Bills, Bills, Bills

Susannah: Hello, and welcome to Switch Your Money On, from Hargreaves Lansdown. I'm Susannah Streeter, I'm the senior investment and markets analyst at Hargreaves Lansdown. And I'm here with Sarah Coles, our senior personal finance analyst.

So, Sarah, we've come to that belt tightening time of the year that so many people have been worrying about. I'm not talking about preparing to go on a diet to compensate for the body weight in easter eggs we're all about to eat, it's the time of year we see all sorts of price rises.

Sarah: Yes, last week was Bleak Friday when we saw hikes in everything from council tax to water bills, but while it's always pretty nasty, it was really horribly painful this year because of the sheer size of the hike in energy bills.

Susannah: It brings up plenty of questions about how much of a squeeze we face, how we'll cope, and how we should adapt our saving and investing strategies when faced with this onslaught of higher prices.

Sarah: And of course, all this comes at the start of a new tax year, when tax hikes kick in as well. So, we'll be looking at all of this today, in this episode entitled Bills, Bills, Bills.

Susannah: To set the scene, we're going to chat to Mike Brewer, Chief Economist at Resolution Foundation, to get his take on the tax changes in the budget and what it'll mean for disposable income. Hi there, Mike. Great to have you on the programme.

Mike: Hi there, it's good to be here.

Susannah: We'll also chat to Sophie Lund-Yates, our lead equity analyst at HL - who's been looking at some of the shares to watch for a stocks and shares ISA in the new tax year - particularly in a high inflation environment.

Sarah: And we'll hear from our head of investment analysis and research Emma Wall - who's taken her pick of the funds to bear in mind - given the environment of rising prices and the uncertainty arising not just from the devastating events in Ukraine - but also the ongoing pressures of Covid on the world economy.

And Susannah has been building another quiz for me. This time it's all about some of the weirder taxes we've seen through the years. I have to say I'm less secure in my tax history knowledge than last week when it was about chocolate and cake.

Susannah: You'll be pleased to know I have managed to squeeze a question about chocolate in there too. But first let's assess where we are with inflation:

It's already at a 30-year high - topping expectations for the latest reading for the 12 months to February - at 6.2% - but that was a bit like taking the temperature of a hot bath before chucking in more kettles of boiling water - as price pressures have been mounting particularly since the outbreak of the war in Ukraine - with the price of oil surging and other commodity prices rocketing. And we've had to get to grips with the fact that inflation is set to go up significantly higher later this year - with a bit of a shock forecast coming out of the Spring Statement - that inflation will rise as high as 8.7% in the Autumn - and that came from the independent body - the Office for Budget Responsibility.

Sarah: Right now, we're not just facing ongoing price hikes of things like food and clothes, but annual bumps that tend to come in April, including council tax, water bills and the dreaded energy cap hike. Although it's worth noting we've been spared increases in the licence fee and prescription charges. Unfortunately, we also have a rise in dividend tax of 1.25 percentage points and the National Insurance hike of 1.25 percentage points - although the Spring Statement altered the picture slightly on National Insurance - and Mike Brewer will be taking us through more of that later.

Susannah: The worry is that the income squeeze is set to get worse, and the only way is up across so many sectors - from clothing to home wear and household goods - we are being warned that the price of a pint is set to rise by Christmas - as the cost of barley has soared due to the crisis in Ukraine.

Although the Bank of England has said the path of interest rate rises isn't set in stone - because of the uncertainty thrown up by the Ukraine crisis - the expectation is that fresh hikes are on the cards this year - particularly in the light of the Federal Reserve's more aggressive stance - with the US central bank setting out a possible seven rate hikes this year.

So many consumers - especially middle- and lower-income earners - are going to face some very stark choices. They face having to pay more for essential items which they spend a higher proportion of their budget on compared to higher earners - and so that could hit firms really reliant on our disposable incomes. The latest retail sales figures show that in February the quantity of purchases dipped by 0.3% - although that was partly to do with the pretty foul weather we had to deal with in the UK - there are worries surging inflation was already affecting confidence among shoppers.

