Economy

Last June, a meeting of the Dutchess County Legislature in New York’s Hudson Valley quickly turned heated over how to spend some of the county’s $57 million in federal pandemic relief aid.For more than two hours, residents and Democratic lawmakers implored the Republican majority to address longstanding problems that the pandemic had exacerbated. They cited opioid abuse, poverty and food insecurity. Some pointed to decrepit sewer systems and inadequate high-speed internet. Democrats offered up amendments directing funds to addiction recovery and mental health services.In the end, the Legislature rebuffed their appeals. It voted 15 to 10 to devote $12.5 million to renovate a minor-league baseball stadium that’s home to the Hudson Valley Renegades, a Yankees affiliate.“Who created this plan? Some legislators?” asked Carole Pickering, a resident of Hyde Park. “These funds were intended to rescue our citizens to the extent possible, not to upgrade a baseball field.”“I think we should be a little bit ashamed,” Brennan Kearney, a Democrat in the Legislature, told her fellow lawmakers.Cities and counties across the United States have found themselves in the surprisingly uncomfortable position of deciding how best to spend a windfall of federal relief funds intended to help keep them afloat amid deadly waves of Covid-19 infections.The pandemic, which is showing signs of waning as it enters its third year, prompted the largest infusion of federal money into the U.S. economy since the New Deal. President Biden and former President Donald J. Trump got Congress to approve roughly $5 trillion to help support families, shop owners, unemployed workers, schools and businesses.Where $5 Trillion in Pandemic Stimulus Money WentIt is the largest government relief effort in recorded history, and two years after Covid-19 crisis began, money is still flowing to communities. Here’s where it went and how it was spent.A large portion of the aid went to state, local and tribal governments, many of which had projected revenue losses of as much as 20 percent at the pandemic’s onset. The largest chunk came from Mr. Biden’s $1.9 trillion recovery bill, the American Rescue Plan, which earmarked $350 billion. That money is just beginning to flow to communities, which have until 2026 to spend it.“We’ve sent you a whole hell of a lot of money,” Mr. Biden said during a meeting with the nation’s governors in January.In many cases, the money has become an unusually public and contentious marker of what matters most to a place — and who gets to make those decisions. The debates are sometimes partisan, but not always divided by ideology. They pit colleagues against each other, neighbors against neighbors, people who want infrastructure improvements against those who want to help people experiencing homelessness.“It’s both breathtaking in its magnitude but it still requires some hard and strategic choices,” said Brad Whitehead, who is a nonresident senior fellow at Brookings Metro, a metropolitan policy project, and advises cities on how to use their funds. “One of the difficulties for elected leaders is everyone has a claim and a thought for how these dollars should be used.”Poughkeepsie, N.Y., part of Dutchess County. At a meeting last summer, county residents implored leaders to use pandemic aid to address longstanding problems.Amir Hamja for The New York TimesA person who is homeless in Poughkeepsie. Homelessness and poverty were among the issues that residents said deserved funding.Amir Hamja for The New York TimesLocal governments were given broad discretion over how to use the money. In addition to addressing immediate health needs, they were allowed to make up for pandemic-related revenue losses from empty transit systems, tourist attractions and other areas that suffered financially.That money is often equivalent to a third or nearly half of a city’s annual budget. St. Louis, for instance, will receive $498 million, more than 40 percent of its 2021 budget of $1.1 billion. Cleveland, with a city budget of $1.8 billion, will get $511 million.But the relief comes with strings: Governments are prohibited from using the funds to subsidize tax cuts or to make up for pension shortfalls. And because the aid is essentially a one-time installment, it wouldn’t necessarily help cover salaries for new teachers or other recurring costs.Several states have sued the Biden administration over the tax cut restriction, claiming it violates state sovereignty. Some governments have refused to take the money over concerns that it would give the federal government power to control local decision-making.In Saginaw, Mich., the mayor formed a 15-person advisory group to recommend ways to spend the city’s $52 million allotment. Harrisburg, Pa., which received $49 million, has held public events seeking input from residents. Massillon, Ohio, identified the biggest source of public complaints — flooding and sanitation issues — and proposed using its $16 million share to address those areas.“We listened to the people, and we’re trying to make improvements for them,” said Kathy Catazaro-Perry, Massillon’s mayor. “Our city is old. We have a lot of areas that did not have storm drains, and so for us, this is going to be huge because we’re going to be able to rectify some of those older neighborhoods.”But many have found their communities mired in clashes over who has the power to spend the money.Poughkeepsie residents picked up free meals at the Family Partnership Center in February. The food was distributed through the Lunch Box, a program that provides hot meals in Dutchess County five days a week.Amir Hamja for The New York TimesIn New York’s Onondaga County, which includes Syracuse, legislators from both parties have been trying to claw back spending authority from the county executive, Ryan McMahon, a Republican.When the first half of the county’s $89 million stimulus share arrived last spring, Mr. McMahon placed it into an account that he controlled and began committing funds to projects, including a $1 million restaurant voucher program, $5 million in incentives for filmmakers to produce in the area and $25 million for a multisport complex featuring 10 synthetic turf fields.Lawmakers, who questioned why they were not being asked to vote on the spending, were told by the county attorney’s office that they had ceded that authority in December 2020 when they approved an emergency resolution that gave the county executive authority “to address budget issues specifically related to Covid-19 global pandemic.”Legislators argued that they had never intended for that control to extend beyond the immediate pandemic response.James Rowley, who was elected chair of the Onondaga County Legislature in January, hired a lawyer and spent $11,000 preparing a lawsuit to challenge Mr. McMahon.“We have the power of the purse,” Mr. Rowley, a Republican, said in an interview. “I didn’t want to set a precedent that gave the county executive power to spend county money.”Mr. McMahon did not respond to a request for comment. On Feb. 22, he sent a letter to the Legislature proposing that it regain control of the stimulus funds that had not yet been allocated.“I recognize your concern,” he wrote, noting that “our cooperative actions should comport with county charter principles of separation of powers.” An abandoned property in Poughkeepsie. One county legislator called the investment in the baseball stadium “a betrayal of our community.”Boarded-up buildings in Poughkeepsie. Local governments were given broad discretion in how the pandemic aid could be spent.The rush of money from the federal government is in part an attempt to avoid the mistakes of the last recession, when state and local governments cut spending and fired workers, prolonging America’s economic recovery. But analysts say it will take years to fully assess whether all the spending this time was successful. Critics argue that the overall $5 trillion effort has added to a ballooning federal deficit and helped propel rapid inflation. And many states report increasing revenue, and even surpluses, as the economy strengthens.The money has led to ideological fights over the role of the federal government.In January, dozens of residents crowded into a City Council meeting in Coeur d’Alene, Idaho, where they demanded that the mayor and other officials turn down the city’s $8.6 million share of stimulus funds, saying it was a ruse by Washington to take control of the town.Residents booed and called the Council members “fascists.” Several referred to the money as a Trojan horse, lamenting that taking it would allow the federal government to impose restrictions on Idaho, including establishing vaccine checkpoints. Amid cries of “Recall!” one woman shouted repeatedly that “you have given up our sovereignty.”“Nobody wants this money,” Mark Salazar, a resident, said to applause. “I don’t want to be under the chains of the federal government. Nobody does.”The council eventually voted 5 to 1 to accept the funds, saying they would go toward expanding a police station and other areas.Dutchess County residents were similarly agitated, if less rowdy, at their June 14 meeting about the stadium. Guidance on using the funds issued by the Treasury Department specifically cited stadiums as “generally not reasonably proportional to addressing the negative economic impacts of the pandemic.”So why, those in attendance asked, was this happening?Marc Molinaro, the county executive, defended the spending, saying Dutchess County had identified $33 million in lost revenue as a result of the pandemic and that, according to the Biden administration’s guidance, stimulus funds could indeed go toward investing in things like the stadium.“It’s basically any structure, facility, thing you own as a government, you can invest these dollars in with broad latitude,” Mr. Molinaro said.In a recent interview, Mr. Molinaro said that because the funds were one-time money, the county needed to be careful not to create expenses that could not be paid for once the federal funds ran out.He added that investing in the stadium would produce an ongoing revenue stream for Dutchess County — money that he said would allow the government to pay for the types of programs that Democrats wanted.The investment, he said, “allows us to create 25 years of revenue that we can invest in the expansion of mental health services, homelessness and substance abuse.”That explanation has not mollified everyone.“I was just devastated that we spent the money that way,” Ms. Kearney, the Democratic legislator, said in an interview. “It was such a betrayal of our community. So grossly inappropriate and grossly tone deaf to the needs of the people in Dutchess who have suffered.” More

