Rathbones Review Winter 2017 Made in Britain Weaving a new narrative for the textile industry

Back on track? Will infrastructure finally fulfil Africa’s promise? Plight of the humble bee Keeping plants and pollinators in sync Clouded judgment In search of security in the “big data” age Contents — Winter 2017 10 Trouble in the air? 4 Material gains

16 Sting in the tale

Contents

4 Made in Britain 30 A new way of thinking about The rebirth of the UK textile industry income Novel approaches to the “new normal” 10 Clouded judgment Is remote data storage wise? 32 Africa: on track to a brighter future? Unlocking Africa’s potential 14 The game of politics Behaviour, bargaining and Brexit 37 Healthy argument The sweet spot of healthy investing 16 Plight of the humble bee Pollinating the global economy 40 Heirs and graces The importance of making a will 21 Regional renaissance From brain-drain to business case 42 Financial planning: estate of the nation 24 Inflation: an economic reality Maximising a legacy for loved ones of life In search of comfort amid the corrosion 44 Women in war Corps competencies in the age of equality 26 Multi-generational living

United against rising costs iStockphoto, Juice Images/Alamy, Mark Waugh/Alamy, images: Cover Copyright Crown CPF Photography/Alamy, Naumann/Alamy, Matthias

2 Rathbones Review rathbones.com A word from Rupert Baron 21 Engine of recovery Welcome to the winter edition of Rathbones Review

t is well known that Britain led the Industrial Revolution. Less appreciated is the fact that it was also at the vanguard of what has Ibeen called the “de-industrial revolution”. Beginning in earnest in 44 the 1970s, when the “overmanning” of industry was first touted as a major contributor to the country’s economic woes, the decline of Force for change manufacturing was more dramatic here than in any other developed nation.

Historian Paul Kennedy — a professor at Yale, but once a child who revelled in the spectacle of ships being built and launched on his native Tyneside — memorably lamented the loss of “a deep satisfaction about making things”. Yet there are signs that this satisfaction is returning. Today, as we explain in our lead article, shifting global economics and the renewed desirability of the “Made in Britain” brand are driving a reawakening in manufacturing — not least in textiles, the sector that powered Britain to industrial pre-eminence in the first place.

A regional renaissance is taking place as well. The potential value of greater economic diversification is becoming ever more apparent in the era of Brexit, strengthening the case for investment in areas that may have been comparatively overlooked in the recent past. We explore the example of the Midlands Engine, an initiative encompassing cities such as Birmingham, Nottingham, Leicester and Derby.

As ever, we cover a wide variety of topics. From looking into the appeal of multi-generational living, discussing the issue of security in Editor the age of “big data”, to the curious relationship between the bumblebee and the global economy and whether Africa is on track to Samantha Boyd a brighter future in light of significant investment in new infrastructure. Investment Director I hope you enjoy this winter edition of Rathbones Review — and If you have any comments on this please remember that we always welcome your feedback. publication or suggestions for topics that you would like to see discussed in the future, please let me know. [email protected]

Connect with Rathbones

@Rathbones1742 Rupert Baron in Rathbone Brothers Plc General Manager — London Investment Director Rathbone Brothers Plc [email protected]

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Britain produces unique textiles such as Harris Tweed, seen here being made at Shawbost Mill on the Isle of Lewis.

Image: Gary Doak/Alamy

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Made in Britain

Britain was once the global giant of the textiles industry, but found itself unable to compete with the relentless growth of cheaper overseas producers. Now though, shifting global economics and the desirability of the Made in Britain brand mean the UK’s textile industry is enjoying a renaissance.

Matthew Field, Investment Manager, Rathbones

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s the world’s first industrial nation, Britain was a manufacturing Apowerhouse. In the 19th century, the UK dominated the international textile trade and the industry was the nation’s largest employer.

At the heart of this success was cotton spinning. Using steam power, Manchester earned a place in history as the world’s first centre of mass production and the city and surrounding towns became known as ‘Cottonopolis’. This was the epicentre of the At its peak, the UK Stockport in the 1830s. The Manchester area became UK’s cotton industry at a time when the known as ‘Cottonopolis’ at a time when the UK was nation was responsible for 80% of global produced 8 billion square responsible for 80% of global cotton yarn and fabric production. cotton yarn and fabric production. yards of cloth in a year — By the time the UK cotton industry reached in most other Western countries — and the its peak in 1912, it was producing 8 billion equivalent to more than loss of jobs was much greater. square yards of cloth a year — the equivalent 1.6 million football pitches. of more than 1.6 million football pitches. Coventry, which was a major manufacturing centre and one of the birthplaces of the The outbreak of the First World War, however, ‘Buy British’ campaigns from Marks & Spencer British car industry, has been described as a proved disastrous for British textiles. Cotton and others, the UK could not compete with ‘microcosm of deindustrialisation’. The city’s could no longer be exported to nations lower labour and raw material costs in 15 largest companies shed 55,000 jobs around the world. Many countries that had countries such as Bangladesh and China. between 1975 and 1982, in a city of around previously been lucrative markets opened During the 1980s and 1990s hundreds of 300,000 people, according to a 2012 report their own factories and began producing cotton thousands of textile jobs were lost as UK by academic Dr Anton Popov, then of Warwick themselves — and more cheaply. retailers and fashion brands moved production University. to Asia. The industry was further damaged by a Protectionism versus globalisation boycott of British cotton led by Mahatma Deindustrialisation Gandhi as part of his campaign for India’s It is hardly surprising then that Brexit independence from British rule. In the painful decades of deindustrialisation, campaign rhetoric about protecting British textile production was reduced to a shadow jobs found a receptive audience in areas In the years between the First and Second of its former self — and it was not alone. From that suffered particularly badly from the World Wars, 800 British cotton mills closed ship-building to steel-making, car production decline or loss of local industries. Coventry, — and 345,000 workers left the industry. to kitchen appliances, British manufacturers for example, voted to leave the European found themselves unable to compete with Union by 85,097 votes to 67,967. By the 1960s, the textile industry still cheaper overseas producers. provided jobs for 1.5 million people and as As we examined in more detail in the Winter recently as the late 1970s, Marks & Spencer In this respect the UK suffered more severely 2016 edition of Rathbones Review though, — the nation’s favoured purveyor of shirts, than many other developed economies. In history has shown that protectionist policies socks and underwear — could still boast that what University of Cambridge academics are not the way to safeguard jobs in Britain 90% of its clothing was produced in the UK. Michael Kitson and Jonathan Michie have — or anywhere else. One of the lessons of called the ‘age of decline’, the process of the Great Depression of the 1930s is that The impact of cheaper overseas producers deindustrialisation happened faster in the UK creating barriers to free trade has a negative

was growing though and despite spirited during the period from 1973 to 2007 than impact on economies and jobs. Limited McLaren Automotive Images: Classic Image/Alamy,

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McLaren plans to build advanced carbon-fibre chassis for its supercars at a new factory on the outskirts of Sheffield.

Economic factors support revival

Global economic factors are helping this revival. The cost of production in overseas factories has increased, as wages have risen, and weaker sterling has compounded this effect for British retailers and fashion houses buying abroad — while UK-produced goods are now cheaper for overseas buyers.

The report for Lord David Alliance found that UK retailers are increasingly recognising the Today, the single most powerful argument has announced plans to open its first hidden costs of relying on lower-cost against protectionism is the interconnected manufacturing plant in the UK. overseas suppliers and that considerations nature of the modern world. Trade tariffs such as security of supply were judged to risk damaging domestic companies relying UK textiles industry growing outweigh higher production costs in the UK. on foreign suppliers as much as they do overseas exporters. In the textiles industry too there are positive The case for using UK suppliers is signs. We are unlikely to ever see a return to particularly strong for ‘fast-fashion’ retailers, Globalisation and prosperity global dominance in mass production, but who place a premium on the shorter lead there is certainly evidence of a growing times from design to delivery made We should remember that globalisation has market for clothing produced in the UK. possible by using British manufacturers. brought unprecedented prosperity. It emerged for good reasons and we believe The UK fashion and textiles sector is Online fashion retailer Boohoo.com, which that with some adjustments it will continue enjoying significant growth, with the value sells rapidly changing fashion styles to enhance living standards well into the of exports increasing to just over £9 billion primarily aimed at those aged between 16 future. in 2016 — up 28% since 2012, according to and 30, is one of the businesses using British the UK Fashion and Textile Association. suppliers to cut delivery times. Policy-makers now appear to be recognising the need to address some of the factors that Around 10,000 new jobs could be created “We are proud to source over 50% of our have driven people to push back against in the UK textile industry by 2020 and an products from the UK,” said CEO Carol Kane, globalisation. If, for example, we take the extra £500 million contributed each year to who added that the industry was going from example of rising economic inequality, the the economy over that period, according to “strength to strength”. UK government has begun to address this a report for businessman Lord David Alliance’s through increases in taxes for those owning eponymous Alliance Project and the N Brown “Having our suppliers nearby is a crucial part a second home or investment property. Textiles Growth Programme. of our business model. We are a fast-fashion The idea is to cool the housing market so business with a focus on speed to market, so more first-time buyers can afford to get on Liberal Democrat leader Sir Vince Cable, former being able to manufacture our products in the housing ladder. Secretary of State for Business, Innovation the UK allows us to lead the way in offering and Skills, has said the revival of UK textile the very latest trends and styles.” At the same time as action is being taken manufacturing is “real and growing”. to address these concerns, we are also Conditions criticised seeing encouraging developments in British “The textile industry was widely thought to manufacturing, with both factory be extinct in the UK, but some outstanding While the growth in UK textile production production and employment numbers entrepreneurs, using new technology plus has been widely welcomed, the industry has increasing this summer. Supercar-maker modest government help under coalition come in for some criticism. Earlier this year, McLaren has unveiled proposals for a new industrial strategy, have turned things around,” Nick Beighton, Chief Executive of online factory in Sheffield and aircraft giant Boeing he said. fashion retailer ASOS, and Anders Kristiansen,

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Chief Executive of high street chain New Look, joined forces to warn about unsafe working conditions in textile factories in Leicester, which is home to a third of domestic textile production. They called for stronger measures to protect workers before their companies can increase investment in UK production.

A University of Leicester report in 2015 suggested that, while there had been a striking revival in clothing manufacturing in 6 5 the UK, the majority of those working in Leicester’s garment industry earned around £3 per hour at a time when the National Minimum Wage was £6.50 an hour.

The Alliance Report, however, found that many of the new jobs being created in UK textiles were highly skilled jobs in areas of high unemployment.

Upmarket high street retailer Jigsaw is another company that has benefited from the faster turnaround times made possible by using UK manufacturers. Last winter, when a premium quality £39 Scottish-made woollen hat became a best-seller, it was able to reorder 1. In the 1960s, the textile industry still employed 4 and replenish supplies with a four-week 1.5 million people in the UK. turnaround, rather than what could have been four months using an overseas supplier. 2. Between the two World Wars, 800 British cotton mills closed. Former mills like these ‘Unique’ products in Manchester have been converted into apartments. Jigsaw’s Chief Executive, Peter Ruis, said the UK remained a textile leader with a 3. More than half of online fashion retailer “unique and differentiated” point of view. Boohoo.com’s products come from the UK.

4. Britain’s textile industry is enjoying a revival and researchers say around 10,000 new jobs “ The textile industry was could be created by 2020.

widely thought to be extinct 5. As recently as the late 1970s, 90% of Marks in the UK, but some & Spencer’s clothing was produced in the UK. outstanding entrepreneurs 6. Industry experts say that in the arena of high-quality textiles, Britain can compete with have turned things around.” anyone in the world.