Sarah: Yes, and if you look at card spending, in mid-March while overall card spending was around the same level as the previous week - and around the same as the pre-pandemic level, how it breaks down is interesting. The amount we spend on staples is up almost a tenth since before the pandemic, reflecting how much price rises mean we're having to spend. Meanwhile, the amount we spend on things that are classed as ‘delayable' is down almost a fifth compared to before the start of the pandemic. So, it looks distinctly like we're having to spend more on the essentials, so we're putting off other discretionary spending. This is going to have a knock-on effect on the companies relying on that spending, and as a result on investors too.

Susannah: And all of this may have been exacerbated by announcements in the Spring Statement. So, let's bring in Mike Brewer here. He's Chief Economist at Resolution Foundation and has been looking at the cost-of-living squeeze, and what it's going to mean for the resilience of our finances - and our ability to save and invest.

So, what did you make of the Spring Statement - there was a bit of tax tinkering - but what's your assessment of how much it will help the cost-of-living crisis?

Mike: To be honest, we were a little bit disappointed, in the end. If we take a step back, the idea behind these spring statements is that they are not supposed to be policy-making events. The chancellor decided he wasn't going to do a full budget and all that should have happened was getting an update on the economic situation, then he sits down again. But of course, the economic situation is not a very good one at the moment and as you say, it has got materially worse, the cost-of-living issues after the war in Ukraine started. He's under pressure to do something about the cost-of-living but I think we can also see he's under political pressure to do something about his own support, his own standing in the Conservative party, and his own reputation as a taxpayer.

Sarah: In terms of the exact impact it's going to have on people, are you concerned about the number of people who are likely to cross over into poverty?

Mike: Yes. So, if we look at what he actually announced in the spring statement, we've got a rise in the national insurance threshold, the 5p cut in fuel duty, and a little bit more support for local authorities to help with some discretionary payments for particularly deprived households. Overall, that is a package that is mostly going to the top half of the income distribution, and not towards the bottom half of income distribution which is where the cost pressures will be felt most acutely in the year ahead. And, as a result, we did the number crunching and we think that over a million people, 1.3 million more people will fall into our measure of poverty in the financial year ahead. Which is an absolutely extraordinary figure, completely unprecedented and a far greater hit to incomes than we've seen, even in recessions in the UK. And I think that's what so unusual about the current economic situation, is that household incomes are taking a hammering in real terms, not keeping up with inflation, but on paper at least, the economy is still growing.

Sarah: You mentioned the rise of National Insurance, that presumably is going to have another big hit on people's disposable income?

Mike: National Insurance rate has gone up by more than a quarter percentage point. Start of this tax year, that was announced last September - the chancellor attempting to repair some of the public finance damage from the pandemic, and he said the resources would go towards the health services and social care. That's not going to help real incomes, household disposable incomes, at all. But then of course, in the spring statement, what he announced was that rise in the National Insurance threshold, so you won't start paying National Insurance contributions at all until about £12,500. That's a cut in National Insurance payment, so we've got 2 things going on in the tax year ahead. We've got the rise in the rate which means you'll be paying more National Insurance, but you're paying it on less of your earnings.

Susannah: What would you have liked the chancellor to do?

Mike: There are 2 things I would have liked him to do. The first one is just to give us a hint about what he might do in the autumn - you mentioned that the Office for Budget Responsibility were suggesting that inflation might peak just below 9 percent in the autumn. And that comes from them thinking about what will happen come the energy price cap, again in October. Now, we've just had a really big rise in the energy price cap in April, and these things happen twice a year and on current forecasts, the energy price cap is set to go up again in October. The Office for Budget Responsibility made their assessment in early March when the price rises after the Ukraine conflict were particularly high, so I think they got quite a pessimistic assumption on quite how much energy prices will go up in October. But even the assessments in the last week suggest the energy price cap could hit £2,600 in October. So, what I would have liked to have seen firstly, is the chancellor, maybe not saying what he wants to do right now, but at least saying what his approach might be, at least acknowledging that his response to April's energy price rise is not the last we've heard on this - he didn't do that. The second thing we really wanted him to do was to think about benefits and the state pension. Now, the idea behind benefit policy and state pension policy is that they stay the same in real terms, they go up in-line with inflation, that is current government policy. The problem with what's happening to benefits and state pension right now is that they've gone up in April, but they've gone up by a measure of inflation which was taken several months ago, back in September. In September, inflation was just 3.1%, right now as you said, it's over 6% and for the year as a whole, it's going to be about 8%. So, the idea here is that benefits should keep up with inflation, but they're not going to this year, they're going to fall back with a real term cut of about 4 or 5%. We're banding our numbers here, but if you're on a low income and your income goes down 5%, that's a really big burden to bear. So, what we were hoping the chancellor would do was step in and essentially bring forward a rise that will happen anyway.

