Stocks should love this

Britain's near-secret super weapon

Forget the politicking, slower economic growth rates, sugar tax and "Brexit" scaremongering - chancellor George Osborne's 2016 Budget had great news for Britain. By 2020, you'll have the lowest corporate tax rate in the entire G20. Ever-more businesses will flock to your shores. Get ready!

Last century, few would ever have thought the UK a likely tax haven. Nose-bleed taxes seemed forever a fact of life. Even after a monumental tax cut in 1971, the top income tax rate was 75%. The highest investment income tax rate exceeded 90%. Even the Basic Rate topped 30% until the 1980s. The main corporate tax rate was 52% for much of the 1970s. Businesses, workers and investors suffocated. But now, just over a generation later, Britain puts America to shame!

We're not so different

On an individual level, taxation isn't very different. The top US income tax rate, 39.6%, is below Britain's 45% Additional Rate, but that excludes state income taxes. Those can jack the highest earners' rates up as much as 13%. Yes, there is the national insurance contribution, but the US has Social Security and Medicare taxes, as well as a health-care surcharge on high earners. Britain has council tax, while America has local property taxes. Britain has VAT, but most US states have a sales tax.

Britain's big edge is corporate taxes. America's corporate tax rate, 35%, is the developed world's highest. Even Japan's is lower now! America also taxes foreign-earned profits when firms bring them home. Only two other developed countries do this - Ireland and Israel - and both have much lower corporate rates than America's. The UK wisely stopped in 2010.

Now, credits and loopholes mean most US firms don't pay 35% to the feds, but state and local taxes offset much of that. Forty-four of America's 50 states charge corporate taxes, with rates ranging from 4.53% (North Dakota) to 12% (Iowa). The People's Republic of California charges 8.8%, causing firms to flee for tax-free Washington and Texas.

Fleeing to Britain

Now firms are fleeing to Britain. Who'da thunk it? Even just 10 years ago, your corporate tax rate was 30%. By 2020, it will be 17%. Not as sexy as Ireland's 12.5%, but that's OK. Pair a 17% corporate tax rate with the UK's dynamite human capital, robust banking sector, enviable geography, strong property rights and diverse industry, and why wouldn't the world's top firms want to call Britain home?

Several US firms have moved to Britain via "inversion" deals in recent years - buying smaller UK firms and their low-tax addresses. Economic data provider IHS just announced an inversion deal with Markit. Medical firms Cyberonics and Steris are en route to your shores. Telecom's Liberty Global moved there in 2013. Pharmaceuticals giant Pfizer tried to in 2014, but regulators quashed its planned merger with Astrazeneca. More will follow as tax rates fall - true whether or not "Brexit" happens.

Tax cuts will help unleash demand

Tax rate changes aren't a big swing factor for stocks, but the pending cuts are a positive nonetheless - particularly for small businesses, which comprise about 99% of UK PLC. Thanks to the Budget's Small Business Rate Relief, 600,000 UK businesses will pay no taxes. Another 250,000 will see their taxes cut. Great! That's money they can reinvest in their business, something they've struggled to do with small-business lending so weak.

There is a ton of pent up demand, and tax cuts should help unleash it. Few see it, with the "Brexit" debate clouding sentiment, but your firms have a bright future, and UK stocks will have plenty of tailwinds as the "Brexit" uncertainty fog lifts.

Falling uncertainty should be 2016's hallmark globally as major concerns, from Brexit to America's election, sunset. Stocks should love this! Here are two picks:

Western Digital and Seagate Technology had a rough 2015, but both should work out in time. They dominate hard disk drives, which are central to cloud computing and must thrive if society is to as well. Hang on or buy.

Seagate is at 80% of annual revenue and 12 times analysts' 2016 consensus earnings estimates, with a 7% dividend yield. Western Digital is at 80% of annual revenue and nine times 2016 consensus earnings estimates - with a 4.1% dividend yield.

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.