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While the bulk of Jigsaw’s clothing is still “ Our heritage is around produced overseas, Mr Ruis said the company valued the speed to market and top-end, high-quality ease of communication provided by British manufacturers — and more importantly still, textiles. In this area we their creativity and quality. can compete with anyone 3 For consumers, some simply liked the in the world.” Made in Britain label, but for many the big attraction was the uniqueness of products like tweed or Shetland wool, he said. very important to our customers and sourcing as locally as possible is something “I think we should stop talking about the that we’re particularly passionate about, so issue in terms of cost. At the end of the day we’re always looking for high-quality, we only use high-quality suppliers. The UK natural and local yarns. is very good at certain things: Northampton-made shoes, worsted flannels “We’re delighted to able to support English from the South West and tweeds from across Fine Cottons and see this industry the UK. These are beautiful artisan products.” kick-started in Britain once again.”

Cotton spinning returns Tracy Hawkins, Vice President — Sales and Marketing at English Fine Cottons, said the In the town of Dukinfield, just outside company hoped that using cotton spun in Manchester, a small moment of history was the UK would be a successful strategy for made last year when English Fine Cottons businesses like Oscha. brought commercial cotton spinning back to the UK, more than 30 years after the last “After a year in production, we’ve come cotton mills closed in the 1980s. across more and more businesses like them — that have a loyal base of customers who The new facility is in Tower Mill, a not only love their products, but the story refurbished Victorian cotton mill first used behind their products. We’re proud our for cotton spinning in 1886. Today’s yarns are reaching companies that are as operation uses state-of-the art technology passionate about provenance as we are,” she to produce luxury yarn for domestic and said. global markets. Looking ahead, few believe the future for The company says it has brought cotton British textile producers lies in mass spinning back to its spiritual home and is production. In the view of Jigsaw’s Peter Ruis “breathing new life into a British industry the nature of the global textile industry and that used to be the envy of the world”. of the UK economy means it would be very hard for volume production to be competitive The company’s yarns are being used in a again. new range of luxury scarves from Oscha, a family-run business based just outside Instead, he believes the future lies at the Edinburgh. premium end of the market, saying: “Our heritage is around top-end, high-quality Zoe Masters, who founded Oscha with her textiles. In this area we can compete with father, said: “We know that provenance is anyone in the world.”

Images: Black Country Images/Alamy, lowefoto/Alamy, Russell Hart/Alamy, Cultura Creative (RF)/Alamy, Carolyn Jenkins/Alamy, Jeff Gilbert/Alamy

rathbones.com Rathbones Review 9 Clouded judgment

Facebook data centre campus in Lulea, Sweden. It is home to tens of thousands of servers on the site.

Image: Facebook

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Clouded judgment

Today a huge wealth of information, including some of our most personal material, finds its way to the “cloud”. In the era of hackers and cyber-warfare, is the shift to remote data storage wise?

Lee Wilson, Head of Digital Marketing, Rathbones

Where is the wisdom we have For individuals and organisations alike it has brought many benefits — speed, convenience lost in knowledge? and cost-effectiveness foremost among Where is the knowledge we have them. It has never been easier or cheaper to accumulate and access colossal quantities of lost in information? information.

— T. S. Eliot, Choruses from the Rock Increasingly our devices, like laptops, smartphones and tablets, are pushing this liot posed some interesting welter of data to the “cloud” — a huge philosophical questions. Most of us network of internet-hosted servers that Etoday have more prosaic concerns: store and manage it. Where is all our information and what happens if we lose it? “ It has never been easier or In 2013, in a report entitled What Will We cheaper to accumulate and Make of This Moment?, US-based technology giant IBM calculated that 2.5 quintillion access colossal quantities bytes of data were produced every day during the preceding year. An American of information.” quintillion may be smaller than a British quintillion, but this feat still entails plenty When your fridge recognises your regular of zeros — 18, to be precise. eating habits and orders what you need from the supermarket (as well as offering healthier It was subsequently estimated that 90% of recipe ideas) you can be sure it will not be all the data in the world had been generated storing all the necessary information in a hard over the course of the previous two years. In drive under the cool box. The next generation essence, this means humanity managed to of intelligent household devices will only add amass barely a tenth of the sum total of its to the data stockpile. available information — useful or otherwise — between the dawn of civilisation and the Understandably there are mounting concerns start of this decade. This is truly the age of about how this extraordinary wealth of “big data”. facts, figures and insights is retained, how it is

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used and how it could be misused. In an era requires a lot of room. A smartphone may well across desert or tramping through snow is by when everything from bank transactions to be at least a million times more powerful than no means uppermost in the concerns of either holiday snaps, and even data on which brand the computers that helped put man on the those who store data or those who supply it. of chocolate you like, resides somewhere in Moon, but the reality is that our everyday the cloud it is not surprising if it leaves you devices cannot accommodate the exponential Is anywhere truly safe? feeling just a little vulnerable. Are those fears explosion in information generation. With justified? data now gushing from a myriad of “smart” The infiltration of computer systems has gadgets — cameras, sensors, lighting, heating, become an art — one whose most skilful From intergalactic to Arctic Circle and even kettles — the cloud is becoming a exponents sometimes appear capable of go-to repository for a never-ending stream anything. From the theft of celebrities’ Although the term was popularised by online of minutiae. intimate photographs to the temporary retailer Amazon in 2006, the origins of what sabotaging of worldwide online services we now know as “cloud computing” stretch Important information is stored there too. such as PayPal and Netflix, there seems to back to the 1960s. Joseph Carl Robnett Business owners are moving away from be ample evidence that nothing can ever Licklider was a director at the US Defense having to buy and maintain expensive servers. be viewed as genuinely secure. Department’s Advanced Research Projects Much of their information — transaction Agency (ARPA) when he first proposed the records, accounts information, client work The cyber-disruption of Iran’s nuclear concept of what he called an “intergalactic — is also now stored in the cloud. So is much programme offers one of the most remarkable computer network”. of our personal financial information. examples of what can be achieved. In 2006, in an operation codenamed Olympic Games, “ The infiltration of But is it safe? After all, it is not only the need US intelligence specialists devised a computer for acres of space that gives rise to far-flung virus able to tap into and infect the systems computer systems has outposts in the likes of Nevada and the Arctic controlling the centrifuges at the Natanz Circle. Tellingly, Switch’s centre in Tahoe Reno industrial plant, thereby impeding the Iranian become an art – one whose has been named the Citadel and is encircled regime’s efforts to enrich uranium. most skilful exponents by a 20ft-high concrete barricade. Security is clearly paramount; and yet the threat of The attack, which has been widely reported sometimes appear capable intruders clambering over a wall after trekking but never officially acknowledged, took of anything.”

Licklider envisaged a system that would connect everyone around the globe, allowing them to access programmes and data from anywhere and at any time. His idea led to ARPANet, whose underpinning technologies would one day provide the foundations for the internet. The cloud represents the latest evolution of Licklider’s “intergalactic” vision, employing a massive nexus of dedicated facilities to process and hold immense amounts of data.

But how immense is this? The world’s largest data centre, owned by industry leader Switch, is designed to eventually occupy up to 7.2 million square feet in Tahoe Reno, Nevada The deliberately remote Utah — and will use 500 miles of fibre optics to Data Center, operated by the serve clients including eBay. Plans to build a US’s National Security Agency, facility with a potentially record-breaking embodies many of the concerns capacity in the Arctic at Ballangen in Norway surrounding what happens to were recently announced. our personal information. Critics have accused it of storing and The remoteness of these locations is analysing everything from private significant. Data storage on this epic scale emails to parking receipts.

Image: EFF

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advantage of a software failing of which the were known as “fists”. Today each of us has target was unaware. Iran eventually realised an intensely detailed “fist” from which an what was happening only because a adept hacker can assemble a rich picture of Keep safe programming error caused the virus to our day-to-day routine, our preferences and replicate elsewhere on the internet, allowing our habits. No means of digital storage can IT firms to capture and reverse-engineer it. guarantee complete security, but In 2014 researchers from Germany’s Saarland there are steps you can take to help Olympic Games has since been described as University revealed how they were able to protect your cloud-stored data. the cyber-warfare equivalent of the dropping predict the behaviour of study participants of the first atomic bomb. There have even by analysing data from the wireless devices been high-level claims that it was merely a in their homes — even though many of those 1. Treat passwords seriously small element of a proposed larger operation, devices were encrypted. Using data “leakage” from your Nitro Zeus, which could have degraded Iran’s home or workplace, a hacker can power grid, communications and other vital Similarly, there is an astonishing scene in identify all the obvious infrastructure. Citizenfour, the acclaimed documentary candidates — your partner’s about Edward Snowden, the former CIA name, your favourite football How secure can the cloud be when hackers employee who exposed the extent of team, your preferred restaurant purportedly possess the ability to bring an governments’ telecommunications-led and so on. Use a genuinely entire country to its knees? Maybe nowhere surveillance programmes. It shows Snowden obscure password for your cloud is absolutely safe; but some places are at least laboriously conversing via pen and paper for accounts, just as you should for safer than others. fear that his every word is somehow being non-cloud access. monitored by a commonplace fixture or Home is where the danger is fitting — a phone, a computer, a television. 2. Use an encrypted service First World War surveillance experts could All of this underlines an important point: identify and track specific military ships or informed opinion holds that the cloud can You can encrypt your files before units by discerning tiny variations in patterns afford more protection than the home or uploading them to the cloud, but of Morse code. These subtle distinctions office premises. The vast majority of it is also advisable to use a cloud data-breach victims have been on internal service that provides encryption databases rather than their cloud-based of its own. The best will employ counterparts; in fact, some insist the cloud security algorithms that require has never been hacked. The encryption enormous processing power and algorithms and other measures used to incredible patience to penetrate. safeguard cloud data are usually the most complex of their kind. 3. Review what you store The notion that our most personal and The low cost and convenience of treasured information could be better kept cloud storage can mean it’s amid a titanic maze of microchips tempting to continually save and somewhere in Nevada or Norway might be forget about your information especially difficult to accept if we are and this often leads to huge accustomed to simply cramming a jumble amounts of unnecessary (but no of bills, bank statements and photos into a less sensitive) data being stored. cupboard. It is possible, too, that both the It is good practice to regularly cloud and big data more generally may yet review what you store and why to suffer what some commentators have reduce the risk of your data being dubbed a “horsemeat moment” — a scandal compromised. that dramatically undermines consumer confidence. On balance, though, the emerging consensus is that this cloud is much like any other: capable of casting an occasional worrying shadow, but ultimately blessed with a silver lining.

rathbones.com Rathbones Review 13 The game of politics

The game of politics

With the influence of politics on the global economy growing, could game theory provide a model for success?

Rebecca Tunstall, Investment Manager, Rathbones

t is no surprise that investors prefer the The Prisoner's Dilemma clear blue seas of economics to the Irelatively muddy waters of political analysis Prisoner A Prisoner B Prisoner A Prisoner B Prisoner A Prisoner B when it comes to making decisions. Game Betrays B Betrays A Betrays B Remains silent Remains silent Remains silent theory suggests that there is a unifying model that can provide a clear analysis of both.