At the outset of the pandemic, governments used the funds largely to cover virus-related costs.

As the months dragged on, they found themselves covering unexpected shortfalls created by the pandemic, including lost revenue from parking garages and museums where attendance dropped off. They also funded longstanding priorities like upgrading sewer systems and other infrastructure projects.

K-12 schools used early funds to transition to remote learning, and they received $122 billion from the American Rescue Plan that was intended to help them pay salaries, facilitate vaccinations and upgrade buildings and ventilation systems to reduce the virus’s spread. At least 20 percent must be spent on helping students recover academically from the pandemic.

While not all of the state and local aid has been spent, the scope of the funding has been expansive:

Utah set aside $100 million for “water conservation” as it faces historic drought conditions.

Texas has designated $100 million to “maintain” the Bob Bullock Texas State History Museum in Austin.

The San Antonio Independent School District in Texas plans to spend $9.4 million on increasing staff compensation, giving all permanent full-time employees a 2 percent pay raise and lifting minimum wages to $16 an hour, from $15.

Alabama approved $400 million to help fund 4,000-bed prisons.

Summerville, S.C., allocated more than $1.3 million for premium pay for essential workers.

What was the impact?

The aim of the money was to prevent the kind of painful budget cuts that state and local governments were forced to make in the wake of the Great Recession, when revenues plunged and costs soared, a recipe that prolonged America’s sluggish recovery and hampered some local economies for years.

Economists largely agree that the money helped local governments shoulder significant pandemic-related costs, and many governments avoided deep budget cuts. Many states have even reported surpluses.

