Business

How Budget measures took their toll on London Stock Market

Irn Bru owner AG Barr saw its share price drop in the wake of the Budget
Irn Bru owner AG Barr saw its share price drop in the wake of the Budget Irn Bru owner AG Barr saw its share price drop in the wake of the Budget

ON the eve of St Patrick’s Day George Osborne unveiled his March budget which has resulted in quite a storm. The financial measures seem to have faded in significance in the eyes of the media relatively swiftly in the political storm that has followed and which culminated in the high profile resignation of Ian Duncan Smith at the weekend.

It is worth looking at the financial measures, however, as they will have implications for the stock market. The most high profile and surprising measure was the so-called “sugar tax” on soft drinks.

AG Barr (whose brands include the iconic Irn Bru) and Britvic immediately saw a negative reaction in their share prices and Nichols, which makes Vimto, suffered a proportionately bigger fall.

Less high profile was the help provided to the oil and gas industry in the form of £1 billion of tax cuts, thanks to the abolition of the petroleum revenue tax and a halving of the supplementary charge on ring-fenced oil and gas profits to 10 per cent.

Unsurprisingly this led to a bounce in the shares of North Sea drillers such as Cairn Energy, Premier Oil and Ithaca Energy. An overhaul of the stamp duty regime was also announced with the aim of helping smaller businesses, which is likely to benefit some of the specialist lenders and in particular some of the “challenger banks” such as Aldermore, OneSavings bank and Shawbrook. The fears of the insurance industry were not realised with a far more modest increase in insurance premium tax (from 9.5 to 10 per cent) than had been mooted.

There was also a big push to encourage saving and help for those trying to get a foothold on the property ladder, in the form of more changes to ISAs and in particular the introduction of the new ‘lifetime’ ISA for the under 40s. The stated aim is to help young people save for retirement or a first home and enables people aged between 18 and 40 to save up to £4,000 per annum and receive a government bonus of 25 per cent. This can then be used either to fund a first house purchase or must be left untouched until the age of 60.

Another boost to savers was the announcement of an increase in the ISA allowance as from 2017. The annual allowance currently stands at £15,240, to be held at the same level for the next financial year (which starts on April 6) but as from next year this will be £20,000. Theoretically if an investor was to fully subscribe in the current tax year, as well as the next two tax years, in little over 12 months it would be possible to put over £50,000 into a tax sheltered environment. This is particularly timely as we are only two weeks away from the end of the financial year.

One additional measure which will help private investors is the cut in capital gains tax as from 6 April from 28 per cent (for higher rate taxpayers) to 20 per cent and from 18 per cent for basic rate taxpayers to 10 per cent. This was entirely unexpected.

This Budget has certainly resulted in a great deal of media attention and this is likely to continue for some time as there is a great deal to absorb, aside from the political headlines.

:: Cathy Dixon is a director at the Belfast office of Cunningham Coates Stockbrokers, a trading name of Smith & Williamson Investment Management (SWIM). This article does not constitute a recommendation to buy or sell investments and the value of any shares may fall as well as rise. Investments carry risk and investors may not receive back the amount invested. The views expressed are those of the author and not necessarily of SWIM.