The recent rising tide of populism and anti-globalisation have arguably strengthened the influence of politics on economies. Brexit and other political issues could have a significant impact on economic growth. 5 years 5 years Released 15 years 1 year 1 year Hunter S. Thompson once described politics as the art of controlling your environment. Total time: 10 years Total time: 15 years Total time: 2 years Put simply, game theory provides a model for understanding how competing parties negotiate to reach the best outcome for themselves. As Do nice guys always finish last? “ If we apply the Prisoner’s it turns out, economics is actually a subset of game theory, which also provides a model Though it seems to defy reason, it turns out Dilemma to Brexit for how political outcomes are reached. that the rational choice for both prisoners is to betray each other. It results in the less than negotiations, that does not In 1950 Albert Tucker came up with what optimal outcome of both serving a five-year bode well for future is still probably the best known “game” in sentence, when they could have reduced that the field – what he called the Prisoner’s to one year each by cooperating and both economic cooperation and Dilemma. Here is Tucker's description: remaining silent. But it is logical that both players, acting rationally, would choose not to growth in either the UK or Two members of a criminal gang are arrested cooperate. the EU.” and imprisoned. Each prisoner is in solitary confinement with no means of communicating This helps shed some light on why Brexit This is technically what has become known with the other. The prosecutors lack sufficient negotiations may not be as amicable as we as the Nash equilibrium, mathematically evidence to convict the pair on the principal might hope. And it seems to provide hard proven by John Nash, hero of Sylvia Nasar’s charge. They hope to get both sentenced to a evidence for the old adage that “nice guys biography and the eponymous filmA year in prison on a lesser charge. Simultaneously, always finish last”. Beautiful Mind. the prosecutors offer each prisoner a bargain. Each prisoner is given the opportunity to Why is it rational to behave this way? In this If we apply the Prisoner’s Dilemma to Brexit either betray the other by testifying that the simple, binary application of game theory negotiations, that does not bode well for future other committed the crime, or to cooperate betraying the other party, or non-cooperation, economic cooperation and growth in either with the other by remaining silent — as shown works out as the better option for each the UK or the EU. But fortunately, game theory in our illustration. individual, and humans are essentially selfish. has moved on from the limitations of the

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Prisoner’s Dilemma. In real life, negotiations unheeded amid what Brock called a “dialogue are much more complex, and the ‘games’ Intuitively, it makes sense not to burn your of the deaf” in US policymaking circles. One involved have multiple iterations. If you play bridges with your neighbours and trading of the warnings was the need for a proper the game multiple times with full memory of partners, and this goes for both sides in the analytical model as compelling to politics as what occurred previously, a more cooperative Brexit negotiations. the law of supply and demand is to economics. outcome can evolve. But once having shown a willingness to Fortunately, such a model does exist, Political scientist Robert Axelrod tested this by cooperate, if this is not reciprocated, as per according to Brock, but it is hidden in plain inviting game theorists to join a tournament, the Tit for Tat model, the response should be sight and largely ignored in the field of political the results of which he describes in his book to switch back to playing hardball. So, while science (and apparently even more so in the The Evolution of Cooperation. The winning we hope for a growing spirit of cooperation as actual day-to-day business of governing). Its model submitted by mathematical Brexit negotiations unfold, signs so far suggest technical name is the Nash-Harsanyi-Selten pyschologist Anatol Rapoport, called “Tit for a more combative approach. (NHS) model of multilateral bargaining, Tat”, was one of the simplest: cooperate on the named after its 1994 Nobel-Prize winning first move and then reciprocate with whatever Is Brexit too complex for game theory? authors and game-theory experts. the other player does in response. This and other cooperative strategies generally came Of course, Brexit is not a simple negotiation It is not a name that trips easily off the tongue, out on top, Axelrod concluded, "by promoting between two parties — it involves a myriad and it does not seem as though it is being the mutual interest rather than by exploiting of stakeholders and issues, adding layer upon applied by either side in the fraught Brexit the other's weakness." layer of complexity. Can game theory cope? negotiations. But as Brock puts it, “Bargaining behaviour turns out to be the magnetic north So, approaching negotiations with a The economist Woody Brock, in his insightful of politics, and the Nash-Harsanyi model is willingness to cooperate seems to improve book American Gridlock, made many prescient the missing ‘core model’ that could play a

Illustrations: iStock, Crystal Eye Studio/Shutterstock Eye iStock, Crystal Illustrations: the chances of achieving the optimal outcome. warnings that seem to have largely gone unifying role in political science.”

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Image: iStock

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Plight of the humble bee

Global warming means spring is arriving sooner. As winter draws in that may sound attractive, but it means plants are flowering earlier than usual. If they become out of sync with nature’s pollinators, the consequences for the global economy could be serious.

Stephen Quick, Investment Manager, Rathbones

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henology is nothing new. It is the study More than 1.4 billion jobs of biological firsts — the arrival of the Pfirst swallow, the first bud or flower, the worldwide and three first leaf colouring and fall in deciduous trees. Crops at risk Since at least the late 18th century botanists quarters of the world’s have been logging seasonal events to help Some of the crops unlock the secrets of mother nature. crops, worth £385 billion, affected by shrinking rely on pollinators bee populations Now though, modern technology including remote sensors and satellites, is helping scientists see ever further and observe more forms. More than 250,000 have been closely. The pictures emerging are disturbing. identified so far and just as many more may Phenology is bearing witness to the earliest await recording. impacts of global warming and nature’s clock is running fast. Angiosperms require two processes to take place for successful sexual reproduction: Apples One species of sedge in Greenland is now pollination and fertilisation. bursting into growth 26 days sooner than it did only a decade ago. This year spring The sperm nuclei of the pollen have to be arrived up to three weeks early in many transferred from the anthers of a stamen parts of the US. Flower species there, such (the male reproductive organ of a flower) to as wild geranium, have been recorded the pollen-receptive stigma of a pistil (the blooming 24 days earlier than in 1945. female reproductive organ, which contains Kiwi fruit the egg nucleus in the ovary). In Britain studies suggest spring is now 11 days earlier than in the 19th century, with Some plants self-pollinate — pollen transfer the first oak leaves, swallows or hawthorn occurs within the same flower or among the flowers appearing a week and a half earlier flowers on a single plant, usually because than was recorded in 1890. the anthers touch the adjacent stigma.

Based upon signs like the appearance of The majority of flowering plants, however, Coffee frogspawn and orange-tip butterflies, depend on the transfer of pollen from other scientists say spring spreads from the individuals — cross-pollination. southwest to the northeast of Britain. Between 1891 and 1947 the season moved Some species manage this pollen transfer up the country at around 1.2mph, travelling through wind and water, but three quarters around 28 miles a day. Now it speeds across of the world’s angiosperms rely on bees and at 1.9mph, covering 45 miles a day. other pollinators to meet their reproductive Cacao needs. Typically, they entice pollinators Many of us in the north who hate the long, through the production of nectar. As the cold winters will guiltily welcome this pollinators move from flower to flower in news, knowing it to be too true to be good. search of this high-energy food that fuels their own reproductive cycle, the plants dust But one of the biggest dangers is that the them with pollen, which is then transferred Brazil nuts delicate balance in the eco-system between from flower to flower. plants and pollinators is knocked out of kilter. The majority of pollinator species are wild, including more than 20,000 species of bees Reproduction and survival and some species of flies, butterflies, beetles, moths, birds, bats and other Flowering plants that produce seeds are vertebrates. Of them all, bees are the most known as angiosperms and are among the important pollinator — 90% of the world’s

Cotton planet’s most successful and important life key economic crops are visited by them. Images Jie Zhao/Corbis/Getty Yarmolovich/Alamy, Images: iStock, Anastasy

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Pollination value

It is difficult to exaggerate the importance of pollination and pollinators.

A 2016 study by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) estimated that more than 1.4 billion jobs worldwide and three quarters of the world’s crops, worth £385 billion, rely to some extent on nature’s pollinators. Beyond food, pollinators also contribute directly to medicines, biofuels, fibres like cotton and linen, and construction materials. Globally nearly 90% of wild flowering plant species depend on animal pollination.

Scientists at the University of Reading’s Centre for Agri-Environmental Research “ We face a catastrophe in Above: In Hanyuan County in (CAER), who contributed to the study, say China’s Sichuan Province, farm that “insect pollination services” are worth future years unless we act workers like this young woman are having to painstakingly over £430 million a year to the UK economy. now. Wild pollinators need pollinate fruit blossom by hand each spring. Without pollinators, crops such as coffee, greater protection.” cacao and apples would drastically suffer, Overuse of pesticides is believed and changes in global crop supplies could to be behind a drastic reduction increase prices to consumers and reduce Some pairs of plants and pollinators may in the local bee population, profits to producers, resulting in a potential respond to different cues, like light, soil or air which in turn has led to falling annual net loss of economic welfare of up temperature. It could be that an early spring crop yields. to £150 billion globally. for the plants brings forward the season for Low labour costs in China mean bees too, and there is evidence to suggest hand pollination is still viable, but “Pollinators affect all of us,” says CAER’s that is the case. rising wages are likely to make director Professor Simon Potts. “Pretty this less economical. much nearly all your fruits and many of But there are other issues. One of the Over in Japan, scientists are your vegetables are pollination-dependent.” problems with early springs, as any gardener developing small robotic drones will testify, is the random sudden cold spell to work alongside bees. The Scientists fear that if flowers come into or frosty night. bottom of the drone is covered bloom before the bees and other pollinators in delicate horsehair coated in a are ready to set to work it could lead to Brood nest temperature is key to the health sticky gel to catch pollen grains severe depletion of yields in food crops. So of a colony and is carefully controlled. Honey from the plants visited. how big is that risk? bees in a cluster in the hive work hard to keep the queen and the larvae at between 32 and The risk 35 degrees Celsius. If the temperature is too high they fan the hot air out. If too low they Flowering plants and pollinators often eat lots of honey, uncouple their wings and co-evolved, timing their cycles to coincide contract and relax their flight muscles — — for example, insects maturing from larva think of it like shivering — to generate heat. to adult precisely when nectar begins to flow. Bringing forward their cycle makes them But scientists do not fully understand what much more vulnerable to cold spells. If they environmental and genetic cues plants and cannot create enough heat the eggs at the pollinators use to manage this synchrony. edge of the cluster may die, weakening the

rathbones.com Rathbones Review 19 Plight of the humble bee

Busy as a bee

Bumblebees gather nectar into their honey stomachs, located in the abdomen, to transport it back to the nest. They carry 0.06 — 0.20 ml.

During foraging the bee needs energy, so she will consume some of the contents of the honey stomach. To allow her to do this there is a small valve at the end which can allow some of the nectar to pass into the bee's own digestive system. It has been estimated that a full honey stomach will give a bumblebee about 40 minutes of flying time.

Some flowers contain as little as 0.001 ml of nectar, so to fill her honey stomach the bumblebee may have to suck colony. If they have to start the whole Above: Many farmers are forced to rent bees from nectar from 60 flowers, and three-week nesting process again it can put commercial beekeepers to pollinate their crops. to find these 60 she may have the pollinators and plants out of sync, to visit 100 or more. The reducing crop yields. — In more than half of European countries bumblebee will then return (including the UK, France, Germany and to the nest, which may be as Even modest deviations in optimal brood Italy) there were not enough honeybees much as two miles away. temperatures are known to influence the to properly pollinate the crops grown. health of the resulting adult bees, making To make enough honey to fill them more susceptible to certain pesticides — The problem was particularly acute in a 5ml teaspoon, a small as adults. Britain, which has only a quarter of the bumblebee might need to honeybees it needs to pollinate crops. make over 80 foraging trips Shrinking populations (not all in one day), flying up — Europe as a whole only has two thirds of to 320 miles, and sucking Certainly there is concern about bee the honeybee colonies it needs, with a 80,000 flowers. Honeybees welfare. Data is poor but what is clear is that deficit of more than 13.4 million colonies. also have a honey stomach, bee populations are shrinking — whether and as they are smaller than that is because of climate change, intensive Professor Potts said: "We face a catastrophe in bumblebees would have to agriculture or use of pesticides like future years unless we act now. Wild pollinators make even more foraging trips. neonicotinoids. These are particularly need greater protection. They are the unsung Source: Bumblebee.org controversial as they are absorbed into the heroes of the countryside, providing a critical whole plant, rather than remaining on the link in the food chain for humans and doing surface and so the bees are believed to ingest work for free that would otherwise cost the poison with the pollen. British farmers £1.8 billion to replace.

