Chancellor Philip Hammond remained true to his reputation for prudence and caution in his first and last Autumn Statement. As such, there were few surprises for markets, with no Donald Trump-style spending plans or tax cuts, but some well-flagged measures to improve productivity and boost favoured industries.
Housebuilders shares were lacklustre in spite of further pledges to affordable housing construction
Hammond kept faith with his predecessor George Osborne in promising a 3% chop in corporation tax to 17% by 2020. The Treasury estimates that this will save businesses £6.7 billion. However, he made no reference to Osborne’s post-Brexit promise in July of this year to reduce it to 15%, to the disappointment of some sections of the business community.
Nevertheless, Paul Mumford, a fund manager at Cavendish Asset Management, welcomed the commitment to lower corporation tax: “Domestic companies will see the benefit to cash flow and higher earnings per share, while the UK will become a more attractive environment for overseas investors. From that perspective, the cost of buying assets in the UK or setting up shop here is already much lower than it was before the Brexit vote because of the depreciation of Sterling, and added tax relief benefits will further the UK’s appeal.
He believes it could boost domestic companies such as retailers, construction companies and property companies that have suffered from the currency deprecation, with lower tax bills going some way to alleviate the cost of imports and mitigating the pressures of the increased living wage.
Housing Remains Top of the Agenda
Once again, housing remained an area of focus. The Chancellor announced plans to ban letting fees for tenants. At the moment, letting agencies – which are appointed by landlords - have been able to charge both tenants and landlords for administrative services such as checking references or preparing a tenancy agreement, with an average cost to tenants of £337, according to Citizens Advice. These will be banned, following a consultation by the Department of Communities and Local Government.
There are fears the move may backfire, with landlords and/or letting agents seeking to recoup their costs through higher rents, but the major estate agency chains nevertheless took a significant hit: Foxtons saw its shares dip almost 14%; LSL Property and Countrywide saw more moderate falls. Shares in PurpleBricks, the low-cost challenger to the mainstream estate agents, also saw falls of around 5%.
Shares in the housebuilders were also lacklustre on the day in spite of further pledges to affordable housing construction. The Government committed £1.4 billion investment to building 40,000 new affordable homes, with a further £2.3bn for a housing infrastructure fund designed to provide 100,000 new homes in high-demand areas.
Tom Stevenson, investment director for personal investing at Fidelity International, says: “We’re probably not looking at a 1930s style building boom, but there were significant sums committed in the Autumn Statement to support the construction of new homes and improve infrastructure. Housebuilders could gain, although the reaction from shares in the sector has been mixed, if not slightly negative.”
This may have been because the changes had been well-flagged and there was little new information to excite investors. Also, housebuilders no longer look good value, says Dan Hanbury, manager of the River & Mercantile UK Equity Income fund: “George Osborne had been very supportive of the housebuilders, helping supply constraints.
However, there is an increasing recognition that the housing market is now inflated to an extent that is not healthy for the economy….We have a zero weighting in the housebuilders. They are cash generative and pay dividends, but the valuations still look high to us.”
Hammond Delivers on Infrastructure Promise
Infrastructure was another area of focus, with an extra £1.3 billion allocated for road improvement and £1 billion designated to create a ‘world class digital infrastructure’. Stephenson believes this should be good news companies providing internet connections and network maintenance, but Colin Morton, portfolio manager on the Franklin UK Equity Income fund, said that the sums of money involved were small and not enough to ‘move the dial’ for individual companies.
To fund spending commitments, Hammond announced an increase in insurance premium tax from 10% to 12%. Stephenson said this would hurt the insurers at the margin, making their products more expensive. Shares in insurers such as Direct Line and Aviva were marginally lower on the news.
Overall, Jason Hollands, managing director, Tilney BestInvest, said that there was ‘very little for private investors’ in the Autumn Statement. He added: “The bigger picture is a recalibration across developed economies, away from monetary to greater fiscal policy. However, this was not a Donald Trump-style fiscal loosening. There was a little extra spending on infrastructure, but still within a constrained approach. There were no big surprises.”
Hanbury summed up the view of many when he said: “In general, we try to manage round the Budget, looking longer-term.” He points out that Hammond is so constrained by the UK’s twin deficits, he can’t afford to take drastic action. Morton agrees: “It highlights the lack of room for manoeuvre in the UK economy and that we ultimately remain hamstrung by debt in the short to medium term.”