Sarah: It's very difficult, isn't it, to cast ahead as to exactly what's going to be happening in the future and so much is uncertain about what we're going to see in terms of inflation and whether we're going to get any help. Are there any sort of specific things people can do to protect themselves against this uncertainty?

Mike: I think this is a different situation from what we've been through in the pandemic. The hope was, and the reality has been, we have got back to normal again. The economy has broadly recovered; employment has broadly recovered. Many people will find they're in the same job they were 2 years ago. And all the government was doing was providing huge amounts of support during the pandemic to prop us up to get us through the worst of it, as we went through lockdowns. But that analogy doesn't really work in a cost-of-living crisis. So, what's going on now is that raw materials, commodities, energy, they're just more expensive than they used to be. And although some of this is driven by speculation over the war in Ukraine, most of it is not, most of it was there anyway, before the war in Ukraine happened. And so, we are going to become permanently poorer as a nation because we are an oil importer not an oil exporter. And that means for many people, the standard of living that you're going to enjoy over the next couple of years, will be lower than it used to be. So, the first thing is to accept that, this isn't a temporary phenomenon that we have to tighten our belts for a bit and then we can go back to the life we're used to, this is going to be a reduction in the standard of living. So, I think people need to start planning on that basis, rather than this is a short sharp shock to cross our fingers and tighten our belts and hope things will be normal again by Christmas.

Susannah: It's interested when you look at, for example, the rate at which we're eating into those lockdown savings, those people of course who were in the fortunate enough position to be able to build up those savings. In some ways is seen as good because it will sustain the economy, this pace of spending, but are you worried about that trend?

Mike: I'm not particularly worried about that because those people who were in a fortunate enough position to be able to make savings during the pandemic, and we know that those savings arose principally because people just weren't going out, weren't going on holiday, weren't discretionary spending like they were before. If they are now using that windfall to get themselves through tougher times, I think that's fine. I'm more worried about those people who didn't manage to make savings, didn't manage to build up a buffer during the pandemic, who are now also being hit by higher cost-of-living.

Sarah: There seems to be a big rise in debt, particularly we've seen a big surge in the credit card figures over 1 month. Do you have any concerns of what it's going to mean when people are borrowing this money end up having to pay higher interest rates if we get higher rates as we go through the year?

Mike: You raise a very good point; we have had very low interest rates in the UK since basically the end of the financial crisis and many people will have got used to bank loans being relatively affordable and mortgage payments being fairly low. So yes, there is an extra risk coming from higher interest rates, although predicting where interests go right now is incredibly difficult. You definitely would not want to be the Bank of England, deciding whether what the country needs right now is higher interest rates but going down on inflation, when you know that's going to be very painful for people.

Susannah: Mike, thank you. It's clearly going to be an incredibly challenging time for people on all fronts.

It's not an easy time to navigate through all of this for investors - but help is at hand. I'd like to bring in our lead equity analyst Sophie Lund-Yates, who has been looking at some of the companies to watch - particularly for investors planning to invest via a stocks and shares ISA in the new tax year.

So, Sophie first stop - let's talk about Lloyds Bank - why is it one to watch this time around?

Sophie: I think I've spoken about Lloyds before, so I'll try not to dwell on this one too much. Essentially the thing to remember with Lloyds is that it's a bread-and-butter bank. All I mean by that is it relies a lot more on traditional banking and lending than other banks, who make a significant chunk of revenue from trading fees or investment banking commission.