In Europe, 9% of bee species are threatened "We need a proper strategy across Europe to with extinction and a further 5% are considered conserve wild bees and pollinators through “near threatened”. Populations are declining habitat protection, agricultural policy and for at least 37% of European bee species and farming methods — or we risk big financial the same drivers are suspected to be at work losses to the farming sector and a potential in Latin America, Asia, and Africa. food security crisis."

The CAER team compared the numbers of There is a lot that can be done to support our active beehives to the demand for pollination valuable pollinators, but one thing that is services across 41 European countries, and going to be hard to change now is the weather mapped the changes between 2005 and — something to think about when you are

2010. They found: enjoying the early spring sunshine next year! Rakusen/Science Photo Library Images: iStock, Monty

20 Rathbones Review rathbones.com Regional renaissance

Regional renaissance

Sir John Peace, Chairman, Midlands Engine

Birmingham city centre has seen an enormous transformation in the past couple of years.

Image: Nick Maslen/Alamy rathbones.com Rathbones Review 21 Regional renaissance

1 In a post-Brexit world, Britain may have to become less reliant on its financial services sector and the South East. Former chancellor George Osborne was committed to encouraging greater diversification in the UK economy and was a big promoter of the “Northern Powerhouse” — an economic region stretching from Manchester and Liverpool to Leeds and Newcastle. Less prominent, but equally important, is the Midlands Engine, which includes cities like Birmingham, Stoke, Derby, Nottingham, Leicester and Lincoln. City veteran Sir John Peace is its chairman. Here he celebrates the growing strengths of our regions but argues they need more investment as Britain prepares for life outside the EU.

Do you see a renaissance of the If we have to rebalance the UK regions in Britain? economy does that mean it is currently unbalanced? Yes and no! Go to Birmingham, look at all the cranes, the changes, We have become too dependent the infrastructure investment on the South East, on London in with HS2 for example. There is particular, and on financial services, clear, physical evidence of but I qualify that. I think London progress there, and it is not alone. is the best capital city in the world bar none, and my comments are Confidence is coming back with not meant to be negative about our young people. In the Midlands London and the South East but we are seeing the emergence of more to illustrate the need to have a corridor stretching from a whole new generation of rebalance geographically, the Queen Elizabeth Hospital in entrepreneurial, technology-led economically and socially. Birmingham through to the businesses built on brilliant ideas. Queen’s Medical Centre in The dependence we have had on Nottingham which is creating The region is also underpinned financial services — which are tremendous new opportunities by some tremendous large, still very important to the UK and we’re carrying out significant global and genuinely world- — means that it is critical for other research within our universities. class businesses, like Boots, sectors to emerge which will Jaguar Land Rover, JCB, offset any possible reduction And don’t forget our service Rolls-Royce and Bombardier, following Brexit. Coming back sector. We have some very large Sir John Peace which have a real sense of to the Midlands, we have some companies growing their Born the son of a ambition at the moment too. genuine global strengths here businesses in accountancy and Nottingham coal miner, and it is vital we build on them. professional services, finance and banking. We have significant Sir John Peace trained at But in my view a huge amount of work still has to be done. It is What are the Midlands growth fintech expertise here too — Sandhurst before leaving essential we rebalance the sectors that excite you? expertise that has been the army to join the Great economy and that means places developed over many years. Universal Stores group. He like the Midlands Engine and the The Midlands is very good at quickly rose through the Northern Powerhouse needing making things. We have the One of the great strengths of the ranks to become one of the more investment and attention largest concentration of advanced Midlands’ economy is the UK’s most respected than they have had in the past. manufacturing businesses here, diversity of the opportunities and business leaders. He was with some powerful global brands industrial sectors developing here. chairman of FTSE 100 firm We need to drive economic producing high-tech products in There is still ground to make up Experian from 2006 to 2014 growth so that we can provide innovative ways. We collectively but we have global strengths and employ something like 460,000 real entrepreneurial attitudes. and of Standard Chartered better opportunities to create jobs especially for young people. people in that sector and it is Bank from 2009 to 2016. There are still some significant capable of significant What purpose do labels like Today he is chairman of the social issues that we need to development. Midlands Engine and Northern fashion house Burberry. tackle, too — in particular, Powerhouse serve? He is also Lord Lieutenant education results in the Midlands I’m also very taken by the

of Nottinghamshire. are below the national average. strength in life sciences. We These badges give scale and Images Chris Radburn/PA 1/Alamy, ACORN Charted Bank, Jaguar, Images: iStandard

22 Rathbones Review rathbones.com Regional renaissance

2 1. Jaguar cars are manufactured at Castle Bromwich in the West Midlands. 2. Logistics group DHL's hub at East Midlands Airport is its largest in the UK, capable of handling 45,000 shipments an hour. 3. Road modernisation around the M1 running through the East Midlands.

3

companies here not just exporting finished products to the EU but dealing with goods which move backwards and forwards multiple times before they reach a finished state. The Brexit negotiations are a very important issue for these Snapshot companies and are something we are focusing on very carefully. The Midlands Engine area has over 10 million people focus to particular parts of the as being in competition with the Right now, the Midlands is the which is 15.4% of the UK country and help us to unlock Northern Powerhouse or with only region that has a positive population significant potential. A powerful Scotland or Wales. Our trade balance with China. We will example of that is provided by competitive landscape is one need to widen our exports as a our trade missions to China. that takes in the likes of Shanghai, post-Brexit economy gears up £207bn Birmingham is a large city in its Frankfurt and New York, and if it so over the next two years we Value of the region own right, but if you look at the makes sense on occasion for the have 20 trade missions planned Midlands as a whole then you Midlands Engine and Northern to different parts of the world. have a regional banner covering Powerhouse to cooperate and Trade and exports some 10 million people. In a collaborate then that’s something I’m stressing the importance of country like China that kind of we should have no hesitation in good relationships with the EU. £43bn size makes a material difference to doing. Our biggest trading partner is Worth of goods the way in which you are viewed. Germany, France is third, the US via exports across The Northern Powerhouse has second. So it is extremely the region in 2016 They also represent a rallying been around longer and I think important that we increase the cry for our collective potential. I George Osborne did a good job in number of opportunities we think people would be amazed bringing some focus to it. Having create for businesses to export Investment at the long history of scientific, received some early financial and seek investment not only industrial and cultural creativity support from government, the from existing markets but new 8,300 in the Midlands and the number Midlands Engine is not far behind ones as well. Number of jobs of global products and brands that now and if there are things that it has given birth to. It is something the Northern Powerhouse has We need to secure investments created from 225 we should all be proud of, but we done that we can adapt — or vice not just in businesses but in Foreign Direct have to build on it and we’ll do versa — we should do so. infrastructure and new areas of Investment projects in 2016 that best together. growth. The government has How is this relevant to the set up a British Business Bank Employment What do you think the Northern Brexit debate? investment fund of £250 million. Powerhouse has achieved and That’s a substantial sum, but on 4.4m should the Midlands Engine Very relevant! Advanced its own it is not enough to support replicate that? manufacturing is hugely the investment requirements of People employed important to the Midlands’ Midlands businesses in a in 440,000 I don’t see the Midlands Engine economy and we have post-Brexit economy. businesses across the region

rathbones.com Rathbones Review 23 Inflation: an economic reality of life

and 1980s were rather unique: outside of Inflation: an economic periods of war, inflation has rarely strayed too far away from low single digits. In the 19th century, it averaged 0%. reality of life What drove prices higher in the 1970s and 1980s was a combination of the unfortunate and the ill-advised. The deregulation of Those who remember the rampant inflation of the 1970s mortgage lending and the mass adoption of credit cards fuelled an almighty consumer and 1980s may be over-concerned about its return and the boom, while the government slashed taxes insidious effect it has on our wealth. But history offers some and made a dash for growth. Wages rose and rose, in no small part due to monopolistic comfort too. labour unions that called strikes whenever pay caps were mooted, crippling productivity. Edward Smith, Head of Asset Allocation Research, Rathbones The 1973 oil crisis doubled the price of petrol. When it all came crashing down the rices have gone up a lot over the years. Influenced by the past situation was made far worse by appalling Mr Darcy, in Jane Austen’s Pride and monetary policy decisions that left firms’ PPrejudice, earned his status as one of the Inflation in the UK has averaged 2.1% a year and households’ expectations of what prices most famously flush men in English literature over the last 25 years, but during the 25 would be next year — or the year after that with an income of just £10,000 a year at years before that it averaged 8.4%, breaching — dangerously unanchored. the turn of the 19th century. Fast-forward a 25% in the 1970s. Now we are all particularly hundred years or so and Charles Foster Kane’s fallible to assuming that our past experiences This perfect storm is unlikely to be $60 million fortune in Citizen Kane are the rule rather than the exception, and repeated. Lessons have been learned a very established him at the top of the rich list. You older readers may be tempted to think the hard way. Since these events inflation — and would need a thousand times that today. recent quiescence is unusual. wage inflation — has been characterised by a slow-moving, stable trend. One of the most complicated and fiercely “ Outside of periods of war, debated of everyday life’s economic It is often helpful to think of inflation in phenomena is why and how prices keep inflation has rarely strayed terms of the old adage, too much money rising. The vast majority of us experience too far away from low chasing too few goods. But do not let the inflation and its consequences every day. simplicity of that statement fool you: the single digits. In the 19th influences on the flow of money and the Everyone buys goods and services; most of amount of goods (and services) are legion. us earn a wage or an income from their century, it averaged 0%.” savings and investments; everyone ages; Maybe history has taught some of us to be everyone lives in a globalised world, a world If that is you, you are in good company. A too wary of inflation, but it is clearly changing all the time with technology and fascinating (if rather unnerving) paper by sensible to be cautious. A recent US project innovation. three economists at Berkeley has revealed called the National Transfer Accounts has how personal experiences of inflation have confirmed what a few economists have Yet understanding how all of these strongly influenced the voting tendencies always suspected: that consumption does universalities interact and the effect that of Federal Reserve policymakers over the not always fall with age. they have on the prices we pay every time last 60 years. In other words, rather than we go to the till is not easy. Moreover, many setting interest rates based solely on current What people spend their money on does of Rathbones' clients have inflation- economic fundamentals, those highly change with age — the very old spend very adjusted return targets (in economics we intelligent men and women tasked with large sums on healthcare, either privately or call that a real return target). They want to steering the US economy have been swayed via government programmes, which is generate a return over and above the rate at strongly by their past experiences of inflation. closely linked to wage inflation. The young, which consumer prices rise, preserving the by contrast, spend more on technology, purchasing power of their wealth and Over the last 250 years, periods of low which — in recent years at least — has largely growing it or drawing an income from it. inflation are not unusual. In fact, the 1970s gone down in price.

