With the UK having recently experienced a technical recession after two quarters of negative growth to December last year, and the spectre of a general election looming, today’s Budget decisions are ‘more critical than ever’ says the AccountancyAge website.

‘This budget is anticipated to navigate the tightrope of stimulating economic growth while managing the UK’s fiscal constraints. However, there’s a consensus that more needs to be done to invigorate the UK’s economic landscape’ adds the site.

WHAT DID THE MARKET EXPECT?

Most economists and observers predicted a 2% cut in NIC (National Insurance Contributions) for employees to help offset the ‘fiscal drag’ of the freeze on personal tax allowances, which pushed more people into a higher tax bracket and subsequently reduced their take-home pay.

There were also hopes for a targeted reduction in stamp duty to help first-time buyers trying to get onto the property ladder and older homeowners wanting to downsize.

Virtually no-one expected a cut in corporation tax as it is less than a year since the Chancellor increased the rate to 25%, but a cut in the capital gains tax on the sale of assets through an extension of the Business Asset Disposal Relief scheme was mooted.

Most observers forecast an extension of the freeze on fuel duty, which is scheduled to increase by 5p per litre on 23 March followed by another inflation-related hike in August.

On a personal finance level there was much chat about the introduction of a ‘British ISA’ to encourage more people to invest in UK stocks, although there are no restrictions on investing in UK stocks at present so the net benefit to the market in terms of flows and new listings is open to question.

WHAT THE CHANCELLOR DELIVERED

As expected, employee NICs will be cut from 10% to 8% from 6 April this year, and from 8% to 6% for the self-employed, although the theoretical £450 benefit for employees is likely to translate into a smaller gain for those who are bumped into the higher-rate tax band.

In terms of other taxes, as well as freezing fuel duty for a further 12 months, alcohol duty – which was due to rise by 3% this Spring – was also frozen until February 2025, giving a lift to hospitality stocks such as Marstons (MARS) and JD Wetherspoon (JDW).

The combined effect of these two measures is expected to reduce inflation by 0.2% over next 12 months, while the updated forecast from the OBR is for the CPI (consumer price index) to fall below 2% ‘in a few months’, a year earlier than forecast in the autumn statement.

In contrast there will be an increase in tobacco taxes in order to encourage smokers to switch from tobacco to vapes, news which barely dented shares in British American Tobacco (BATS) or Imperial Brands (IMB) but lit a fire underneath vape-makers Chill Brands (CHLL) and Supreme (SUP) which jumped by 20% and 4% respectively.

For businesses, there were promises of help for the creative industries, including film and TV studios, which lifted shares in Facilities by ADF (ADF:AIM), and for the biotech industry with money to expand the ‘technology hub’ in Cambridge, together with £200 million of funding for small businesses and an extension of full expensing to leased assets.

There was less happy news for the oil and gas industry with the tax on windfall profits being extended by another year.

Finally, market chat around a ‘British ISA’ was on the money, with the Chancellor championing a new ISA product with a £5,000 limit on top of the £20,000 individual ISA limit to encourage investors to back UK companies. This did provide a modest boost to the FTSE 250 and FTSE Small Cap indices, which have a more domestic focus, in the immediate aftermath of the new tax wrapper being unveiled.

Disclaimer: The author owns shares in British American Tobacco 

 

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