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2016 March Budget - Investment implications

Budget box

A budget for small business

George Osborne made sure today's Budget was aimed squarely at small businesses, with larger corporations suffering some collateral damage.

The Chancellor revealed himself to be firmly on the side of the ‘little guy’ in this year’s Budget. He announced various sweeteners for small businesses, including lower business rates, lower corporation tax and lower stamp duty on commercial buildings. However, certain larger businesses – particularly those deemed to be gaming the UK tax system – came under fire.

First, it should be said that almost all businesses will benefit from the planned reduction in corporation tax. The Chancellor is dropping corporation tax from 20% in this tax year to 17% by 2020, which will free up more capital for companies to distribute and invest. However, the Chancellor made it clear that he would be clamping down on some tactics used by companies to keep tax bills low. This included companies using past losses and/or interest payments to reduce tax. While principally a measure targeting multi-national companies, there is likely to be some collateral damage for UK-based companies, notably the banking sector, where there are still huge losses to carry forward, and some industries that operate with high leverage, such as utilities or infrastructure.

The insurers will face an increase of 0.5% in insurance premium tax to pay for flood defences. In practice this is likely to feed through to consumers, rather than being borne by the insurance companies themselves, but higher prices may weaken demand at the margin. The sugar tax may got Jamie Oliver jumping for joy, but specialist drinks manufacturers such as AJ Barr and Britvic saw their share prices hit in the immediate aftermath of the budget. The long-term impact is unclear; it may hit demand, or it may be that – like alcohol and tobacco – demand continues regardless of taxation levels.

The share prices of the larger property companies, such as British Land and Land Securities, fell on news that stamp duty land tax would be increased for the largest commercial property deals. Although some suggested there may be a compensating decrease in the price paid for commercial property, it may act as a drag in the longer-term. There were also a number of key winners from the Budget. Oil and gas companies operating in the North Sea will receive some tax breaks. This may not compensate for the ongoing weakness in the oil price, but provide a small boost for the beleaguered sector.

Equally, the Chancellor’s raft of savings initiatives, including the new Lifetime Isa, to the ‘Help to Save’ scheme, and the increased Isa allowance, should benefit the savings industry. This includes financial advisers, brokers and asset managers.

All the changes made yesterday should be put in the context of economic growth. Most represent relatively minor tweaks and the outlook for the global economy will be far more important to the long-term fortunes of the corporations.

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