This was a Budget report firmly on the side of smaller businesses, with the result that a few larger businesses were hit along the way. Alongside the headline-grabbing ‘sugar tax’, the Chancellor announced measures likely to hit insurers and banks. Benefiting from the Budget were oil and gas manufacturers, who will get a tax break and also certain financial services groups, who should reap the rewards from new savings incentives.
Sugar Tax Hurts Sugar Shares
The sugar tax may have pleased Jamie Oliver, but it hurt the share prices of some of the major drinks manufacturers. AG Barr (BAG) saw its share price dip from 552.5p to 522.5p in the wake of the announcement. Britvic (BVIC) was also hit, with its shares falling from 708.35p to 689p in the 24 hours following the Budget.
Laith Khalaf, senior analyst at Hargreaves Lansdown, says: “These manufacturers will be looking at the tax in more detail and deciding whether they will allow it to feed through their bottom-line or to customers. The answer is probably a little bit of both.”
David Jane, co-manager of Miton's multi asset fund range, however, suspects that the impact may not be as profound as it initially appears: “We have had these type of taxes before – on alcohol, on tobacco – and it has never made a great deal of difference. People like these products. If anything, if taxes are higher, it can be easier for companies to raise prices.”
Crack Down on Multi-nationals
Another notable measure was the Chancellor’s crack-down on companies using past losses and/or interest payments to reduce tax. Companies will now only be able to offset 25% of their pre-2015 losses against profits, down from 50%. Although ostensibly designed to stop companies with offshore subsidiaries gaming the UK tax system, there will be a knock-on effect for certain UK companies.
A number of the banks, for example, have made significant losses, which they continue to offset against tax. In particular, RBS (RBS) has made £50 billion of losses since the financial crisis, including £2 billion in 2015. Lloyds is now in profit, but is still carrying forward losses. Jane believes that the move may also hit companies that operate with high leverage such as utilities and infrastructure.
Insurance Tax: Bad for Corporate or Customer?
The other notable group under fire was the insurers. The Chancellor announced a rise of 0.5% in insurance premium tax to pay for flood defences. The industry hit back at the charge, saying it would be reflected in higher premiums.
Steve White, chief executive officer at the British Insurance Brokers' Association, said: “Let’s be clear about this IPT is a tax collected and remitted by insurers, it is a tax on premiums paid by policyholders –motorists, householders, and businesses large and small.
“While we support the additional spending on flood defenses we believe that this could have been funded by the projected £1.5 billion annual funds paid to the exchequer as a result in the increase in IPT put in place only last November.”
Property Stocks Hit by Stamp Duty Change
The share prices of the larger property companies, such as British Land (BLND) and Land Securities (LAND), also fell following the Budget announcement that stamp duty land tax would be increased for the largest commercial property deals. This may be reflected in lower prices paid for commercial property, and could exert a drag in the longer-term.
Which Stocks are the Winners?
Nevertheless, there were also winners from the Budget. Khalaf says: “Oil companies operating in the North Sea are obvious beneficiaries. They will receive some tax breaks. This will provide a small boost, but the big issue for them is the oil price and nothing will have the same impact as the oil price moving back up to $60 a barrel.”
The Chancellor’s initiatives to get the nation saving, from the new Lifetime ISA, to the ‘Help to Save’ scheme, to the increased Isa allowance, should benefit the savings industry. This would include online brokers such as Hargreaves Lansdown (HL.), or retail-facing asset management groups, such as Henderson (HGG) or Liontrust (LIO).
Jane says: “ISAs for the under-40s is great as a supportive measure for savings, just as the changes to capital gains tax should unlock some assets.” While many have seen the changes to ISAs as part of a longer-term plan to attack pensions, for the time being pensions remain untouched. Jane points out that Isas are cheaper to manage for brokers anyway, so there may ultimately be a positive influence on their bottom line from the switch.
However, it is clear that these relatively minor tweaks may well be offset by cuts to corporation tax across the board. The Chancellor said that corporation tax would move from its current level of 20% to 17% by 2020. This should be a significant benefit to all companies.
Equally, all the changes should be put in the context of economic growth. As Jane concludes, “ultimately, keeping the wheels moving on the UK economy, whether in the property market, or for consumers, will be far more important for most companies. All companies want a healthy, successful economy.”