That means that interest rate hikes are even better news for Lloyds than others with more diversified income streams. It also backs up the group's ability to pay a dividend and fund buybacks, with a prospective yield of about 4.8% - although please remember that's not guaranteed.

Lloyds has also recently announced a strategy shift, and will be spending £4.0bn over the next five years. Priorities include further digital investment, as well as expanding Wealth services. This helps reduce the overall reliance on interest rates in the future, but won't move the dial just yet.

One thing to keep in mind is Lloyds has been buoyed by a very active housing market and increased mortgage lending. This is likely to start slowing in my opinion, which isn't the end of the world but may well take some of the heat out of financial results.

Susannah: The logistics sector is facing plenty of challenges right now - and Royal Mail is undergoing a strategy shift - what should investors bear in mind?

Sophie: So, Royal Mail is really interesting in my opinion. The pandemic came along and massively accelerated the shift towards parcels, which essentially gave Royal Mail the kick it needed to make change more rapidly. Total parcel volumes are now up 15% compared to pre-pandemic levels.

However, the most important progress is not in sales, but in costs and operating efficiency. In the first half at least, Royal Mail was able to increase volumes without substantially increasing costs - doing wonders for margins and boosting profitability.

Nowhere is that better illustrated than in the progress the group has made on automation. Back in 2018-19 just 12% of parcels were sorted automatically, today that's more like 50% despite a huge uplift in parcel volumes, and the group has ambitions of hitting 70% in the not-too-distant future. Automated parcel sorting is more cost effective, but also improves quality and provides the extra flex needed to deal with peaks and troughs in demand - think about Christmas as a really busy period for example.

Further plans are afoot, with the next step in the transformation program set to reduce management positions by around 700. The group's clashed heads with unions in the past over staff cuts, so it'd be no small feat if they can reach an agreement on this, within the agreed timeframes. Plus, once initial costs are out the way, that'd be another c. £40m saving a year moving forward. This is ultimately the biggest risk if you ask me, so while I'm excited by Royal Mail and I believe it's a bit unloved when you look at the valuation, there's a higher chance of ups and downs than some of the steady eddies on this list.

Sarah: Healthcare has jumped to the fore during the pandemic - particularly when it comes to pharmaceuticals but what are the longer-term prospects of companies in other areas?

Sophie: So looking beyond big pharma, this is where Smith and Nephew comes in, which is a medical technology company. It makes components for hip and knee replacements, wound management and sports medicine and surgeries. If you think about it, these non-emergency procedures are exactly what got halted in the pandemic, meaning I think Smith and Nephew has a great opportunity to stage a strong revenue recovery as hospitals play catch up on non-emergency surgeries. Again, I've talked about Smith and Nephew before because it also makes an appearance on our five shares to watch for 2022 list, so I won't bang on about it too much. The one thing to keep in mind (there's always something!) is that global supply chain disruption could cause some medium-term headwinds for the group.

Sarah: And we often hear about utilities offering some resilience in the face of inflation - is there any company in particular in your watch list?

Sophie: Utility companies aren't the most exciting, I'll be honest. But in a world of soaring inflation, it makes sense to look for companies that offer non-negotiable items. That means people need them whether their household budgets are under pressure or not. Water is one such product. In return for providing a reliable and affordable water supply to North West England, Ofwat (the regulator) allows United Utilities to earn an acceptable financial return.

With prices set by the regulator and reviewed every five years, utilities' earnings have tended to be stable and predictable, which has supported a reliable dividend. However, one thing I would flag, United Utilities could find itself in a sticky situation if inflation remains elevated. That's because United Utilities' index linked debt, which tracks inflation, has become more expensive and as a result underlying net finance expense for the year is expected to rise by around £175m. Together with increased expenditure on infrastructure, this is expected to increase their overall net debt levels. At this point, our indicators aren't flashing red, but if inflation isn't brought under control within a reasonable timeframe it will become more problematic for the group.

Sarah: Now as we mentioned a couple of podcasts ago - not all tech is created equal - is that why you still have your eye on Microsoft?