24 Rathbones Review rathbones.com Inflation: an economic reality of life

Pride and prejudice and inflation… Inflation plotline A century of highs and lows

Elizabeth's income Mr Bingley's income: Mr Darcy's income: 1917 1975 on the death of her 25.2% 24.4% 1813: £4,000 pa* 1813: £10,000 pa 1980 father: 2017: £262,000 pa 2017: £656,000 pa 1920 18% 1813: £40 pa 15.4% 2017: £2,624 pa The cost to Mr Darcy of buying off Mr Mr Bennet's income: Wickham: 1813: £2,000 pa 1813: £1,000 debts, 2017: £131,000 pa £450 army commission, 2009 c£10,000 (he would -0.5% have been “a fool” to 1931 take her for less) -4.3% Total: £11,450 1922 2017: £751,120 -14%

Sources and calculations courtesy of www.inflation.stephenmorley.org

“ What drove prices higher in the 1970s and 1980s was a combination of the unfortunate and the ill-advised.”

We all experience inflation — albeit at different rates. With longevity meaning much longer retirements for many of us our savings are having to stretch further.

It is a truth universally acknowledged that a single person in possession of savings usually wants to protect them from inflation. Fortunately, we have wealth

: Pictorial PressImage Ltd/Alamy managers to take that responsibility!

* It may have been as much as £5,000. The landed gentry earned much of their income from investing in secure government bonds yielding 4%–5% at the time. He had a £100,000 inheritance.

rathbones.com Rathbones Review 25 Multi-generational living

Image: iStock

26 Rathbones Review rathbones.com Multi-generational living

Multi- generational living

With many young people struggling to buy their first home and the older generation living longer and worrying about the cost of care, could the answer be multi-generational households? A growing number of people seem to think so.

Christopher Stanley-Smith, Investment Director, Rathbones

ovelist Saskia Sarginson was preparing to be an empty nester. The last of her four children was about to Ncomplete his A-levels and her three other children were in their 20s and at university.

She had visions of a bathroom always clear — soft clean towels hanging neatly on the rail — food in the cupboards and an air of calm descending.

Then one by one her children began moving back, bringing their friends, squabbles and cacophonous chaos to the sanctuary of her kitchen.

Today she chronicles the tensions — and also the joys — of sharing her home with adult children each week in the family section of the Guardian. Her column has gained a popular following, resonating with the circumstances and, perhaps, fears of many other householders around the country.

She calls it an “upside-down extended family” — the type often seen in the Mediterranean where property ownership is less common and children take a lot longer to detach themselves from the comfort and security of the parental home. In Italy, two thirds of those between 18 and 34 live with their parents. They even have a name for them: ‘bamboccione’ — ‘big babies’.

In the UK, 40% of those aged between 15 and 34 — 6.6 million people — live with their parents, but the number is growing as rising house prices put the first rung of the property ladder further out of reach.

rathbones.com Rathbones Review 27 Multi-generational living

The average deposit on a first home is now £32,000 and in London it is more than £100,000 — twice what it was 10 years ago according to Halifax’s First-Time Buyer Review.

When fewer than half of all working-age households have incomes over £30,000 it is not surprising if the average age of a first-time buyer has risen to over 30. For many, staying at home is the only way to save enough towards a house — even when they’re married.

Move in the grandparents

Multi-generational living is not just a young adult phenomenon. Longevity and care costs are encouraging older people to rethink their living arrangements too.

Fewer than half of UK homeowners aged under 60 are confident they will have sufficient money to choose where they live and are cared for in old age, even if they sell their property. Many fear being put in a care home more than they do death.

Even if care is affordable, a common financial worry is that the costs will destroy any chance of passing on a healthy inheritance.

The anxieties are not without foundation. Rising life expectancy is one of the blessings of modernity but it also presents financial challenges for individuals and communities. A 65-year-old in the UK can on average expect to live for about another two decades. That is significantly more than it was for previous generations. Around 40% of people aged over 65 have a longstanding illness — nearly 60% for the over 80s — so more of us will need care at some point.

In our recent TalkingPoints we addressed the issues of care costs. We believe financial planning for old age need not be a source of anxiety. With the right guidance, a strategy can be put in place to prepare for the costs of care Above: In households where both parents work, — while striking an appropriate balance with live-in grandparents can other aspirations, such as passing on wealth provide valuable child care “ There is so much joy in efficiently and enjoying life in retirement. in the home. living in a large group. For some, multi-generational living — pooling the family resources — might solve a number Everyone is supported. of issues in one fell swoop. It can also create No one has to struggle new ones and professional advice is recommended, but it is a solution that has alone.” appeal for a growing number of people.

28 Rathbones Review rathbones.com Multi-generational living

The Office for National Statistics estimates “ If family circumstances there are 419,000 households spanning three Things to consider or more generations in the UK — up from change, for instance because 325,000 in 2001. Many believe the numbers will rise sharply in the years to come. There of divorce… another difficult Social are 1.5 million households with two or more generations and the insurer, Aviva, estimates move may be required that Set ground rules for living this will grow to 2.2 million by 2025. together — identify private and involves disentangling shared spaces in the home, For those considering a merger of households shared assets.” including things like who uses there is a lot to contemplate. Some families which bathroom. will opt to sell both homes and buy one larger property together. Others may sell or long-term care worries and to help their Work out what you will do about rent out one home and build a ‘granny flat’ children and grandchildren at the same time. food — will you share meals or eat or annex at the other. separately? For those who find themselves on their It can be a big upheaval and if family own, it could also be a solution to the Agree how you will share the circumstances change, for instance because challenge of loneliness. Over 7.5 million chores, like cooking, cleaning of divorce or remarriage or a job move, then people live alone in the UK and one in 10 and shopping. another difficult move may be required that people experience feelings of loneliness, involves disentangling shared assets. according to the Mental Health Foundation. If you are helping with childcare, agree beforehand how much you It can complicate problems on the death of Saskia Sarginson’s own parents are no longer are willing to do. Also agree ground elderly parents if they have sunk all their alive. Maybe if they were she might find herself rules for discipline — like what assets into a home shared with one of their accommodating them too. She tells readers: the grandchildren are allowed to children and the others then want their “In England, we seem to prefer small family eat and how much time they can inheritance. units. It’s part of our culture to put elderly spend watching TV. relations into care homes and encourage Thought has to be given as to how the local children to move out as soon as they have authority would view the assets in the event finished education. But there is so much joy in of care costs being incurred too. living in a large group. Everyone is supported. Financial No one has to struggle alone.” And yet, there are also many benefits to the Consider if care home costs might arrangement. Most care for older people is And there lies the biggest advantage of mean you need to sell your share not provided by the state or private agencies multi-generational living. It might have its of a house — and the implications. but by family members, at an estimated value tensions and challenges but at its best it offers of £55 billion annually. Some would argue that the chance for families to support each other, Discuss what would happen in the burden of caring for older family members sharing joys and sorrows in a closer, more the event of your child divorcing, is reduced if they are under the same roof. intimate way than is possible when living remarrying or having to move In three-generation households the apart. for a new job. grandchildren can share the responsibilities and it might mean older generations living Consider what would happen on semi-independently much longer. your death if you have other children and a significant part of In younger multi-generational homes, it may your estate is tied up in the shared home. Make sure you have a will be that it is the grandparent/s providing the Find out more care — childminding to enable the in place. grandchildren’s parents (or if separated, parent) TalkingPoints to go to work. Their expertise and time doing Agree how you will split “Getting on: planning jobs like gardening or maintenance might be day-to-day costs. for later life” can be a precious help. found at Have a power of attorney in rathbones.com/ place so that your children can The multi-generational solution may enable knowledge-and- the purchase of a much larger, nicer living step in if you are struggling to insight/talking-points- manage your finances. space that all can appreciate, improving the cost-care quality of life for everyone in the family. It can be a way for older people to reduce their

rathbones.com Rathbones Review 29 A new way of thinking about income

A new way of thinking about income

Interest rates and bond yields headed to the floor in the wake of the global financial crisis and have more or less stayed there since. In this “new normal”, generating a sufficient income may require new ways of thinking.

Jane Sydenham, Investment Director, Rathbones Illustration: Vector Goddess/Shutterstock Vector Illustration:

30 Rathbones Review rathbones.com A new way of thinking about income

any investors like the idea of But if capital is drawn down, surely that currently pay more than triple the yield on preserving their capital and living has to reduce the value of the portfolio? 10-year gilts (3.5% versus 1.1%). Moff the income it generates. But ultra-low interest rates and bond yields mean Although past performance is not a However, an all-equity or equity-tilted it may now be more helpful to think in terms guarantee of future returns, potential total portfolio would have a higher risk of losses of total returns, which include both capital returns can be increased by investing in compared to a well-diversified portfolio, growth and income. assets that have historically generated higher and would therefore be inappropriate if the annualised total returns (of income plus aim is to preserve capital and generate an It may be safer too. The corollary of extremely capital) than more defensive assets like bonds. income. low bond yields is extremely high bond prices, A sufficiently higher return (compared to as the two move inversely. This means that bonds) could provide the same level of cash In the case of the FTSE, a closer look reveals traditional income-generating assets like and still boost the value of the portfolio after that a big contributor to the current government and high-quality corporate bonds a modest drawdown. dividend yield is the energy sector, which may not be as safe as they are perceived to be. makes up about 12% of the FTSE All Share For example, a typical Rathbones balanced broad UK equity index. These dividends Here we try to answer some of the questions portfolio that mixes bonds and equities and may therefore be vulnerable to renewed or that clients may be asking: other assets has a long-term expected sustained weakness in oil prices. This annualised total return of consumer price demonstrates how chasing yield can bring Say an annual inflation-adjusted income inflation (CPI) plus 3%. Let's assume that unintended exposures and risks. of 2% of a portfolio is needed — would the CPI is 2%. That means a total return of 5%. yield from a typical income portfolio be Assuming 2% of that is the income yield, a How will drawing cash from capital instead high enough? £500,000 portfolio should generate a gross of relying on income-generating assets annual income of £10,000. On average, that affect tax liabilities? Current yields on traditional income- £500,000 portfolio would still have grown by generating assets are not sufficient, and are inflation plus 1% after the capital withdrawal, Taking a modest drawdown from capital unlikely to rise enough in the foreseeable still producing a real capital gain. So this can actually be a more tax-efficient way of future to produce a 2% income after inflation. would be a sustainable level of withdrawal. generating cash compared to income- To generate 5% (based on average inflation generating assets. This is because the rates plus 2%) would require either moving down Compare that with a £500,000 holding in for capital gains are lower (10-20%) than the credit-quality scale within fixed income, an AA-rated (high-quality) 10-year corporate those for income tax (20-45%), with actual or investing in high-dividend-paying bond, which would currently yield about rates depending on individual circumstances. equities. Both of these would mean taking 1.1%. That would generate a gross annual on considerable risk. income of £5,500. Not only would the initial Is now a good time to make a significant capital of £100,000 be unchanged, it would shift in asset allocation? How else can sufficient cash be generated? be worth less in real terms after taking into consideration the impact of inflation. Bond valuations are at historically expensive We need to look at a combination of income levels so now may be a good time to take and capital growth. A properly diversified mix What if there is a downturn in the market? profit and reinvest the proceeds in assets of assets, one that has a greater risk-adjusted that can offer better value, and a higher potential for total returns than traditional While major government bonds and risk-adjusted return potential. income-generating assets like bonds, can also high-quality corporate debt have have good defensive characteristics. For traditionally been considered safe in terms Think of a portfolio as a cake that is growing. example, an investment portfolio can hold of default risk, their current valuations leave If it is growing at a sufficient rate, a slice can non-bond assets with low or even negative them vulnerable to some capital losses. be taken without reducing the overall correlations to equity markets. So when Income-generating assets are only one kind amount of cake. Indeed, if it is growing fast equities are falling, these assets (for example of investment, and a better-diversified enough, you can still end up with more cake. certain trend-following, macro-economic and portfolio could potentially provide more other alternative strategies) would tend to be protection on the downside. We have to accept returns and growth may more stable, or even produce positive returns. not be excessive at this stage of the economic What about dividends? Don’t these pay out cycle. But if we stop thinking just about From such a diversified portfolio, it is more income than bonds these days? yields and interest alone and think about the possible to draw a moderate amount of cash total picture, our portfolios can still meet without eating into the total value of the It is true that dividends from UK equities, as sensible expectations and needs without the capital in the portfolio. measured by the FTSE All Share index, need to take on undue levels of risk.

rathbones.com Rathbones Review 31 Africa: on track to a brighter future?

