Economic overview: Iain Armstrong, director of equity research, comments: “Chancellor has under promised and over delivered – a great trick if one can pull it off. He has had help from higher tax receipts and lower unemployment and better export performance – but he did start from an even lower base than understood in 2010. The recession was actually as deep as 7.2% in 2008/09 – the deepest in the developed world. And now he has an £11 billion surplus but has certainly not given it away – this was a disciplined budget. So he could make his budget surplus 2 years ahead of 2020 as previously forecast. Despite all this the market is not moving as waiting for US tomorrow and QE signals”.
Stamp duty/ETFs: Ben Gutteridge, head of fund research, said, “The abolition of stamp duty on the purchase of shares in Exchange Traded Funds (ETFs) is as a positive development for the UK’s budding ETF industry. However, given product providers domiciled in Ireland or Luxembourg are already structured to avoid Stamp Duty, the change is probably insufficient to entice major ETF providers out of their existing locations. This is due to a combination of factors including a well established, and successful, financial infrastructure, prohibitive relocation costs, the double tax deal with US on dividends, and more favourable corporate tax rates.
These issues aside, the passive industry is a rapidly growing arm of global financial services. The UK is doing entirely the right thing by recognising this fact, and improving the competitiveness of its offering. New entrants, providing they are of sufficient scale, may decide the City provides them with a compelling opportunity. In fact, an ETF provider with a UK domicile may use this feature as their ‘marketing edge’.
Pensions: John Fletcher, financial planning director, comments: “The increase in state pension age serves to highlight the importance of saving early to provide an income in retirement. The emphasis is now on the individual, not the state, and early planning to ensure sufficient funds for retirement is essential. We’re please, though, that the Chancellor has not restricted pension savings further”.
ISAs: John Fletcher, financial planning director, comments: “As predicted, no cap has been proposed which is clearly positive news for savers, and the maximum allowance has risen in line with CPI”.
Housing: Stephen Williams, director of equity research, comments: “The Introduction of Capital Gains Tax on foreign-owned residential property will have a negative impact on Berkeley Group, which produces and sells the highest proportion of top-end apartments in London. It could also be negative for Capital & Counties in the Real Estate sector, which has a high proportion of top-end residential development planned at Earls Court and Covent Garden. Any reduction in demand could have an impact on sales and hence earnings. Currently 70% of houses and apartments valued at over £3m are acquired by overseas purchasers.”
Bank levy: Ed Salvesen, deputy head of equity research, comments: “The Chancellor announced that the Bank Levy would be increased, the third rise in three years. The large banks anticipated this measure and hence the lack of rapid change in the share prices this afternoon. From the 1st January 2014, the Bank Levy will increase to 0.156% from the prior estimate of 0.142% of the size of the banks’ the total chargeable equity and liabilities which, according to the Government, will help to ensure that the banking sector makes a fair contribution. This will raise £2.7bn in 2014-15 and £2.9bn each year from 2015-16. This will further hurt bank profitability and is a further headwind at a time when management is trying to increase capital headroom and reduce volatility. The cost of the levy to Royal Bank of Scotland, for example, in 2012 was £175 million compared with £300 million in 2011. The focus for investors is currently on capital build and litigation – today’s news is not a surprise given the misdemeanours of the past.”
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