In spite of a negative outlook for the UK’s economy, with projected growth for the year halved to 0.6 per cent, financial experts say today’s Budget statement will have a positive effect on markets.
Key elements that will directly affect investors include:
Growth expected to be 1.8 per cent in 2014; 2.3 per cent in 2015 and 2.7 per cent in 2016
- £10,000 income tax limit brought forward one year, to 2014
- Shared equity schemes extended for homebuyers
- Corporation tax cut to 20 per cent in 2015
- Stamp duty abolished on AIM-listed companies
- Flat-rate pension of £144 per week moved forward one year to 2016
- Child trust funds allowed to transfer to Junior ISAs
Paras Anand, head of pan-European equities at Fidelity Worldwide Investments, says the Budget’s focus on making the UK attractive for international business should offset any negative economic news.
"Despite the well-leaked downgrade to the UK’s economic growth outlook and a deferral of the Budget deficit reduction, the content of the chancellor’s 2013 Budget should be incrementally positive for markets," he said.
"While characterised as a Budget for working families, I would argue that the greater focus was on pushing the UK’s relative attractiveness as a location for international companies and encouraging the development of small businesses, especially those with a high level of intellectual property."
"Reduction of corporation tax to the 20 per cent level, 10 per cent research and development tax credit and more favourable tax treatment for employers granting ownership to employees are all positive steps."
Anand adds that while the headline rate of growth is likely to remain "uninspiring", he expects to see a rise in the level of productivity by the private sector versus the public sector, which he believes will boost the market.
However, Angus Campbell, head of market analysis at Capital Spreads, says it remains unclear whether the Budget has gone far enough.
"Unfortunately, we will have to wait some time for the major measures to take effect as most are not due to kick in until 2014 or beyond," he said.
Campbell says that tax reductions for low earners, such as bringing the £10,000 income tax limit forward one year, are a welcome development.
However, he argues that it does not offer much of an incentive for people to invest. He also doubts whether the Chancellor’s cuts to corporation tax will encourage companies to hire new workers and invest in their own growth.
Shaun Port, chief investment officer at Nutmeg, says investors will continue to feel pressure on their savings, in spite of the tax breaks.
"Before the financial crisis, households received about £14.7bn per year more in interest than they paid. Since the crisis, they have received a net £3.2bn per year less," he said.
"Today’s news will therefore be particularly disappointing for savers."
Child trust funds
"The consultation to allow CTFs [child trust funds] to be transferred to Junior ISAs is excellent news for those stuck in these inferior and expensive products," said Chelsea Financial’s Darius McDermott (pictured)
"CTFs have been suffering from limited choice and higher charges on investments, as well as lower rates for cash savings for more than two years now and the situation has been getting worse, with a number of providers raising fees in recent months."
A spokesperson for the AIC echoed McDermott’s view, saying that the announcement is a "victory for common sense and consumer choice".
"Many child trust fund investors have found themselves 'locked' into a product because there is little choice elsewhere."
"The AIC has long argued that Child Trust Funds should be aligned with Junior ISAs and we very much welcome today’s announcement."
For investors with a large exposure to gilts, now may be the last opportunity to switch asset classes, according to Richard Stevens
, fixed income manager at Threadneedle.
"For gilt investors, the Budget is probably marginally negative, owing to the higher peak in debt/GDP and the reduced probability of further quantitative easing," he said.
Port adds that question marks over who will buy the £108bn in new gilts to be issued in 2013/14 are another cause for concern.
"We fear that the cost of selling all this extra debt will push yields higher still. At Nutmeg, we have had zero exposure to gilts for some time," he said.
Incentives for homebuyers
Port says the impacts of Osborne’s Help to Buy scheme are potentially significant, and could be a welcome tailwind for UK mid cap managers.
"Here, at last, is a policy to help the younger generation," he said.
"Housebuilders will rejoice at the news. The FTSE 250 – which has a higher concentration of housebuilders/domestic stocks – has shown a good bounce on the Budget. At Nutmeg, we currently invest heavily in mid cap stocks such as in the FTSE 250."
Stamp duty on AIM-listed stocks
FE Alpha Manager and small cap expert Giles Hargreave (pictured)
says the removal of stamp duty on some of the smallest and fastest-growing companies in the UK is good news for investors.
"It is often said that SMEs [small to medium sized enterprises] are the lifeblood of the British economy. With 1,100 companies, AIM is home to three times as many companies as the FTSE 350," Hargreave said.
"Many of these are developing the technologies and products of the future and looking for growth capital through AIM."
"Today’s announcement by the chancellor acknowledges their contribution to the UK and will, we hope, encourage more investors to consider an investment into this vibrant market."
"Abolishing stamp duty on AIM shares will speed up the movement of capital into smaller company equities and help more AIM-listed stocks gain visibility and make a great growth market story more attractive to more investors."
Patrick Reeve, managing partner at Albion Ventures, adds that the announcement will provide a much-needed boost for small companies in the UK.
"Abolishing CGT on the sale of companies to employees provides a much-needed incentive to unlock hidden talent within UK companies," he said.
"By securing the Government’s stamp of approval, we expect to see a significant increase in management buy-outs over the coming months as awareness of this route to growth begins to spread."
"This Budget was mindful of the role that growth companies are playing in advancing the UK’s progress down the road to recovery."