Africa: on track to a brighter future?

Africa has long been a continent of unfulfilled promise but is it poised to finally become the economic force it wants to be? Investment in infrastructure like railways, roads and ports could light the touchpaper to a brighter future.

James Ward, Investment Director, Rathbones

32 Rathbones Review rathbones.com Africa: on track to a brighter future?

The new Djibouti to Addis Ababa electric rail line has dramatically shortened journey times.

Image: Xinhua/Alamy

rathbones.com Rathbones Review 33 Africa: on track to a brighter future?

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t was the sort of celebration that regular visitors to the continent would quickly Irecognise as uniquely African. Tribal musicians in traditional costumes danced down the aisles, their enthusiasm infectious. Politicians and celebrities from across the Horn of Africa, in their best clothes, smiling for the photographers, joined in the singing, swaying in their seats, full of joy. 1. The poor quality of many the continent’s roads has long hindered the efficient 5 Less familiar was the setting — a pristine, movement of people and goods across modern, air-conditioned railway carriage Africa. speeding quietly out of Djibouti’s capital towards Addis Ababa in Ethiopia. 2. Although farming accounts for a significant part of the region’s economy, large areas of land are also not used as It was the official launch earlier this year of effectively as they could be. Africa’s first electric transnational railway — a 466-mile track that has taken six years 3. Chinese investment has begun to to build at a cost of £3 billion. address Africa’s longstanding infrastructure problems, finally Set to help transform the social and connecting disparate communities and economic landscape of the two countries, markets. the line, with its fleet of new passenger and 4. Infrastructure investment can lead to freight trains, was built by two state-owned other forms of investment, as illustrated Chinese companies and largely funded by by the opening of this Chinese-owned Chinese banks. shoe factory in Addis Ababa, Ethiopia. 5. The Chambishi copper mine in Kitwe, A journey that takes several days by dusty, Zambia, is also Chinese-owned. Critics pot-holed roads can now be done in just say China’s investment in Africa is at 10 hours and for less cost. least partly motivated by a desire to access the region’s natural resources. It is easy to see the potential difference this might make to landlocked Ethiopia. Around 1,500 trucks a day currently lumber along Throughout Africa a number of large-scale the old road to the Djibouti port at the railway building projects are under way. “ Africa is still a net southern entrance to the Red Sea. This newly This year has seen completion of another importer of food. Yet it has modernised and extended, world-class — a 290-mile replacement line between the complex is the gateway to Asia, Europe and Kenyan port of Mombasa, the largest in East 60% of the world’s the rest of Africa through which the bulk of Africa, and the country’s capital Nairobi. Ethiopia’s exports and imports travel. This line, 90% funded by the Chinese, will uncultivated arable land.” eventually stretch into Uganda and Rwanda. The railway is the first step in a 3,100-mile Silk road to prosperity network which Ethiopia hopes to build in What is exciting about many of these rail the next decade, linking it to Kenya, Sudan projects is how they extend beyond borders, New railways are important, but Africa’s and South Sudan. A 250-mile extension to encouraging regional integration, which road map to prosperity also requires, well… the north, costing £1.3 billion, is due to open the African Development Bank sees as roads. Ethiopia is looking to double its road later this year. The Djiboutis, set to benefit fundamental to unlocking Africa’s potential. network in the next three years. from opening up their own businesses to They promote the free movement of goods, the Ethiopian market, dream of the line people and capital, opening up markets This would have a huge benefit for Ethiopia’s eventually extending right across Africa to and stimulating economic investment and farmers. Research shows that the closer a

the Atlantic. development. farmer is to a large population centre, the jbdodane/Alamy, Hugh Mitton/Alamy, Images: imageBROKER/Alamy, Boethling/Alamy Images, Joerg Zacharias Abubeker/AFP/Getty

34 Rathbones Review rathbones.com Africa: on track to a brighter future?

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“ A journey that takes Demographics and industrialisation

several days by dusty, Maybe the Chinese are looking for a cheap pot-holed roads can now workforce too. be done in just 10 hours Fertility levels are falling in Africa and, indeed, Ethiopia has been one of the most progressive and for less cost.” and successful countries at encouraging use of contraception. But with 4.7 children born per woman on average across the continent Since 2000, the country has been the (compared with a global average of 2.5) the second-biggest recipient of Chinese loans to UN estimates that Africa’s population will still Africa after Angola — it has received over rise from 1.3 billion to over 2.5 billion by £9 billion. It has also seen heavy investment 2050, accounting for more than half of the from Chinese companies. world’s predicted population growth.

China clearly sees opportunity in Africa and Where populations elsewhere in the world are contributes around a sixth of all lending there. ageing, Africa is young — 41% of its population In 2013 President Xi Jinping unveiled the is under 15. It currently has 12% of the One Belt One Road initiative, a development world’s workforce. By 2050 it is estimated strategy to build connectivity and cooperation this will have nearly doubled to 23%. between Eurasian countries, taking in the Horn of Africa. But China’s influence has So at a time when labour costs in Asia are spread far across the continent to encompass rising sharply, Ethiopia and other African greater their access to markets, tools and Sierra Leone, Liberia, Guinea and Togo in countries offer a cheaper alternative. fertilisers. One study has suggested that the west and Angola, Mozambique, Zambia reducing travel time to a city with a population and Zimbabwe further south. Many of those optimistic about Africa’s of 100,000 from eight hours to four can future call this the ‘demographic dividend’. result in a nine-fold increase in productivity. Critics have challenged the motivation. Clearly China wants access to Africa’s rich supply of But there is a flip side. More mouths to feed is One of the greatest challenges Africa faces is oil, copper, uranium, iron ore and cobalt — a challenge and a young workforce is only a feeding itself. Though agricultural production vital in the production of electric car batteries. benefit if it can be productively engaged — over is up 160% over the past 30 years, Africa is But it also sees Africa as a promising 50% of Africa’s graduates are without jobs. still a net importer of food. Yet it has 60% marketplace — the continent’s consumers of the world’s uncultivated arable land. will be spending $2 trillion a year by 2025. Youth unemployment has become the most Smallholder farmers contribute up to 80% serious economic challenge across the of sub-Saharan Africa’s food supply. Though resource-poor, Ethiopia, for instance, continent, laying seeds for social and political Increasing their capabilities and access to offers a large potential market for Chinese instability. Can African countries achieve the markets could vastly increase food output. manufacturers and construction companies. manufacturing growth required to provide In 2000, China-Africa trade was estimated adequate employment? In Ethiopia, much of the funding for at around $10 billion. By 2014 that had risen roadbuilding has come from the Chinese. to $220 billion. This is why many see industrialisation and

rathbones.com Rathbones Review 35 Africa: on track to a brighter future?

China has part-financed the construction of the 800ft-tall Gilgel Gibe III Dam, located in Ethiopia’s Omo Valley. The project aims to double Ethiopia’s electricity output. Sudan

South Sudan

Ethiopia

Addis Ababa Djibouti

Kenya Gilgel Gibe III Dam Nairobi Mombasa Uganda Rwanda manufacturing as crucial to Africa’s success. that effectively doubled Ethiopia’s energy It must move from exporting raw materials to supply overnight. But more power stations exporting finished products, finding skilled will be needed. jobs for the educated young people it is producing and incentivising learning and Political tension skills development. It is difficult to talk about Africa without Manufacturing accounts for only 11% of the referencing its politics — civil war, dictatorships, economic output of the continent and Africa’s brutal regimes and repression. Around 40% manufacturing industry accounts for less of Africans live in absolute poverty. than 2% of the world’s manufactured products. Ethiopia factfile Ethiopia is not without its critics — a Ethiopia’s biggest international earner is 10-month state of emergency that brought currently its coffee crop and three quarters mass detentions and restrictions on Population of the population are farmers. Prime Minister movement and communication was only Hailemariam Desalegn — a civil engineer by lifted in August 2017. 100 million training — is keen to diversify and develop. The second-largest country on His infrastructure strategy does not end with Like many other African countries it is also road and rail. He has an ambitious target to horribly susceptible to natural disaster. the continent after Nigeria and make Ethiopia the leading manufacturing Millions of people in the country received growing at 2.5% a year hub in Africa by 2025, making the most of emergency food aid this year as a result of its emerging transport network. yet another crippling drought followed by Area flash floods that have devastated livestock The 350-acre Hawassa Industrial Park in and crops. 438,000 sq miles Southern Ethiopia is one of a dozen huge industrial parks under construction across Clearly there are enormous problems to Nearly five times the size of the UK the country. Claimed to be the biggest in resolve. But it is easy and wrong to assume Africa, the park opened just six months ago this massive continent is doomed to Languages spoken and is already hosting more than 10,000 jobs perpetual tragedy. in the textile industry. That number is expected Over 80 to rise to 60,000 in the next year or so. Progress is being made. Across large parts of Africa enormous infrastructure projects have Eighteen companies from 11 foreign countries been put in place to try to unleash its potential. Economic growth rate have invested in building capacity at the park, The 2008/9 financial crash thwarted making clothes for well-known Western development as the global market for 7% a year brands like Calvin Klein and Tommy Hilfiger. commodities plummeted, but recovery is One of the fastest in the world under way and many governments are looking Industry requires power — another of Africa’s to reduce their reliance on commodities. problems. Nearly half the population still live Average life expectancy without electricity. At the end of 2016 There will be setbacks and progress will Desalegn inaugurated the controversial 800ft be mixed, but maybe, just maybe, Africa is 64.8 years

Gilgel Gibe III Dam — a hydroelectric plant finally on track to a brighter future. Compared with 71.4 years globally Images AFP/Getty Image:

36 Rathbones Review rathbones.com Healthy argument

Healthy argument

Some experts believe sugar now poses as big a threat to public health as cigarettes. With obesity costing the NHS billions of pounds every year, can investors force food manufacturers to start being more responsible in their use of this bitter sweet ingredient? Rathbone Greenbank is playing its part in lobbying for change.