But federal rules prevented local governments from using CARES Act funds to fill budget shortfalls, and state and local governments wound up slashing hundreds of thousands of public sector jobs anyway. Several states have sued the Biden administration over restrictions it imposed on the use of funds.

What hasn’t been spent?

A significant portion has yet to be spent, in part because more than $100 billion remains to be distributed by the Treasury Department. Only 19 states, plus Washington, D.C., received their entire allotments of American Rescue Plan funds in 2021. A second batch will be distributed this year.

Governments have until 2026 tospend the funds, and disagreements over where the money should go and who has authority to spend it have slowed planning in some communities.

School districts have until January 2025 to spend the money allocated to them. But even with several years left, schools have voiced concerns about meeting that deadline as many districts struggle with labor shortages and supply-chain delays. More

As US president Joe Biden announced his decision to impose a ban on Russian energy imports this week, he reflected on the damage already done to the Russian economy by sanctions since the start of the Ukraine invasion.“It has caused the Russian economy to, quite frankly, crater,” he said. “One rouble is now worth less than one American penny.”By moving to impose sanctions on large Russian banks, key individuals and the central bank, the Biden administration has done more to rapidly inflict economic pain on a large economy and its leaders than any of its recent predecessors.Nevertheless, it has not exhausted all options for punishing Moscow economically, suggesting more might come if Russian president Vladimir Putin further escalates the conflict. Biden officials have consistently said they are not ruling anything out when it comes to the response to Russia’s war on Ukraine.Though any additional measures are likely to result in more negative spillover effects on the US economy — and could trigger more tensions with some allies in Europe — that does not mean they are off the table.“The west needs to keep developing escalatory options for sanctions to keep pace with Putin’s increasing violence,” wrote Brian O’Toole and Daniel Fried of the Atlantic Council, a Washington think-tank, this week. “There is still room for more targeting before these sanctions reach a level comparable to those against Iran or North Korea.”FinanceShortly after Russia’s invasion, the US imposed hefty sanctions on VTB and Sberbank, two of the most powerful banks in the country, taking direct aim at the motors of the country’s financial system. In a surprisingly bold move, it also sanctioned Russia’s central bank to stop it from accessing foreign reserves. But it didn’t go quite as far in other respects.State-owned Gazprombank and Russian Agricultural Bank were spared the most aggressive sanctions, as was privately held Alfa-Bank — so these are still potentially vulnerable to new measures from Washington. Even though Moscow’s stock exchange has now been closed for days, the US has not sanctioned it directly — a step that would deal another big blow to investments in Russia’s capital markets.OligarchsIn the past three weeks, the US has slapped sanctions on key Russian officials such as foreign minister Sergei Lavrov, defence minister Sergei Shoigu, Kremlin spokesperson Dmitry Peskov and Putin himself.

It has also targeted a few oligarchs, from Kirill Dmitriev, head of the Russian Direct Investment Fund, to billionaire financier Alisher Usmanov. The US has also designated family members of some members of Russia’s elite for sanctions.But America has not sanctioned as many oligarchs as the EU has at this stage, so it has plenty of space to increase its efforts to target Russian business executives and their relatives. It could also expand the existing sanctions on Russian oligarchs to include more of their businesses: in the case of Usmanov, some entities linked to him were not part of the first wave of sanctions.TradeLeading Democratic and Republican lawmakers have been pushing the White House to revoke the US’s normal trading relationship with Russia, which would lead to tariff increases on all Russian imports to the US. Such a move would align Russia with North Korea and Cuba, the only two countries who do not currently enjoy a normal trade status with the US.According to analysis by Chad Bown of the Peterson Institute, the removal of the normal trade relationship status would boost the average US tariff on Russian goods from around 3 per cent to around 32 per cent across all goods.

However, the US only imports a relatively small volume of goods from Russia — around $16.9bn in 2020, according to US government data. Apart from oil, the largest imports from Russia include precious metals, fish and fertiliser.Some lawmakers, including the Democratic chair of the powerful Senate finance committee, Ron Wyden, are pushing for the administration to raise tariffs on Russian imports even further — while others want to strip it of World Trade Organization membership — steps that would move the US close to a sweeping embargo on all things Russian.A potential problem with this strategy is that it could deprive the US of imports from Russia that are less fungible than oil, including critical minerals.EnergyThere was plenty of bluster in Biden’s announcement this week that he would ban Russian oil from entering the US, while stopping Americans from investing in Russia’s energy sector — part of a comprehensive effort to stop financing Putin’s military offensive. But there is more the US could do to hurt Russian oil and gas.One option would be to impose the harshest sanctions directly on large global Russian energy companies such as Rosneft, which would make it far more difficult for them to do business anywhere in the world. Another step would to be to revoke the carve-out for energy payments the US introduced when it sanctioned the Russian central bank.More broadly, given EU resistance on this front and its own concern about energy price spikes, the US has been reluctant to impose a full regime of secondary sanctions on Russian energy of the kind to which Iran was subjected, which affected its business with countries all around the world. More

The balance of power at the European Central Bank has shifted decisively in favour of hawkish officials determined to tackle the risk of inflation spiralling upwards, despite fears that the war in Ukraine could drag Europe into recession.Several ECB governing council members argued at Thursday’s meeting that it should wait before speeding up the withdrawal of its bond-buying stimulus due to uncertainty over the economic fallout from Russia’s invasion of Ukraine. But they were outnumbered by more hawkish voices.“The argument about inflation dominated and prevailed over anything else, including the war, the uncertainty and the fears about growth,” said one person involved in the meeting. “The risks of inflation are now seen as greater than other concerns by a majority of the council,” the person said, after the ECB announced it planned to stop net bond purchases in the third quarter in response to the recent surge in prices of energy and many other goods.

