It’s a Champagne Budget

It’s a champagne budget – or at least one to celebrate for investors as there are no really negative changes in it that were widely rumoured. At least that is apart from the rise in dividend taxes and freezing of allowances previously announced.

Here’s a list of the key points:

  • The National Living Wage is being increased.
  • The Government is substantially increasing funding for R&D.
  • The bank corporation tax surcharge is being reduced.
  • There will be some relief for business rates.
  • R&D tax relief will be focussed on domestic expenditure.
  • There will be more investment in tech skills and in schools.
  • Alcohol duties will be reformed and simplified with lower rates on lower alcohol products – champagne and beer will be cheaper.
  • Proposed rises in fuel duty are cancelled.
  • There will be minor changes to the taxation of REITs (details not yet clear but probably positive for investors) and there will be a levy on property developers to finance a fund to remove dangerous cladding.
  • The economy is now expected to grow by 6.5% this year (up from 4%) hence the generally positive tone of Rishi Sunak’s speech and new spending commitments.
  • Borrowing as a percentage of GDP is forecast to fall from 7.9% this year to 3.3% next, then 2.4%, 1.7%, 1.7% and 1.5% in the following years.

Comments:

This is generally a sensible budget with no abrupt changes in taxation, which are always to be deplored.

The emphasis on more education spending is surely wise, and on the NHS of course although whether the extra money will be wisely used remains to be seen.

Cancelling the rise in fuel duty may please some car drivers but it does not seem consistent with the aim to reduce carbon emissions and certainly will not help reduce congestion on our roads. Is this a two fingered gesture to Insulate Britain protestors who were active again this morning? But more prisons are being build to hold them if the courts put them away for a stretch.

It does not look like there will be any big impacts on particular sectors. The share prices of REITs have risen this afternoon so the changes may be positive but the rise in the National Living Wage will hit large employers such as retail store chains. There may be some benefits to large banks in the reduction in the bank surcharge on corporation tax but that will be offset by the general rise in corporation tax previously announced.

The changes in alcohol duties are a welcome simplification and may be of some benefit to pubs while encouraging healthier drinking. But it might negatively impact wine and spirits producers.

The UK stock market has not reacted significantly to these announcements although gilt prices rose on anticipated reductions in Government borrowing.   

More details are present in this document: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1028813/Budget_AB2021_Print.pdf

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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