Sophie: Microsoft is simply a fantastic business, to recap, its software is indispensable around the world, its software subscription model makes for recurring revenue, and its highly profitable cloud business is going from strength to strength. This lucrative position meant Microsoft returned $10.9bn to shareholders in the form of share repurchases and dividends in the second quarter.

Now of course, a more recent development is the impending acquisition of Activision Blizzard. The deal would allow Microsoft to beef up its existing gaming products, especially in the attractive subscription-based Game Pass. Snatching up some of the world's most valuable intellectual property in this way is a refreshingly useful way to spend some of Microsoft's enormous cash hoard. Luckily for Microsoft, Xbox revenues seem to be holding their own - padding out the nest for Call of Duty to land, which is made by Activision.

A big point here, is I view the current price to earnings ratio of around 30 as very undemanding. The market's assessment of Microsoft could come under pressure if tech stock sentiment were to become dramatically worse following recent sell offs. Microsoft's essential products does stop it from feeling the worst of this sentiment shift in my opinion, but it's still a possibility.

Sarah: Thanks Sophie. It's good to hear there are some positive stories out there still, despite all the challenges of the current environment. Of course, I should add that nothing in this podcast is personal advice - you should seek advice if you're not sure what's right for you. Investments rise and fall in value, so you could get back less than you invest. Yields are variable and not a reliable indicator of future income.

This is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. Investing in individual companies is higher risk compared to investing in funds as your investment is dependent on the fate of one company, and any investment should be made as part of a diversified portfolio.

Susannah: Now I'd like to bring in Emma Wall, our head of investment research and analysis here at Hargreaves Lansdown. Hi Emma. How are you?

Emma: I'm good thanks Susannah, how are you?

Susannah: All good, so much to talk about. Not least the recent stock market volatility and sharp commodities rally has seen investors snap up funds for broad exposure to fast-moving markets reacting to all of these recent events. So, tell me, you've been delving into the funds to watch - which ones in particular should we be keeping a close eye on?

Emma: Yeah, I'd like to pick up on that market uncertainty point because it has been a very challenging start to the year. Not just of course talking about the horrible events in Ukraine, but even before that market volatility was being caused by the anticipation of inflation and high interest rates. And with all that ongoing uncertainty, this has the potential to cause continued market volatility in the short term and so, in this environment we think a total return fund could be a good choice. So, that's a fund that tends to be more conservative, so doesn't invest just in equities, they invest in equities (or shares), or bonds, commodities, currencies, often gold, and the managers have the flexibility to move between those different investments depending on what their outlook for the market is at that moment in time. And these funds, they could provide modest growth over the long-term, but their main aim is to protect on the downside to try to give you that capital preservation. Although of course nothing is guaranteed.

So, we like Troy Trojan in this space. It has a solid long-term track record and it's run by an experienced fund manager, in Sebastian Lyon. He focuses on the shares of well-established US and UK companies that he thinks offer reliable earnings and good growth potential. And then the rest of the fund is in UK government bonds or gilts, US inflation-linked bonds - really important at the moment with inflation rising, and gold which is that perceived safe haven, and cash. That cash and gold does provide some ballast when economic and stock market conditions are tougher. The fund has exposure to a relatively small number of investments, meaning each one can have a meaningful impact on performance, which can be a good thing, but it does add risk - this tends to be a lower-risk fund however and we do think it could form part of the foundations of a broad investment portfolio to give stability, which is needed at the moment.

Susannah: Yes, what many investors are searching for right now, so what about a fund with an ESG focus? It can be like wading through alphabet soup for some investors when it comes to ESG, so what should they be looking out for?

Emma: Well, our house-view is that investing with environment, social and governance factors in-mind is just really good risk management. And there is one house we think does this particularly well and that's Legal & General, and they have a range called L&G Future World, and this is a range of passive funds which integrate environment, social and governance factors in the tilting of the investment portfolio. This allows you to have a positive impact on the environment and society but also invest in a way that aligns to your morals. So, make sure you don't have exposure to reputational damage, which can impact profits and drag down a company's share price.

Responsible investment funds give you the chance to make money in a way that's in line with your principles.