Consumer prices in the eurozone have risen faster than the ECB expected for several months, hitting a record annual pace of 5.8 per cent in February. On Thursday, the ECB raised its forecast for inflation this year from 3.2 per cent to 5.1 per cent, citing the “exceptional energy price shocks” stemming from the war in Ukraine.A second person involved in Thursday’s meeting said: “It is getting clearer and clearer to more of my colleagues that the transitory story on inflation is a bankrupt story.” “It is not just oil and energy prices that are rising fast, you have food, non-energy industrial goods and services all accelerating at more than 2 per cent,” said the second person. “We have to do something — we cannot be the only central bank not reacting.”The US Federal Reserve is expected to start a series of interest rate rises at its meeting next week, while the Bank of England raised interest rates at its last two meetings and the central banks of Canada, Brazil, Mexico, South Korea, Chile and Poland have also raised rates.A third person briefed on the ECB’s meeting said the more hawkish voices calling for more immediate action on inflation outnumbered those advocating patience by 15 to 10.A key factor shifting the ECB’s debate in a more hawkish direction was a chart given to governing council members showing market inflation expectations had risen by a record amount since the ECB’s last policy meeting, as measured by inflation swaps, according to two people involved.Christine Lagarde, ECB president, said at a press conference after Thursday’s meeting “there were different views around the table — in all directions” but in the end everyone decided to “rally” behind the decision.

Eurozone government bond markets sold off on Thursday after the ECB presented plans for a quicker reduction in its asset purchase plans this year, under which it would reduce bond purchases to €40bn in April, €30bn in May and €20bn in June. Its earlier plan had been to reduce net purchases more slowly from €40bn a month in April to €20bn a month from October.It could completely stop adding to its existing €4.8tn bond portfolio in the third quarter “if the incoming data support the expectation that the medium-term inflation outlook will not weaken even after the end of our net asset purchases”, it added.Only a major escalation of the war in Ukraine, cutting off the supply of Russian energy to Europe and causing significant disruption to financial markets, would deter the ECB from stopping net asset purchases as planned, the two people involved in the meeting said.The ECB published three sets of forecasts including an adverse and a severe scenario as well as its baseline scenario. The downside scenarios modelled the likely impact of cuts to Russian energy supplies to Europe, increased geopolitical tensions and financial market disruption. In the severe scenario it predicted eurozone growth would be only 2.3 per cent this year, down from 3.7 per cent in its already-lowered baseline scenario, while inflation would soar to 7.1 per cent, compared to a baseline projection of 5.1 per cent.“We discussed the possibility of a stagflationary shock, not actual stagflation, as we are not talking about negative annual growth,” said the second person involved in the meeting. “But the threat of inflation was seen as more immediate and real.” More

The impact of soaring inflation and poor rates of interest will put to the test the predominance of cash Isas, the most popular variant of the tax-efficient savings vehicle. Inflation is running at an annual 5.5 per cent in the latest figures from January and the Bank of England expects it to climb to 7.25 per cent by April. High inflation eats away at the purchasing power of cash savings, eroding even more rapidly when banks and building societies offer paltry rates of interest. Charles Incledon, client director at financial planners Bowmore Wealth Group, adds: “At the moment keeping your money in a cash Isa means it is losing value in real terms at the fastest rate in almost 30 years.”With inflation at 7.25 per cent, a cash balance of £20,000 earning interest at 0.01 per cent will halve in real terms after 10 years. The total balance will rise to £20,020 over that period, but the real value after the effect of inflation will be £9,942.Yet when it comes to Isas, cash remain the most popular flavour, accounting for two-thirds (65 per cent) of money subscribed to all Isas in 2019-20 versus 32 per cent for stocks and shares Isas. The split has remained broadly constant over the past decade. Nonetheless, for the first time in the 23 years since their introduction, there has been a substantial drop in the total accumulated holdings of cash Isas, from £295bn in January 2021 to £289bn in January this year, according to Bank of England data.Part of that may be explained by people spending down savings in the pandemic, says Anna Bowes, co-founder of Savings Champion, a savings rate monitoring website. But she adds that consumers and banks had already begun to lose interest in the cash Isa market from 2016, when the government introduced a personal savings allowance that blunted the tax-free advantages of the cash Isa. Basic-rate taxpayers pay no tax on the first £1,000 of interest earned on savings; higher-rate taxpayers on the first £500. Furthermore, interest rates on non-Isa bonds now eclipse those on the equivalent cash Isas. “If you’re a basic-rate taxpayer and you’re using your personal allowance you can still earn more after tax in a bond than in the equivalent cash Isa,” says Bowes. The “best buy” rate for a one-year cash Isa bond (with a minimum investment of £500) is offered by Shawbrook Bank at 1.35 per cent, according to finance website Moneyfacts. The rate on the top non-Isa equivalent bond is 1.71 per cent, for a bond from Al Rayan Bank with an 18-month term and a minimum investment of £5,000.

