A pro-business Summer Budget from chancellor George Osborne has produced its fair share of commercial casualties on the stock market.
All businesses will get a kick out of lower corporation tax rates, which Osborne will cut from 20% to 18% in coming years. Some of these benefits will be offset by a plan to increase the minimum wage 25% by 2020 to £9 an hour. The minimum wage also appears to have been renamed the 'Living Wage'.
Winners as the dust settles include large banks, who will benefit from lower bank levies - notably HSBC (HSBA) and Barclays (BARC).
Losers are concentrated among buy-to-let lenders after the government took steps to take the heat out of the property market, citing it as a ‘risk to financial stability’. Estate agents stocks are also sporting hefty losses. Foxtons (FOXT) trades 3.5% lower at 213p and Countrywide (CWD) falls 3.1% to 521p.
Bank levy, buy-to-let
A reduction in the bank levy from a 0.21% charge on risky assets over the next six years will cut the tax bill of the UK’s five largest banks, with HSBC the largest beneficiary. HSBC is expected to receive a $1.6 billion bill this year linked to its global balance sheet, one of the reasons it is considering moving its headquarters overseas.
‘The measures to reduce the bank levy over time may stop a significant number of financial transactions migrating outside of the UK’, says Danny Beeton, transfer pricing economist at Duff & Phelps.
‘The movement from a bank levy to a surcharge on bank profits seeks to restrict any negative impact on financial transactions and instead tax institutions.’
Smaller lenders OneSavings (OSB), Virgin Money (VM.) and Aldermore (ADL) are moving in the other direction as Osborne announced an 8% surcharge, or tax, on bank profits from January. The chancellor is also introducing measures to stem a boom in the buy-to-let property market by taking away tax incentives.
OneSavings is down 5.7% to 294p, Virgin is down 4.5% to 414p and Aldermore trades 5.4% lower at 283p.
‘We’ve seen a sell-off in house builders, estate agencies and those linked to finance within the buy-to-let market as the government will start to taper down the amount of mortgage tax relief that can be claimed by buy-to-let landlords to the minimum tax rate from 2017,’ says Guy Ellison, head of UK equities at Investec.
Road builders
Infrastructure was another key element of the budget.
Reforms in the Vehicle Excise Duty regime are due to come into force from 2017 onwards creating a Roads Fund from the proceeds from 2020.
As acknowledged by Osborne, underinvestment in the network has over the past decade or so proved problematic and the creation of this ring-fenced resource of around £15 billion over 10 years should create a greater level of visibility for civils contractors operating in the road-building and maintenance space.
But markets met the news with relative indifference: Kier (KIE), the sector leader in a growing UK highways maintenance and management market, slides 0.3% to £13.72. Breedon Aggregates (BREE), the leading independent aggregates business in the UK after the four global majors, gains 1% to 49p.
Osborne's plans to enable councils to loosen Sunday trading hours helps the major grocers rise, among them Tesco (TSCO), up 3.55p to 204.20p, Morrisons (MRW), marked up 1.7p to 171.6p and Sainsbury's (SBRY), up 3p to 260.4p. Allowing bigger shops to open longer hours on Sunday would damage independents, but is viewed as positive for the big supermarkets.
Personal picks
Alongside moves to reduce tax incentives on buy-to-let properties, personal finance changes in the budget include the abolition of dividend tax credits and a proposal to adjust the treatment of pensions.
Changes in the way dividends are taxed, which includes a provision to allow £5,000 of tax free dividend income, looks like it will reduce tax paid by those with portfolios valued at less than £140,000 and increase taxation on those above the threshold.
More pension changes are also in the offing. Osborne vaguely proposed a consultation to ‘look at how pensions can be treated more like Individual Savings Accounts (ISAs)’ from a taxation perspective.
The 'Innovative Finance ISA' will be launched in April 2016 to accommodate loans arranged via a peer-to-peer lending platform.
Disclosure: William Cain, who helped to write this article, owns shares in Tesco