Legal & General Future World ESG Developed Index is one of the range that invests across developed stock markets, while being mindful of ESG issues. It aims to track the performance of the Solactive L&G ESG Developed Markets Index, which is made up of around 1,300 companies based across the globe. The majority invests in US-based companies, with the rest invested across areas such as Japan, the UK and Europe. So, no exposure to emerging markets in this fund, but it does give you that broad development market diversification. Please remember the price of company shares can fall as well as rise, so an investment should be made for the long term.

The fund has a bias towards sectors such as technology, pharmaceuticals and financials. It won't invest in tobacco companies, pure coal producers, makers of controversial weapons or persistent violators of the UN Global Compact Principles, in this fund.

Susannah: So, you talked there about certain sectors, but what about geographies? And, I'm thinking perhaps a fund with more of an Asia focus.

Emma: Some Asian and emerging economies were heralded in 2020 for the way they handled the pandemic. Swift and strict lockdowns helped to contain the virus, allowing some countries to lift restrictions sooner than developed nations.

Things were a little different in 2021. While lots of developed countries adopted a strategy of rolling out Covid-19 vaccinations as quickly as possible, some eastern economies lagged and entered new lockdowns. China, Asia's largest economy, was also held back by regulatory crackdowns from the country's authorities and trouble in its real estate sector. It goes to show different markets will perform well, or poorly, from year to year.

Over the long term, we do think Asian markets have strong long-term growth potential. Over the years, rapid industrialisation, growing populations, and a desire to succeed have helped transform countries in the region. Domestic consumption - individuals buying more, saving more - is set to be a key driver of growth over the coming years, helped by a young and growing population, and rising wealth.

This development may continue over the years, which could provide growth opportunities for investors. A fund such as ASI Asia Pacific Equity could take advantage of the changes taking place.

Some of these markets are still emerging though, and this comes with higher risks.

This fund is run by a team with one of the longest records of investing in Asia. They aim to find those that can generate long-term growth, which have been overlooked by others, and hold onto them for many years. Companies in good financial health, run by trustworthy management teams are favoured by the team. The fund has a bias towards businesses that rely on growing consumer wealth but aims to have at least some exposure to most major sectors across Asia.

Susannah: So that's Asia, I want to switch now to look at income.

Emma: Because interest rates are rising but they're not rising high enough for those people to be able to live off the yield of cash. So, we know year-in year-out when it comes to ISA picks, people are looking for income. One of the funds that we like that pays a dividend is Artemis Global Income. Now this could add a bit of diversification to a classic UK dividend portfolio and it's ran by a manager called Jacob de Tusch Lec, who's featured on this podcast in the past, along with his co-manager James Davidson. They look for companies across the globe, they think can earn plenty of cash that can be used to pay dividends. They look beyond the usual names that make up many global income funds. As a natural contrarian, de Tusch-Lec is not afraid to invest in out-of-favour companies at attractive share prices (known as value investing which has outperformed growth investing over the last year and a half) and he invests in companies over the long-term.

He has stayed true to his investment philosophy over many years. He also has the support of other global and income analysts at Artemis. This fund could diversify an income portfolio and work well with other types of funds using a different investment style, such as growth-focused funds.

Sarah: Emma Wall our head of investment research and analysis at Hargreaves Lansdown. Investing in these funds isn't right for everyone, so you should only invest if the fund's objectives are aligned with yours, and you specifically need this type of investment.

You need to get to grips with the specific risks of a fund before you invest, and make sure any new investment forms part of a diversified portfolio.

You can find out more about these funds, their charges, risks and key information documents on our website.

You're listening to Switch your money on from Hargreaves Lansdown.

And finally, it's time for the quiz, and Susannah has some taxing questions for me. If it's about the taxation of trusts I'm going to need a calculator.

Susannah: Don't worry, it's not a mental arithmetic test. I've gone back in time to discover some weird tax facts from the archives.

We'll start back in 1698, when Russia's Peter the Great introduced a tax on a fashion choice he felt was old fashioned, in an effort to get people to look more like modern Europeans. But what was the tax on, was it wigs, beards or pearls?

Sarah: Oh, all of them sound too weird to be true, but pearls sounds like the kind of thing it might be slightly easier to tax, so I'll go for pearls.