Best buy cash Isas vs non IsasProviderRateMin investmentCash Isas – fixed1 year bondShawbrook Bank1.35%£1,0002 year bondVirgin Money1.46%£17 year bondUnited Trust Bank1.90%£15,000Cash Isas – variableMarcus by Goldman Sachs0.70%£1Non Isas – fixed1 yearAl Rayan Bank1.71%£5,0002 yearAl Rayan Bank1.86%£5,0007 yearsPCF Bank2.25%£1,000Easy access without bonusVirgin Money1%£1Easy access with bonusCynergy Bank0.80%£1Source: Moneyfacts

Over the past 12 months, the average stocks and shares Isa fund produced a return of 6.92 per cent, Moneyfacts says, compared with an average rate of 0.51 per cent for cash Isas. But savers may still be reluctant to relinquish the safety of cash as markets remain highly volatile. Rachel Springall, finance expert at Moneyfacts, says: “As inflation continues to soar and the Bank of England raises interest rates, it will be interesting to see how savers respond and where they place their cash. It’s clear to see how cash Isas are being eroded by rising inflation, but consumers may not feel confident enough to invest in the stock market quite yet.” Some may need to keep a large cash sum on hand at short notice, such as those drawing down a pension who would prefer to use cash than liquidate investments at an unfavourable moment. But shopping around is still worth it in spite of low rates. “Though there have been two base rate rises since December, Halifax, Lloyds, Santander and NatWest all still paying 0.01 per cent on their easy access cash Isas,” says Bowes.“If you’re going to have a cash Isa you mustn’t leave it with your high street provider . . . They are paying you as little as they can.” More