Kate Elliot, Senior Ethical Researcher, Rathbone Greenbank Image: Oleksandra Naumenko/Shutterstock Oleksandra Image:

rathbones.com Rathbones Review 37 Healthy argument

he world is facing a double burden of Forms of sugar tax have already been over and undernutrition, where millions proposed or implemented in Denmark, Sugar: a major source Tof people have too much of the wrong France, Mexico, Norway, South Africa and type of food, and millions more do not have several US cities, with varying degrees of of calories in our diet enough of the right food. The proportion of success. In the UK, a levy on the soft drinks people who are overweight or obese is on the industry will come into force in April 2018, rise in every country around the world, and aimed at driving product reformulation and Globally in 2016 39% of adults were the already significant economic cost of reducing portion sizes. This will impose a overweight. Of these, a third were obese associated health conditions such as diabetes levy of 18p/litre on drinks containing five and heart disease is growing. grams or more of added sugar per 100ml, and a higher rate of 24p/litre for drinks containing In the summer of 2016, the UK government at least eight grams of added sugar per 100ml. Global economic impact stated that NHS spending on obesity-related health problems amounted to over £6 billion. As taxation and marketing restrictions on Annual cost of Annual cost of Globally, estimates suggest that up to 20% sugary and unhealthy products start to take of health budgets are spent on this issue. If effect, the associated risks and opportunities obesity smoking you also consider additional factors such as for the food and drink industry become clear. lost productivity and avoidable deaths, the Companies will need to adapt their product £1.5 trillion £1.6 trillion total economic impact of obesity is portfolios, reformulate high sugar products approximately £1.5 trillion each year — that is and respond to growing consumer interest equivalent to 2.8% of global GDP or roughly in healthy eating. In turn, investors in these equal to the economic impact of smoking. companies need to identify those which are best placed to respond to, and benefit from, Simplistically, rising obesity rates can be traced changing regulatory and consumer demands. back to long-term trends towards calorie- dense diets and sedentary lifestyles. But blaming the crisis solely on a collapse of “ In 2016 NHS spending individual willpower ignores the significant influence of ‘obesogenic environments’ that on obesity-related health The global economic impact of obesity encourage unhealthy behaviour. Urban problems amounted to is 2.8% of global GDP environments that promote car travel over walking or cycling, fast food outlets located over £6 billion.” near schools, increased portion sizes, and food manufacturers paying for supermarket Against this backdrop, it has become common Health risks shelf-space at the eye-level of a child to to draw comparisons between sugar and maximise the potential for pester power — all tobacco. Both are substances with few positive Raised BMI is a major risk factor for: these encourage unhealthy eating and consumer benefits and explicit links to inactivity. chronic health disorders which are massively costly to society as a whole. But the cardiovascular Voluntary and industry-led efforts to tackle comparison breaks down when you consider diseases the obesity crisis have largely failed, in part the companies involved. because of fears among food and drink manufacturers that their competitors will fail The tobacco industry is limited to developing to comply with voluntary codes. A similar less harmful products, but the food and drink reluctance exists among retailers whose own industry can deliver genuinely beneficial diabetes motivations for selling processed foods lie in products in a variety of ways. For example, consumer tastes and product affordability Nestlé is fortifying foods to address — especially among lower- and middle-income micronutrient deficiencies while Unilever consumers. has established comprehensive targets for increasing nutritional content across its This has led to an increased likelihood of product portfolio, with reference to standards regulatory interventions, for example controls it can be held accountable to. on advertising to children or the imposition of taxes on unhealthy products. With its high But while there is reasonable consensus on some cancers energy density and low nutritional value the differences between good and bad (especially in soft drinks), sugar has now practice in nutrition, it is currently difficult including breast, become a central target in the fight to address to assess the relative positioning of musculoskeletal liver, colon and global over-nutrition. companies and the risks that they may face. disorders ovarian

38 Rathbones Review rathbones.com Healthy argument

Very little relevant information is reported where company data lacks clarity or The World Health Organisation by companies, and that which is provided is transparency is limited to notable examples often inconsistent or selected to present of best practice. The investor briefing suggests recommends that added sugars shouldn't them in the best possible light. a cross-business range of performance make up more than 5% of the calories indicators to encourage greater reporting you consume each day To counter this information gap, Rathbone consistency. For sugar, that might mean Greenbank partnered with Schroders in 2016 measuring content across product ranges, to conduct a series of roundtable discussions monitoring reduction targets or even with food and beverage producers, retailers, recording how much sugar is purchased academics and public health organisations in each year for food production. Recommended added order to develop a comprehensive investor sugar intake per day briefing. A broad range of topics was discussed, The briefing helps stakeholders, consumers including product reformulation, portion size and investors alike identify leaders and poor and policy reform. The result was a balanced performers, to identify and reduce investment Adults 30g framework to enable investors to measure risks arising from nutritional issues, and, company performance against expectations ultimately, to improve health outcomes. in five key areas:governance , strategy, implementation, public policy positions and When the investor guide was published in lobbying, and evidence of progress. December 2016, signatories included a coalition of investors with approximately Investor expectations £1 trillion of assets under management. Investors are now armed with the tools they Hidden sugar* Governance identifies whether a company need to conduct rigorous, ongoing is reviewing nutritional risk and developing engagement with the industry. Through this Can of cola 32.6g policies to combat it, whether there is work, corporate accountability on sugar- board-level oversight and whether or not related obesity will be greatly increased. executive remuneration is tied to meeting relevant targets. The significance of this commitment, combined with an increased likelihood of Low-fat strawberry yoghurt 21.3g Strategy assesses how prepared companies regulatory interventions, is already being are for opportunities presented by regulatory felt. For example, in March 2017, A.G. Barr changes and consumer trends. announced that it would halve the sugar content in its flagship brand, Irn-Bru, and, in Implementation evaluates the extent to which August 2017, Coca-Cola and PepsiCo were companies are translating policies and among seven drinks companies to agree to a Tomato soup 19.4g strategies into positive actions, particularly cap on sugar content in drinks sold in with regard to existing product reformulation, Singapore — just a couple of the many positive investment in innovation and marketing across indications that companies are responding to diverse media. Tactical product marketing the urgent need to reformulate their product is especially responsible for influencing poor ranges. Muesli 12.9g dietary choices among children, so assessing producer and retailer responses in this area should encourage those with inconsistent records to emulate market leaders.

Assessing companies’ positions on public Find out more Baked beans 9.8g policy and lobbying helps investors to gauge levels of corporate transparency and the “The hidden costs of degree to which companies are behaving sugar” can be found consistently. For example, between 2011 at rathbones.com/ and 2015, Coca-Cola and PepsiCo provided ebrochures/greenbank- funding to around 100 public health investor-day- *Sugar per serving. A typical cube of sugar weighs 4g. organisations in the US while simultaneously review-2017 lobbying against almost every proposed public health intervention.

Sources: WHO, McKinsey Global Institute, Evidence of progress is a key performance actiononsugar.org, ocado.com indicator for investors, but there are pitfalls

rathbones.com Rathbones Review 39 Heirs and graces

Heirs and graces

According to a recent YouGov survey, fewer than four out and separating civil partners. It can protect against the first spouse or civil partner’s estate of 10 adults in England and Wales have a will. No-one likes being spent on residential care fees. It is also to think of what will happen when we die, but failure to plan possible to place assets within the trust for beneficiaries not yet capable or responsible can have serious consequences for loved ones. enough to deal with the money themselves.

Louise Lewis, Senior Associate, Penningtons Manches LLP Provision for business For those who own businesses, a transition t is extremely important to ensure that “ If you do not make a will, in ownership and leadership can be difficult your personal affairs are in order during at any time. If it occurs as a result of death Iyour lifetime, both to preserve your wealth your estate will be or incapacity, it can be particularly difficult for your family and to protect your loved ones, to ensure continuity. either on your death or if you lost capacity. inherited by your closest It is vital, for example, that a will appoints As part of this process everyone should living relatives which can suitable business executors who are capable ensure they have a valid will in place, produce surprising results.” of managing the business. Without suitable tailored to their individual circumstances planning, the business owner’s closest and family requirements. relatives will be left to administer the business might not have chosen takes charge of your and they may not be the most experienced Looking after loved ones affairs on your death. or suitable people for this role.

If you do not make a will, your estate will be The media frequently features stories about Relief from inheritance tax is currently inherited by your closest living relatives will disputes and families battling over available to businesses on death. However which can produce surprising results. The assets after a death. A properly drafted will there are no guarantees the rates and relief rules of intestacy govern who will inherit your can help prevent such conflicts, setting out will still apply in the same way at the date assets but this may not include those that clearly who should inherit. It may include of death, so wills must be kept under review. you own jointly with another person (for flexible structures such as trusts to help your Careful drafting means future generations example a home), your shares in a business, executors manage competing claims against can inherit the business in conjunction your pension or your digital estate. your estate. Disputes may still occur, but legal with the business owner’s spouse, and that advice taken at the time the will is drafted the business continues so that the spouse For people who live with a partner but are can help mitigate their impact. can receive an income from it if required. not married or are in a civil partnership, the intestacy rules can have particularly Tax planning and protection Digital assets far-reaching consequences. Your assets will pass automatically to your closest blood Your will also provides an excellent A relatively new area of concern is what relatives, often the children, parents or siblings opportunity for tax planning and protection of happens to your digital data on death. There rather than your partner. your assets. Trust structures can be included is no standard procedure for dealing with this. where the beneficiary has no automatic rights If assets held online have more than merely Drafting a will allows you to choose your to assets, but where trustees have powers to sentimental value, consider including them executors — people you are confident will flexibly distribute capital or income to them. in a separate legacy with separate executors. distribute your assets and administer your There are numerous advantages to this trust This is particularly useful if you own anything estate and any trusts after your death in the structure and it can ensure assets are online that contains intellectual property way you wish. Failure to do so can complicate preserved for future generations. Through its rights (such as a digital photography the administration of your estate, create use, beneficiaries can be protected against business) because the digital executor can potential disputes and mean someone you claims from their creditors, divorcing spouses maximise their value for your beneficiaries.

40 Rathbones Review rathbones.com Heirs and graces

Managing capacity used either before or after mental capacity is lost (the donor will make this decision in Thorough estate planning should also include the PF LPA). The HW LPA however, is only advice on protecting your assets were you to effective once the donor has lost capacity. lose mental capacity or suddenly be taken ill and unable to manage your affairs. A lasting As with your will, preparing an LPA allows you power of attorney (LPA) is an important legal to choose someone you feel is trustworthy document which allows you, the “donor”, to and reliable to manage your affairs if you are give significant powers over your affairs to unable to do so. It allows you to make other other people known as “attorneys” during important decisions about your attorneys your lifetime. including how many you would like, and how they make decisions (jointly or jointly and There are two different types of LPA available: severally). You can also impose limits on their a property and financial affairs LPA (PF LPA) authority and specify particular actions you and a health and welfare LPA (HW LPA). would like them to take with regard to your The former permits an attorney to deal with assets when acting on your behalf. financial decisions like paying bills and selling property, while the latter allows an attorney Drafting an LPA gives you time to reflect on to make decisions relating to healthcare a significant appointment and how everyone and medical treatment. Both documents can work together successfully to manage are only effective once registered with your affairs. Failure to have an LPA can be the Office of the Public Guardian, costly, complicated and stressful at an already which is the government office difficult time for your family and friends. responsible for LPAs. Following Without one your next of kin may have to registration, the PF LPA can be make an application for authority to manage your assets to the Court of Protection — a specialist court in London with jurisdiction over the property of all incapacitated adults in England and Wales. An application can be expensive and create complexity in the short term to manage your affairs.

Ultimately you can draft a will or an LPA yourself and there are many ‘DIY kits’ available to assist. The process is, however, open to a catalogue of potential pitfalls and errors which are very easy to make. The Law Society has published its 10 top tips to ensure that on your death your estate passes to beneficiaries of your choice and notes that you should choose who draws up your will wisely. Each document should be carefully considered and prepared with legal advice to ensure your loved ones are protected and your wishes followed throughout your lifetime and on your death. Image: iStock Image:

rathbones.com Rathbones Review 41 Financial planning: estate of the nation

s more people are discovering, IHT, a tax on the transfer of assets which can Abe levied both in life and on death, can take a significant chunk out of a legacy. For most individuals born in the UK, the tax will be levied on their worldwide assets, which can make passing on legacies very complicated. But this need not be a source of worry. Estate planning offers many practical steps to ensure that your assets get passed on to who you want, when you want and tax-efficiently.

