brexit Britain (apart from staying in the EU):
Leave the EU and stay in the customs union, which would help resolve the issue of the border in Northern Ireland but would prevent us from negotiating free-trade deals with other countries.
Leave the EU and stay in the single market (like Switzerland, Norway, Lichtenstein and Iceland). We continue to make contributions to the EU budget, but would be able to negotiate trade agreements with other counties (Switzerland has negotiated a trade deal with China, for example).
Leave the EU and stay in both the customs union and the single market.
Leave the EU and leave both the customs union and the single market.
This is a complex issue without the politicians and press spinning the facts to suit their particular beliefs and agendas. I realise that this column is not an article from one of your in-house journalists, but I am surprised that it has been selected to appear in the journal and introduces an element of doubt as to the veracity of other MoneyWeek articles.Your readers require balanced and factual articles during the tumultuous financial period ahead to help us make the right decisions.
The extract we published may not have made the point of this article and why we considered it relevant entirely clear.
The relationship between membership of the EU and the customs union is not entirely straightforward. As you note, there are three countries that are in a customs union with the EU without being EU members. This is achieved through bilateral agreements with the EU, which function more or less like the EU customs union, but may be different in certain respects (for example, agricultural products).
The UK could aim for a similar arrangement with the EU. This is one of the options you suggest. In MoneyWeek's view, we should aim for this at least and ideally something closer to single market access. Yet the practical issues in achieving this outcome are being lost in soundbites that imply poor understanding among our politicians of how the EU works and what benefits we need to retain.
Don't be tempted to take profits
I was surprised that you suggested "I'd be tempted to take some profits on anything that has done well" in your editorial (MoneyWeek 849). This may lead you to fall into the trap known as the disposition effect. Research by Terrance Odean, who studied 10,000 accounts held at an American discount broker between 1987 and 1993, showed that, on average over a year, stocks that were kept dropped 1%, while stocks that were sold gained 2.4% over the same period. As Ben Graham warned, "the investor's chief problem and even his worst enemy is likely to be himself". If you were to sell any of your existing portfolio, then it may be better to sell the losers instead.
Yes, in general running winners and cutting losers is a sensible strategy. In this case, we were suggesting that where an investment has done exceptionally well in the short term, it may make sense to take some profits in the expectation of reversion to the mean if markets wobble as seems plausible given the uncertain outlook. However, we do not suggest selling out of sensible long-term winners altogether, but merely taking the opportunity to rebalance.
Davidson is needed in Scotland
Theresa May's days as the Tory leader may be coming to an end, but it would not be straightforward for the Scottish leader Ruth Davidson (A "natural leader" for the Tories, MoneyWeek 849) to assume that mantle herself at any time in the future. Yes, Davidson has charisma and honesty, which chime well with the public she has defied the arrogant Nicola Sturgeon well and led a brilliant Tory fightback in the recent general election. However, as with Sturgeon, she has no seat at Westminster so would need to get one to have any wider influence.
Also, Davidson's much-heralded ambition to tackle inequality and poverty head on may play well in Scotland, but not for the Tories in England. They are incapable of understanding those issues. It is not in their DNA and in their minds gets in the way of their vision of a smaller state. Davidson is best where she is fighting the blue corner and the unionist cause in Scotland where nationalism has to be fought with vigour.
Time to tackle our social care crisis
While there is an extended parliament session with no Queen's speech next year, this is an ideal time to initiate a cross-party group to study social care (which many feel should be part of the NHS) and abandon any form of "dementia tax" in favour of a fair solution for costs that would be widely accepted.
In any straw polls, such as the one taken on the BBC's Question Time, there is overwhelming support for a 1% increase on income tax if this was ringfenced for the NHS and social care. While some people call for the abolition of national insurance contributions (NICs), psychologically this would be a mistake as NICs can help provide a sense of shared national identity and responsibility.
If implemented with a small part of this 1% (say, 5%) set aside into a separate social care fund (SCF) that is commercially invested, then half the dividend income could be paid back into taxation revenue but otherwise fully protected from any government plundering. In addition, the yearly announcement of this dividend income would encourage an appreciation of the value of investment rather than the Ponzi scheme that lies behind so much government expenditure.
I believe over time people would donate or bequeath sums to this SCF for the benefit of fellow citizens. New strategies like this must be tried if the nation is to be more secure and at ease.
Writing to MoneyWeek
MoneyWeek welcomes letters and emails from readers, but unfortunately we are not able to publish or reply to all of them. We may edit letters prior to publication. All responses are for information only and should not be relied upon in making investment decisions. Our staff are unable to respond to personal investment queries, as MoneyWeek is not authorised to provide individual investment advice. Please email us at email@example.com, or write to us at Editor, MoneyWeek, 8th Floor, Friars Bridge Court, 41-45 Blackfriars Road, London, SE1 8NZ.