Poppy Lyons is one of thousands of teenagers in the UK to have just turned 18 and received the proceeds of her Child Trust Fund. Her parents opted for a stocks and shares account and topped it up regularly, building it into an impressive £29,000 nest egg. Living with her parents in Ramsey, Cambridgeshire, she has offers to study biomedical sciences at Cardiff and Plymouth universities. “I received the money when I turned 18 knowing nothing about investing, but I want to make it work to eventually go towards a deposit on a property and provide some security in the future,” she says.So what should she do now? The money currently sits in cash, losing purchasing power as the UK’s consumer prices index hit an annual 5.5 per cent in January. She wants to tuck it away where it can grow, but her long-term homebuying aspirations mean she might need it within the next 10 years or so. Isas have expanded to offer savers and investors a plethora of tax-friendly choices since 1999, when stocks and shares Isas and cash Isas were introduced. Junior Isas arrived in 2011 to replace Child Trust Funds and currently allow investment of up to £9,000 a year for children and grandchildren. Innovative Finance Isas came along in 2016 to encourage peer-to-peer lending, and Lifetime Isas arrived a year later, offering generous government top-ups.The question of where to put Isa money — up to an annual £20,000 per adult — is not just for those, like Lyons, who are opening one for the first time. Russia’s invasion of Ukraine has jangled nerves on global stock markets that were already frayed by fears of high inflation and by worries about the high valuations of tech stocks.First-time Isa: Poppy Lyons at home in Cambridgeshire © Si Barber/FT“There will likely be a bit more inflation and a bit less growth as a consequence,” says Rob Morgan, chief analyst at Charles Stanley. For UK households, the tax burden is set to rise as the government looks to shore up the public finances in the wake of the pandemic. As the deadline for investing in the 2021-22 tax year approaches, FT Money looks at some of the key choices facing those looking to make the most of their tax-efficient Isa options at a time of market uncertainty. Where to investInvestors have experienced a wild ride over the past two years, since the Covid-19 pandemic initially caused a huge sell-off in stock markets. The FTSE 100 index, for instance, plummeted 30 per cent in the early weeks of the pandemic before recovering its losses by early February this year. Since then, however, fears over Ukraine have sparked more selling, with a 7 per cent drop in the index since February 10. In the short term, there is no guaranteed way for existing Isa holders and first-time investors like Lyons to protect their investments, says Laith Khalaf, head of investment analysis at AJ Bell. “You have to play a long game, and over the next 10 years, I think the best chance of beating inflation is still the stock market.” He suggests moving £20,000 into a stocks and shares Isa in the current tax year — the maximum amount adults can pay in one year — and the remainder in the new tax year from April 6. History suggests staying invested and ignoring stock market volatility remains the best course of action, says Morgan. “The stock market has a 10 per cent-plus sell-off about every 1.5 years, so the volatility we are seeing is fairly normal,” he says. “It’s worth noting that throughout stock market history the biggest rises often come very quickly after the biggest falls, so there is usually no merit in trying to time the market.”The question for novice Isa subscribers is where to place their money. Some experts suggest a global equity tracker fund is the best way to get core equity exposure. “The simpler the strategy the better: a single fund is better than several,” says Robin Powell, co-author of Invest Your Way to Financial Freedom.However, AJ Bell’s Khalaf points out that over two-thirds of a global equity tracker will be invested in the US “which feels like quite a lot of risk to be invested in one country”. He suggests looking also at investing in a UK or European index tracker such as iShares Core MSCI Europe UCITS ETF.He offers another tip: consider dripping the money into the markets over the course of six months. While the magic of compounding means investing earlier maximises returns, the short-term outlook for the stock market is “very uncertain” and the impact of paying in a lump sum before a steep market sell off can be “pretty nasty”.For equities with the best chance of beating inflation, Morgan suggests investors look for companies with “pricing power”, which can pass on cost increases to customers, such as luxury goods makers. “Liontrust Special Situations is one fund that prioritises competitive advantages and pricing power in its selection process,” he says. It’s also worth considering areas that will benefit from higher inflation. Banks are a potential beneficiary of higher interest rates as they can earn more on their lending. Inflation caused by rising commodity prices might also be countered in a portfolio via some exposure to mining and energy companies.However, investors should remember that some inflation expectations have already been baked into markets. Future share price movements will be determined by how reality reflects these assumptions. Paul Derrien, investment director at Canaccord Genuity Wealth Management, thinks there is now value in so-called “growth” stocks — those expected to outpace the market average — which have fallen out of favour amid fears of higher interest rates. He says “sectors such as technology and healthcare have suffered large falls which is creating good long-term opportunities”. Khalaf suggests investing in a broad tracker fund as the core of your portfolio and then adding tilts of what you think will do well on top of that. Research by Bowmore Wealth Group found that the number of millennial and Gen Z taxpayers declaring annual income over £150,000 in the UK has risen by 28 per cent over the past year to 50,000 individuals. Even if you don’t have thousands of pounds to put into your Isa, the sooner you start investing the better, to reap the benefits of compounding. “The power of tax-free compounding is a marvel to behold. If markets have a wobble and you have spare cash, that can be a great time to top up with whatever you can afford,” says Henry Cobbe, head of research at Elston Consulting. Lifetime Isa?Younger investors also face another choice: whether to open a Lifetime Isa. On the face of it, it seems a no-brainer, as they can put up to £4,000 into a Lisa every year and receive a 25 per cent top-up from the government. The money can be used towards a deposit for a first home, or accessed when they reach the age of 60. But Lifetime Isa holders wanting to use the funds to buy a home face other conditions. It may not be used to buy a property worth more than £450,000 — a limit that has not increased since it was introduced in April 2017. Since then, the average UK house price has risen by 24 per cent, according to the Halifax House Price Index, to £278,123, rising in London to £530,469. If holders do not meet the conditions — and decide to take out the money before the age of 60 — they pay a 25 per cent penalty to lay their hands on it. The charge takes back the government subsidy and a proportion of the individual’s savings too. For example, if £1,000 is saved, it receives a £250 top up. If £1,250 is then withdrawn, the 25 per cent charge would cost £312.50 — resulting in a 6.25 per cent loss. Yet for many buying a home or saving for retirement, the Lifetime Isa can still make sense. “It is a trade off between accessibility and tax efficiency,” says Svenja Keller, financial coach and founder of SK Inspire. “In many cases, having a bit of both is a good option to get the best of both worlds.”Isa or pension? While selecting the kind of Isa to invest in is one choice that savers make, a bigger decision for many people is between putting money into any Isa or contributing to a pension scheme. Pensions and Isas are the “two key pillars of longer term, tax efficient savings” in the UK, says Jason Hollands, managing director at Bestinvest. Finding the most tax-efficient option is becoming increasingly important as the UK faces tax rises. From April 6, national insurance is due to increase by 1.25 percentage points, lifting the main rate for employees to 13.25 per cent. Dividend taxes are set to rise by the same amount, with new rates of 8.75 per cent for basic-rate dividend taxpayers, 33.75 per cent for those in the higher rate and 39.35 per cent for additional rate taxpayers. Isas allow taxed money to grow and be withdrawn tax free. Pensions give you income tax relief on any money paid in at your marginal rate, but you cannot access the money until you are at least 55 (rising to 57 in 2028) and you will pay income tax on money withdrawn from your pension at your marginal tax rate. Which one should you prioritise? Hollands says “a widespread regret among older workers is not having started contributing to a private pension earlier”. If you don’t need access to your money, pensions are the more generous vehicle, particularly if you are a member of a workplace pension scheme receiving employer contributions, or if you are a higher or additional rate taxpayer. While not an issue for most people, there are restrictions on how much those on a high income can pay into a pension. The annual pension allowance is £40,000 per year, but this allowance tapers down by £1 for every £2 your income goes over £240,000, with the minimum reduced annual allowance currently £4,000 for anyone with an income of £312,000 or higher. If you have a spouse or civil partner and they haven’t maxed out their allowances, you can also contribute to their pension and Isa, notes Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown. You can pay up to £40,000 a year or up to 100 per cent of their earnings (whichever is lower) into their pension, and if they aren’t working then you can contribute up to £2,880 per year and they will get tax relief topping it up to £3,600.If you are in retirement, it might make sense to draw an income out of your Isa savings before turning to your pension. You will not have to pay income tax on Isa money withdrawn, and your pension will not form part of your inheritance tax estate when you die.For those saving for children, Junior Isas allow you to pay in up to £9,000 per year. But note that as soon as the child reaches 18 — like Poppy Lyons — control of the money goes to them. If you don’t want them to have access to the money at 18, you could consider paying into a Junior Sipp or setting up a trust. These are uncertain times for markets, but we do know that taxes will rise, inflation will erode the value of cash and equities have protected against rising prices over long periods. It makes sense to spend time considering how Isas, along with other tax-efficient vehicles like pensions, can help maximise the power of your savings. What happens to my Isa when I die? Ali Walsh, who runs a gluten-free cake making business in Bristol, was recently talking to her parents about what might happen to their Isas after their deaths. Mike Gregory, a former engineer, and Nancy Gregory, a former classics teacher, from Cambridgeshire, are both in their 80s. “If they leave their Isas in their wills to me or my siblings, or split between us, what happens to the Isas?” Walsh asks, unsure whether the money would stay protected within the tax-free wrapper or be subject to tax.Isa savers Mike and Nancy Gregory wonder what will happen to their investment after their deaths © Charlie Bibby/FTIsas are not exempt from inheritance tax and form part of the estate of the deceased, says Kay Ingram, chartered financial planner. “When a person dies their Isa goes into their estate and may continue to be invested tax free while probate is being sought, for a period of up to three years. It is known as a continuing Isa.”During this period, no money can be added to the Isa but the executor or administrator of the estate can make changes to the investments or cash it in.The surviving partner of an Isa owner may invest an amount equivalent to the value of their deceased spouse’s or civil partner’s Isa at the date of death or when the Isa is closed, whichever is higher, she adds. “This additional allowance can be used alongside their own annual allowance of £20,000 per tax year. It must be used within three years of the date of death.” More

