Has the UK Redefined What It Means to Be a High Earner?

Alphabet

Across the shows: 32 speakers in other episodes, 24 bullish and 13 bearish calls, past 30 days

• Anna Macdonald · Hargreaves LansdownUncertain

  Alphabet's core search business is slightly weaker than expected, and that is unsettling investors.

  Macdonald says the shares have fallen by more than double digits as investors grow nervous. Cloud is growing over 100%, which is strong and gives Alphabet other engines such as TPUs, which it can now sell. But search, the core of the business, came in a little weaker than people expected, though she says only slightly. She links this to a broader worry: many AI spenders are turning cash-flow negative, and a crack in the core business raises questions about the security of long-term AI investment.

  “what's the core of the business is still search. And that was a bit weaker than people looked for. That's really a tiny bit weaker, right? ... it's really not much.”at 41:04

Europe's economy

• Anna Macdonald · Hargreaves Lansdown

  UK should freeze tax and allowance changes for five years; constant tinkering damages confidence.

  Anna wants a freeze on tax changes, such as five years with no changes to tax-free thresholds or allowances, possibly indexation-linked. She says the cash ISA reversal and the new first-time-buyer ISA add more churn, and each change damages investor and saver confidence. Pre-budget rumours drove pension tax-free cash withdrawals up about 140% and then nearly 180% in the two prior years, a benefit savers cannot reverse. She also says about 50 tax changes in this budget and a further 50 from the previous chancellor pile up legislation, making tax advice more cumbersome and costly for small business owners and ordinary private individuals.

  “we would love just let's stop tinkering with [ISAs]. Let's have five years of no changes to tax free thresholds or allowances”at 7:51

• Anna Macdonald · Hargreaves Lansdown

  UK gilt yields have risen less than French, European and US yields, giving some credit to the UK.

  Anna notes UK borrowing costs are high but have risen much less since hopes of a Middle East resolution in July than yields in France, other European countries and the US. She sees this as some credit for fiscal moves such as the triple-lock to double-lock change, and suggests the UK may be seen as less politically risky. She hopes this can start a virtuous circle for borrowing costs. Merryn is not entirely convinced.

  “since we last had the potential ideas of some kind of resolution in the Middle East, it's say in July, our bond yields have gone up an awful lot less than our neighbors in France and others in Europe and in the US.”at 20:00

• Anna Macdonald · Hargreaves Lansdown

  Shrinking UK housing supply will push up prices and rents, despite effective rent control.

  Anna says the OBR has flagged a hit to house building. Combined with effective rent control, this means the supply of properties to rent and to buy is shrinking. That will lead to more pricing problems for both renters and buyers. She thinks rents may not rise much because of rent controls, but supply will fall.

  “An ever shrinking supply of properties to let or properties to buy or that exist is going to lead to more and more issues around pricing, whether you're a renter or a buyer.”at 25:39

Asset managers, brokers & exchanges

• Anna Macdonald · Hargreaves Lansdown

  Cash ISA holders often move into stocks and shares ISAs within six months, making cash a first step to investing.

  Anna says cash ISAs are popular and that about one in five people who open a cash ISA with her firm go on to open a stocks and shares ISA within six months. She therefore argues cash ISAs can be a first step towards investing. She adds that the cut to the cash ISA limit caused confusion and worry, so the reversal is welcome, but the details of the new starter ISA for investors are not known yet.

  “one in five people who open a cash ISA with us go on within six months to open a stocks and shares ISA. So perhaps it is the first step to getting people investing.”at 3:50

Venture capital & startups

• Anna Macdonald · Hargreaves Lansdown

  UK has VCT and EIS support but lacks late-stage capital, so scale-ups get bought by overseas investors.

  Anna says the UK has a good VCT and EIS culture for backing early-stage firms, but is missing the extra step that takes companies from around £10m in value up to become future listed companies. She contrasts the founders' relief on sales up to £10m with the much larger sums in the US, saying it is not a game changer. The result is that UK companies are bought by overseas investors rather than growing into UK-listed firms.

  “we've got good VCT and good EIS culture ... what we're still missing is that extra leg that takes those companies and moves them up to the next level and doesn't get them bought by overseas investors.”at 14:34

European politics

• Anna Macdonald · Hargreaves Lansdown

  Labour leads polls and split Conservative vote gives PM confidence for an early election.

  Anna argues the UK's politics favours the government calling an election. Labour is ahead in the polls, the Green vote has diminished, and the Conservative vote is fragmented by Reform. Even if Reform is polling below earlier levels, it still takes enough votes from the Conservatives that the prime minister may feel confident. A win would give a five-year term to deliver a ten-year plan, which might explain why the budget avoided big tax and spending moves.

  “whilst it does feel like we're getting back to two party politics, the green vote has really diminished. Labour is ahead in the polls, and the Conservatives vote has been fragmented by the reform.”at 18:55

AI infrastructure & data centers

• Anna Macdonald · Hargreaves Lansdown

  Big AI spenders are going cash-flow negative, which puts their long-term AI investment in question.

  Macdonald recalls that big tech firms could fund AI investment easily when they were cash-flow machines. Now a lot of them are going cash-flow negative. Combined with weakness in core businesses, she asks what this says about how secure their long-term AI investment is. She presents this as the source of the nervousness that is hitting Alphabet and the wider market.

  “A lot of them are going cash flow negative. And if the core parts of the business, no matter how great they are, just seem to be crumbling a little bit, what does that say about the security of that long term investment?”at 41:29

International equities

• Anna Macdonald · Hargreaves Lansdown

  UK equities are a useful non-AI counterweight, running neck and neck with the S&P 500 this year.

  Macdonald says the UK market has been a wonderful counterfoil to the AI trade, a non-AI trade. It is running neck and neck with the S&P 500 this year, and the FTSE has done just as well. On a total-return basis, including dividends, it may be ahead. She links this to investors continuing to buy low-cost diversified global trackers and UK shares, which she says remain popular.

  “The UK market has been a wonderful counterfoil to that, the sort of non AI trade, which is running neck and neck with the S and P this year. FTSE has done just as well.”at 42:37