Budget 2015 - winners and losers named
18th March 2015 15:06
by Lee Wild from interactive investor
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"Britain is walking tall again," shouted Chancellor George Osborne to a background of jeering and cheering typical of budget time. "This budget works for you," he added, and the soundbites kept coming. But in the final budget of this parliament, Osborne was clearly determined it would not be his last as David Cameron's right-hand man. Just weeks away from what is expected to be the most closely fought general elections of modern times, Osborne had not one, but a hat full of rabbits to win over undecided voters.
There were tax giveaways galore and a host of populist measures, including a further clampdown on tax avoidance, an attack on the banks, free handouts to first-time homebuyers and a further cut in duty on beer, cider and spirits.
Share prices edged up in response - the FTSE 100 rose from 6,892 when Osborne stood up to 6,907 when proceedings wound up one minute short of an hour later. By mid-afternoon, the leading index had made it to 6,940, just one good session away from a new all-time high (see chart below).
But there were clear winners and losers here.
Housebuilders
As has become customary in recent years, housebuilders did well out of the chancellor. This time, investors piled into the sector after Osborne announced a Help to Buy ISA aimed at first-time buyers. Facing rising house prices and a need for high deposits, the government will give those trying to get on the housing ladder £50 for every £200 they save.
That means that to get a 10% deposit on the average first home - currently £15,000 - first-time buyers would need to chip in just £12,000, "effectively a tax cut for first-time buyers".
"Will this boost the property market? I think it will due to a combination of things," says Russell Quirk. founder and CEO of eMoov.co.uk. "Interest rates that given long term inflation forecasts are set to stay low, the November’s Stamp Duty boost and today's 25% First Time Buyer ISA bonus, will all help to contribute. All in all things are certainly looking buoyant for the UK housing market."
, , and were chased higher as the chancellor also promised to introduce the first 20 Housing Zones "that will keep Britain building". It is estimated these could provide up to 45,000 new homes on brownfield sites.
North Sea oil producers
Field allowances introduced by the Coalition government helped drive capital investment in the North Sea to a record £15 billion last year, but the slump in the price of Brent crude near to $50 a barrel means "bold and immediate action" is required. It's why Osborne has introduced a package of measures worth £1.3 billion to support the industry.
From the beginning of next month, a single, simple tax allowance will be introduced to stimulate investment. Government will also invest in new seismic surveys in under-explored areas of the UK Continental Shelf (UKCS), cut the Petroleum Revenue Tax (PRT) from 50% to 35% to support ongoing production in older fields, and cut the supplementary charge from 30% to 20% backdated to the beginning of January.
Oil companies would have liked the chancellor to scrap PRT altogether, but this cut should be of benefit to fields such as Wytch farm () and Thistle (). Cutting the supplementary charge will help all operators, among them , and .
“A bit of a token gesture given that the majority of UKCS producers do not pay tax due their accumulated tax losses/credits/capital allowances,” says the team at broker finnCap. “What would have been useful? Go the Norwegian route and reimburse 78% of exploration capex. Clarity on abandonment cost liabilities. The list could go on...”
“What the UK needs, both off and onshore, is a progressive fiscal regime in order to incentivise investment. One example is applying a Resource Rent Tax which is based upon achieved profitability. RRT is only applied once a threshold rate of return is passed and is applied in conjunction with corporate tax. RRT is applied after other taxes which are used as deductions in calculating the overall tax bill. This is the model which Australia has used for decades and was instrumental in establishing the various LNG projects on the west coast.”
Pub operators
Drinkers let out a cheer as Osborne announced he was cutting beer duty for the third year in a row, taking the price of a pint down by another penny. Duty on cider, Scotch whiskey and other spirits is cut by 2%. Wine duty will be frozen.
immediately jumped by 1.5% on the news and , which owns pub chains Chef & Brewer, Fayre & Square and Flaming Grill, rose by 1.3%.
Banks
Banks will pay a bigger contribution to the repair of Britain's public finances. Osborne will sell at least another £9 billion of Lloyds shares in the year ahead, but, more importantly for investors, the rate of the bank levy is raised to 0.21%. That will raise an extra £900 million a year.
Banks will also be stopped from deducting from corporation tax the compensation they make to customers for products they have been mis-sold, like PPI. Overall, new banking taxes will raise £5.3 billion across the forecast.
has fallen since the statement, handed back some of its earlier gains, while was little changed.
Wealth managers
Other financiers did better. Osborne announced a handful of changes for savers "based on the principles that cutting taxes increases the return on savings, and that people should have freedom to choose how they use those savings." These a new fully Flexible ISA which, from the autumn, will let people take money out, and put it back in later in the year, without losing any of their tax-free entitlement. From April next year the first £1,000 of the interest you earn on all of your savings will be completely tax-free. For higher rate taxpayers it's £500.
and both did very well from this "savers' budget", rallying in the aftermath.
"The savings changes should be welcomed and they create an even greater need for quality advice," says Brett Williams, managing director, SEI Wealth Platform, UK Private Banking "The reduction on the pensions cap is disappointing, but leaving alone tax relief makes pensions saving even more attractive following the relaxation on annuities and the tax changes."
Letting those who have already bought annuities cash them in is also interesting.
"This extends the greater pensions freedom and flexibility announced in the last budget from those not yet retired to existing pensioners," explains Steven Andrew, Manager of the M&G Episode Income Fund.
"This is a game-changer, but now retirees need to understand the full range of options and investments that are available to them."
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.