Thousands of miles from Ukraine on a tugboat off Australia, chief mate Simon Prokopenko was trying to figure out how to get home and fight. “I cannot stand aside when this kind of thing is happening in my place,” he told the FT on a call in the weeks after Russia invaded Ukraine.For the global shipping industry, decisions like this risk becoming a big problem. Together, Ukraine and Russia account for 275,000 of the world’s 1.9mn commercial seafarers, jointly surpassing the Philippines, the biggest supplier of maritime workers.Ukraine on its own provides 5.4 per cent of the officers that head crews on the 74,000 plus ships trading internationally.Now, with Ukrainian President Volodymyr Zelensky urging people to stay at home and take up arms, and with mariners like Prokopenko on their way back to the country, shipping executives are warning of shortages of vital staff that keep world trade moving. Ukrainian national and chief mate Simon Prokopenko: ‘I cannot stand aside when this kind of thing is happening in my place’ © Simon Prokopenko“They are one of the top five [providers of] officers at sea today. Losing this source overnight will lead to strain on overall global crew supply,” said Carl Schou, chief executive of Wilhelmsen Ship Management, one of the world’s largest ship managers.Russia’s invasion of Ukraine is already causing significant supply chain problems. The biggest container shipping lines have suspended new bookings to Russia for fear of carrying sanctioned cargo, Europe’s ports are suffering from congestion caused by customs checks to comply with sanctions and the Black Sea has been classified as a high risk war zone by the Joint War Committee, an advisory body that guides insurers, hitting grain, iron ore and oil exports.Oleg Grygoriuk, chair of the Marine Transport Workers Trade Union of Ukraine, estimates that 55 to 60 per cent of Ukraine’s 80,000 or so seafarers are currently on ships and, of those at sea, roughly 20 per cent want to come back and fight.The union is advising them to stay on board for their own safety and to keep global logistics running.“If most of the Ukrainian seafarers leave then there’ll be no nationality able to take their positions and this will be catastrophic for world shipping,” he said.On a bulk carrier loaded with coal heading to Turkey, Captain Oleksiy Luchyno is one of those who plans to keep working to the end of his contract and then get his family out of Ukraine before deciding what to do next. However he dares not ask his six Ukrainian colleagues about their plans.“I try to avoid this question,” he said. Bjorn Hojgaard, head of Hong Kong-based Anglo-Eastern Univan Group, another large ship manager, said it has suspended crew changes for some of the 1,000 Ukrainians it employs partly because Ukrainian men aged 18-60 are now not allowed to leave the country.

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For an industry that has struggled with border restrictions over the past two years — at one point in the pandemic 400,000 seafarers were stuck on land or sea — and more recently outbreaks of the Omicron coronavirus variant on ships, “This is the next problem the world is facing in the transport sea chain,” said Henrik Jensen, managing director at Danica Crewing Specialists, a Hamburg-based company with 1,200 Ukrainian workers.Russia’s increasing isolation is also causing problems. Executives say paying Russian nationals is much more difficult because the country’s access to Swift, the major international payment network, has been severely curtailed. At the same time, the cessation of many flights out of Russia has made it difficult to bring crew to where they are needed.