Successful estate planning will not just look at IHT efficiency. It will also take account of wider considerations, such as allowing you to maintain access to the income and capital you need while still alive, protecting assets from divorce or bankruptcy and providing for beneficiaries who may be very young or have a disability.

When considering estate planning it is important to look across all your wealth, because making changes to one area will typically influence another. It is also important to recognise that the process will involve trade-offs to find the balance between what you want and what is possible. It is essential to adopt a methodical, step-by-step approach.

Step one: initial action

Initial action involves the quick wins that can have an immediate impact. As we mentioned in the previous article, nearly two thirds of adults do not have a will. This is a cornerstone of good estate planning. Remember, it allows you to direct who you would like assets to pass on to and can also include guardianship clauses setting out who should look after your Financial planning: children. Without either, the state decides. Do not forget also to consider who would look after your affairs if you lost capacity to do so estate of the nation yourself. Capacity is typically considered an ‘old age’ issue, but who would have the legal right to make decisions on your behalf if you Passing on wealth has never cost the UK so much. were in a serious car accident that resulted in life-changing injuries? An immediate step Inheritance tax (IHT) receipts are surging and we can all take is to draft a power of attorney reached a record £4.9 billion last year. With property so you can choose who that would be. prices rising and IHT allowances frozen until 2021, Other quick wins include reviewing whether your life policies and pension death benefits that trend is likely to continue. are written into trust and reflect your wishes. Failure to check could mean your beneficiaries Helen Ingleson, Head of Advice and Research, paying extra IHT or not receiving the

Rathbone Financial Planning proceeds at all. iStock Image:

42 Rathbones Review rathbones.com Financial planning: estate of the nation

Step two: using allowances and reliefs IHT: who pays it? Scotland £264m The next measure to consider is the impact and use of IHT allowances and reliefs. Each of us has an IHT Nil-Rate Band (NRB) — the value of assets that can be bequeathed on death without being subject to tax. This Northern North East typically stands at £325,000 per person, Ireland £56m but where a person has previously suffered £39m the loss of a spouse it is possible to have two allowances. Yorkshire & Humber This year has seen the introduction of a £175m Main Residence Nil-Rate Band (MRNRB), which can help if you wish to pass on your North West East Midlands main residence to your children or £223m £141m grandchildren. Starting at £100,000, the MRNRB will rise in £25,000 increments West Midlands East of England each year until reaching £175,000 in £230m 2020/2021. For house-owning couples £442m with children this raises the prospect of these two allowances sheltering £1 million Wales London £1 032m from IHT in 2020/2021. However, although £82m they share similar names, the NRB and South West MRNRB work in different ways. It is South East £499m recommended to revisit previous estate £1 032m planning undertaken to ensure it remains completely effective.

‘Pension freedoms’ have also opened up the Source: HMRC/Daily Telegraph (2014/15 tax year) opportunity to pass on surplus pension wealth tax-efficiently, because assets within It is possible to make further gifts of capital assurance written into trust to meet that a pension have some IHT protection. and income to reduce the liability, but the IHT liability. A recipient of a gift may also wish treatment of these non-exempt gifts must be to use insurance to pay a tax arising on a Step three: gifting thought through first. For example, providing gift were you to die within seven years of it you survive seven years, outright gifts are being made. The next stage involves analysing your generally simpler and will not lead to a lifetime ability to reduce the size of your estate tax liability. They will, however, form part of Finally, more esoteric options such as through gifting assets or money. You must your recipient’s estate for IHT and are specialist investments that benefit from reliefs not put your own financial security at risk vulnerable if the beneficiary is irresponsible granted to investment in small business can by being too generous. Cash flow forecasts or if they become bankrupt or divorced. In be considered. However, as these carry a high can identify what you can afford. contrast, gifting into a trust adds complexity degree of risk, appropriate advice is a must. and costs more but can offer a number of Broadly, gifts fall into one of two categories advantages. It allows you to keep control Estate planning may be concerned with what — exempt or non-exempt. Exemptions over the assets and provides protection from happens on your death, but a significant part include gifts of up to £3,000 per donor year bankruptcy and divorce. The assets do not of it is focused on ensuring that you and and gifts made on marriage. Similarly, form part of the beneficiary’s estate for IHT. In your loved ones are looked after during life. donations made to charity, to political many cases, objectives may be met by using It is an ongoing and complex process. parties or for the benefit of the nation can a balance of both. Consider what you want to achieve, plan be exempt if they meet specific conditions. early and regularly review that plan with Step four: insuring the liability your adviser to ensure it remains on track. A frequently overlooked exemption applies where you make gifts out of surplus income Ultimately, most of us will need to retain a which do not affect your standard of living. reasonable amount of assets to maintain our Documenting this properly is important. lifestyle. This generally means that an IHT Find out more This exemption can allow you to give away liability may still remain even after you have Download our guide to estate planning significant amounts of money during your gifted as much as you can afford. The final at rathbones.com/RFP-estate-planning lifetime without incurring an IHT liability. action is therefore to consider using life

rathbones.com Rathbones Review 43 Women in war

Two female soldiers on patrol in the Upper Gereshk Valley in Helmand Province, Afghanistan.

Image: London News Pictures Ltd

44 Rathbones Review rathbones.com Women in war

Force for change Women in war

It is 100 years since women were first officially employed in the armed services. During the First World War tens of thousands of women joined the uniformed services doing 1917 vital auxiliary work – over 400 of them were to die in the Women’s Army Auxiliary Corps line of duty. Yet it was only last year that the decision was (WAAC) and the Women’s Royal Naval Service (WRNS) formed finally taken to lift the ban on women serving in close (both disbanded after the war) combat roles. How important a part do women play in the 1918 modern armed services? Women’s Royal Air Force (WRAF) created, disbanded 1920 Jo Sword, Investment Director, Rathbones 1939 WAAC reformed as Auxiliary he army has drawn on women’s By the end of the war more than 50,000 Territorial Service (ATS) — 190,000 labour for centuries. Camp followers women had joined the WAAC alone. served. WRNS reformed — 72,000 Tare often perceived as soldiers’ wives served. WRAF reformed — employing or girlfriends, but in the 18th and 19th The pattern repeated itself in the Second 180,000 women at its peak centuries, a far wider community of women World War, when women were conscripted played important roles in providing nursing into supporting the war effort. Nearly 500,000 care, delivering food and drink, cooking and women found a whole host of roles, including 1940 Special Operations Executive laundering. service in the Women’s Land Army (farming), formed — women recruited as the Auxiliary Territorial Service (mostly in special agents Nevertheless, in 1917 when the War Office anti-aircraft command on searchlights) and established the Women’s Army Auxiliary Corps the WRNS (helping maintain ships and, in (WAAC) and the Women’s Royal Naval Service some cases, participating in D-Day planning). 1941 (WRNS), it was a significant development. National Service Act made provision One contemporary report suggests: “Many for conscription of women Army generals recognised that getting women men were amazed that women could make to carry out support jobs in offices, canteens, adequate gunners despite their excitable stores and transport would free desperately temperament, lack of technical instincts, 1990 Women allowed to serve on Royal needed men for the front line. They were their lack of interest in aeroplanes and their Navy surface ships encouraged by the remarkable courage women physical weaknesses.” After the war, women’s had shown in munitions factories and in units were retained but the battle to change voluntary nursing organisations like the perceptions continued — and still does. 2007 Women’s Hospital Corps that sent women to Iraq — 19-year-old Lance Corporal France from the outset. Professor Rachel Woodward from Newcastle Michelle Norris of the Royal Army University is studying the role of women in Medical Corps first woman to be On 1 April 1918 the Women’s Royal Air the armed services. She says the collapse of awarded the Military Cross for Force (WRAF) was created. All three services the Soviet Union was a crucial turning point Bravery offered uniforms and status. Some of the in the story. “In the early ‘90s there was a big women — like typists who earned 48 shillings reduction in the size of the armed forces to a week — were better paid than many men. reflect the ending of the Cold War. Many 2013 Women first allowed to serve on regiments were disbanded, including separate submarines women’s units. Women were reallocated to “ Many men were remaining male regiments.” amazed women could 2016 Women were still mainly serving in roles Ban removed on women for close

Image: Everett Collection Historical/Alamy Everett Image: make adequate gunners.” like administration, logistics and nursing, ground-fighting roles

rathbones.com Rathbones Review 45 Women in war

“ Afghanistan and Iraq Hickson Mandy Image: proved that women are As an RAF jet pilot, Mandy Hickson was only the second competent professionals.” woman to fly a £50 million Tornado GR4 bomber. She outmanoeuvred missiles over Iraq and confronted the but things were changing. In 1998 women institutional challenges facing women in the military. were deployed to peacekeeping roles in Bosnia. Regiments like the Royal Engineers, “The first inkling I had that I I chose the low-level ground attack the Royal Artillery and the Royal Electrical would like to be a pilot was role over being a fighter pilot. It’s and Mechanical Engineers began to give when I was 13 and my mum much more exciting to try to hit roles to women, but even then they were spotted that the local RAF Air targets. Not many women like it still excluded from many direct combat Training Corps was taking girls because you have to be quite posts because of fears their presence might for the first time. aggressive and you will be killing undermine close team spirit. people. Once we were on a It was there I had my first flight bombing run when at the last In 2016, Prime Minister David Cameron in an aircraft, a Chipmunk, and moment my co-pilot shouted to announced the lifting of the last restrictions that’s when I set my sights on a abort. I made the weapons safe preventing women from operating fully in career as a jet pilot. There were and asked why. He said: “There’s front-line roles and set targets for 15% of some fairly large obstacles in my a bloke with a camel down there!” services personnel to be women by 2020. way. Women were not allowed There was a nomadic traveller to pilot fast jets until 1990 and who would have been killed. We Professor Woodward says: “The old guard I was one of the first to apply in don’t just throw bombs off at have been presenting arguments against 1992. I failed all the aptitude random and I think it was that care women serving on the front line for years tests and was devastated. about collateral damage that made — physiology, emotion, unit cohesion — but me comfortable about the role. the experiences of Afghanistan and Iraq, Fortunately, by then I’d done 200 where a lot of women were deployed, hours of flying with the University Remaining calm under pressure proved the nonsense of these claims Air Squadron and had won is incredibly important for a pilot. beyond doubt. Women worked alongside aerobatics competitions. The Panic can be fatal. All emergencies men. They weren’t a terrible distraction and Squadron Commander believed are practised time and time again the sky didn’t fall in. These are competent I had the potential to make it to in the simulator so that when trained professionals. They were perfectly the front line. something does go wrong you are capable of sharing a living space together and almost acting on autopilot. working effectively under pressure.” He requested that two impartial flying examiners assess me. They On the night I led my first ever Today all the armed services are facing a both graded me as above average. combat mission over Iraq we were serious recruitment challenge. Neglecting the It turned out 80% of women engaged by an enemy surface- talents of half the workforce is as much folly were failing these tests and 70% to-air missile. It was very close today as it was recognised to be in wartime. of men passing. The RAF began but I evaded it by instinctively The proportion of serving women is slowly to realise they were slanted to suit performing a manoeuvre we had creeping up. They now represent 10.2% of the male brain and not necessarily practised hundreds of times. That the British Armed Services, serving across all getting the best pilots. They took practice saved my life.” units and at all levels. Well, nearly all levels. me on and subsequently refined We are still awaiting the appointment of the the test, generating more equal For more information on Mandy visit first woman general. It cannot be long. results. hicksonltd.com

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