Susannah: No, I'm sorry, believe it or not it was beards. In fact, he apparently assembled his military leaders and diplomats, and personally shaved them - which must have been pretty terrifying. Once you'd paid the tax you were issued with a token, which you could produce if anyone challenged you about your beard.

Next, in the Georgian era, there were quite a few new taxes dreamt up. I'm going to give you a list of five - four of them are real, and one I invented myself, and you have to find the red herring. So, your choices are a window tax, a brick tax, a clock tax, a wallpaper tax and a rug tax.

Sarah: Again, they all sound like you've made them up - although the window tax is relatively well-known because of all the houses of that era with bricked up windows. So, it's going to have to be a stab in dark. I'll go for a clock tax.

Susannah: No, I'm afraid it was the rug tax. The clock tax was introduced in 1797, it applied to pocket watches as well as clocks around the house, and was so massively unpopular that it only lasted nine months. You're right about the window tax inspiring people to brick their windows up. They got round some of these other taxes too, so the brick charge was per brick, so they started making bigger bricks and the wallpaper tax led people to put plain paper on the walls and then decorate those, because plain paper was tax-free.

Next, income taxes were first introduced to help pay for the Napoleonic wars, but it was widely hated and abolished in 1816. It was brought back in 1842 as a temporary measure, and has remained in place ever since, but why was it brought back? Was it to pay for the Crimean War, to replace import and export duties or to pay for building the Natural History Museum?

Sarah: I always thought it was to pay for a war, but now I don't know which one, so I'll say it was to pay for the Crimean War.

Susannah: Sorry no, that didn't start until the 1850s, and the museum wasn't built until much later. Income tax was part of the free trade movement and replaced duty on 700 different items.

OK, so we'll come forward in time now, to weird taxes around the world. There's a little-known green tax in Denmark, which is designed to control a particular greenhouse gas, but is it a tax on the carbon dioxide from brewing beer, a tax on the methane from cow farts or a tax on CO2 from bonfires.

Sarah: I've no idea, they all sound bizarre, but it feels wrong to opt for anything other than cow farts.

Susannah: Yes. You're right. Apparently, Denmark has the highest cow fart tax in the world.

Finally, we're going back to the UK where VAT throws up some weird and wonderful rules. One of the odd ones is that biscuits are taxed as a luxury, but cakes don't attract VAT, because they're considered a staple. Jaffa cakes had been untaxed for decades, McVitie's claimed they were a cake, but HMRC took them to court in 1991 to argue they were taxable biscuits. McVitie's won the court case, proving they were cakes, but what was considered to be the turning point of the case? Was it when they pointed out that they were known as Jaffa cakes rather than Jaffa biscuits, when they proved you couldn't successfully dunk it in a cup of tea without it disintegrating, or when they argued that biscuits go soft over time and cakes go hard - and that Jaffa cakes go hard?

Sarah: Now I actually know this one, because I've had a look at some of the baffling tax rules, and it's the last one, it goes hard when it goes stale. There are so many weird anomalies. So, did you know that there's a tax on pets, but not on rabbits - because rabbits are treated as food. Which isn't something to tell your kids if you buy them a pet rabbit.

Susannah: No, that might just spoil Easter. Well, you rallied at the end there, and got two out of five.

Well, that's all from us this time, but before we go, we need to remind you that this was recorded on 4th April 2022, and all information was correct at the time of recording.

Sarah: Nothing in this podcast is personal advice - you should seek advice if you're not sure what's right for you. Investments rise and fall in value, so you could get back less than you invest. Past performance isn't a guide to the future.

Susannah: Yes, this is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv.

Sarah: And this hasn't been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

Susannah: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.

Sarah: You can see our full non-independent research disclosure on our website for more information. So, all that's left is for me to thank our guests Mike, Sophie and Emma, and our producer Elizabeth Hotson.

Susannah: Thank you so much for listening. We'll be back again soon - so if you enjoyed this podcast please do let us know what you think and do subscribe wherever you get your podcasts, so you get a fresh new episode in your inbox as soon as it's ready. Goodbye.