The war has also thrown up questions about corporate responsibilities in an industry that often employs people on a contractual basis. “You have an obligation to get them home, so what does that look like?” said Stephen Cotton, general secretary of the International Transport Workers’ Federation. He said a further risk to global supply chains comes from dockworkers who may refuse to handle Russian cargo — sanctioned or not. The UK has banned Russia-owned, operated, controlled, registered or flagged ships from entering but still permits cargo from Russia to be unloaded.But the UK union Unite and North America’s International Longshore and Warehouse Union, which both represent dockworkers, have stated their intention to refuse to unload or load any Russian cargo. Manish Singh, chief executive of Ocean Technologies Group, a company that trains crews, said the challenge was not how to replace Ukrainians but sustaining global trade until these seafarers are in a position to work again. “These [expert] communities take decades to grow,” he said. People like Prokopenko, whose wife and three children had fled Ukraine for Poland, feel they have little choice but to exit the industry for now. “If we don’t do this, then there will be no home and there’s no point working at sea.” More

The consumer price index for February rose 7.9% from a year ago, the highest level since January 1982.
Excluding food and energy, both of which moved sharply higher during the month, core inflation still rose 6.4%, in line with expectations but the highest since August 1982.
Gas, groceries and shelter were the biggest contributors to the CPI gain. Auto prices eased.
Worker paychecks fell further behind, as inflation-adjusted earnings dropped 0.8% in February, contributing to a 2.6% decline over the past year.

Inflation grew worse in February amid the escalating crisis in Ukraine and price pressures that became more entrenched.
The consumer price index, which measures a wide-ranging basket of goods and services, increased 7.9% over the past 12 months, a fresh 40-year high for the closely followed gauge, according to the Labor Department’s Bureau of Labor Statistics.

The February acceleration was the fastest pace since January1982, back when the U.S. economy confronted the twin threat of higher inflation and reduced economic growth.
On a month-over-month basis, the CPI gain was 0.8%. Economists surveyed by Dow Jones had expected headline inflation to increase 7.8% for the year and 0.7% for the month.
Food prices rose 1% and food at home jumped 1.4%, both the fastest monthly gains since April 2020, in the early days of the Covid-19 pandemic.
Energy also was at the forefront of ballooning prices, up 3.5% for February and accounting for about one-third of the headline gain. Shelter costs, which account for about one-third of the CPI weighting, accelerated another 0.5%, for a 12-month rise of 4.7%, the fastest annual increase since May 1991.

A customer refuels at a Chevron gas station with prices above $4 a gallon in Seattle, Washington, U.S., on Monday, March 7, 2022.
David Ryder | Bloomberg | Getty Images

Excluding volatile food and energy prices, so-called core inflation rose 6.4%, in line with estimates and the highest since August 1982. On a monthly basis, core CPI was up 0.5, also consistent with Wall Street expectations.

The rise in inflation meant worker paychecks fell further behind despite what otherwise would be considered strong increases.
Real inflation-adjusted average hourly earnings for the month fell 0.8% in February, contributing to a 2.6% decline over the past year, according to the BLS. That came even though headline earnings rose 5.1% from a year ago, but were outweighed by the price surge.
Markets indicated a negative open on Wall Street, with stocks pressured by faltering Russia-Ukraine cease-fire talks. Government bond yields turned higher after the CPI report.

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“Inflation is coming in hot but the reality is there are no real surprises in this report,” said Mike Loewengart, managing director of investment strategy for E-Trade. “The market likely already priced the inflation increase in accordingly, and is instead intently focused on Ukraine and the downstream impact from commodities, which are already sending shockwaves through the market.”
The inflation surge is in keeping with price gains over the past year. Inflation has roared higher amid an unprecedented government spending blitz coupled with persistent supply chain disruptions that have been unable to keep up with stimulus-fueled demand, particularly for goods over services.
Policymakers have been expecting inflation to abate as supply chain issues ease. The New York Fed’s supply chain index shows pressure has eased in 2022, though it is still near historically high levels.
Vehicle costs have been a powerful inflationary force but showed signs of easing in February. Used car and truck prices actually declined 0.2%, their first negative showing since September 2021, but are still up 41.2% over the past year. New car prices rose 0.3% for the month and 12.4% over the 12-month period.
A raging crisis in Europe has only fed into the price pressures, as sanctions against Russia have coincided with surging gasoline costs. Prices at the pump are up about 24% over just the past month and 53% in the past year, according to AAA.
Moreover, business are raising costs to keep up with the price of raw goods and increasing pay in a historically tight labor market in which there are about 4.8 million more job openings than there are available workers.
Recent surveys, including one this week from the National Federation of Independent Business, show a record level of smaller companies are raising prices to cope with surging costs.
To try to stem the trend, the Federal Reserve is expected next week to announce the first of a series of interest rate hikes aimed at slowing inflation. It will be the first time the central bank has raised rates in more than three years, and mark a reversal of a zero interest rate policy and unprecedented levels of cash injections for an economy that in 2021 grew at its fastest pace in 37 years.
However, inflation is not a U.S.-centric story.
Global prices are subject to many of the same factors hitting the domestic economy, and central banks are responding in kind. On Thursday, the European Central Bank said it was not moving its benchmark interest rate but would end its own asset purchase program sooner than planned.
In other economic news, jobless claims for the week ended March 5 totaled 227,000, higher than the 216,000 estimate and up 11,000 from the previous week, the Labor Department said. Continuing claims rose slightly to just below 1.5 million, though the four-week moving average remained at its lowest level since 1970.

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