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AJ Bell: Prosecco budget represents £75 billion giveaway

AJ Bell shares their reaction to this year’s Autumn Budget. 

Stock market:

  • Pub groups sharply higher
  • Housebuilders gained ground
  • Airlines ticked up but mixed reaction for banking stocks

Personal finance:

  • Good news for people in net pay pension schemes
  • Increase in National Living Wage from £8.91 per hour to £9.50 per hour
  • Public sector pay increase
  • Disappointment on NMPA

£75 billion giveaway over the next five years

Laith Khalaf, head of investment analysis at AJ Bell:

“This was a Budget for lower paid workers, drivers and boozers, with a large increase in spending on public services. In many ways it was like watching austerity in reverse. Overall the policy decisions represent a £75 billion giveaway over the next five years. Make no mistake there is a cost to this, but many of the painful decisions that paved the way for the Budget bonanza had already been announced, in particular the new Health and Social Care levy, the temporary pause in the state pension triple lock, the increase in corporation tax and the freezing of personal tax allowances. Indeed, the OBR categorically states that the tax burden is now at its highest level since the 1950s, when Clement Attlee was in power.

“The OBR has also delivered a massive windfall for the Chancellor through higher economic growth forecasts, freeing up around £35 billion a year. That means the Chancellor has been able to increase spending substantially, and also reduce borrowing. It’s an absolute dream forecast for a Chancellor, but Sunak has been both bold and measured by spreading his windfall across investing in public services, providing some tax relief to stressed parts of the economy, and cutting government debt.

“For savers and investors, there was no feared CGT increase, though dividend tax is increasing by 1.25% as part of the government’s plans to fund Health and Social Care, and this is expected to raise over £3 billion in taxes over the next five years. Almost everybody in the country needs to be on red alert for fiscal drag, because inflation has turbocharged the Chancellor’s decision to freeze personal tax allowances, which was announced in the last Budget. Working taxpayers are going to find themselves paying significantly more tax as they earn more, and that’s set to be the case for the next five years. This, of course, makes it more important than ever to use tax shelters like ISAs and SIPPs to their maximum effect.

“Inflation raised its head in the Budget speech pretty early on, and the Chancellor took the unusual step of using the despatch box to reaffirm the Bank of England’s inflation target. The pressure is now cranking up on the interest rate committee, because not only is inflation already above target, but the Chancellor’s now announced a further round of inflationary policies, such as increases to the minimum wage and public sector pay packets. That now makes an interest rate rise this year even more likely.”

Stock market reaction

Russ Mould, investment director at AJ Bell:

“As perhaps you would expect, when the Budget had been so comprehensively leaked in advance, financial markets largely took their statement in their stride.  However, amongst the headline calm there have been some dramatic price moves:

  • Pub groups have moved sharply higher, buoyed by the scrapping of planned alcohol duty increases, a new alcohol duty regime, cuts to levies on draught beers and ciders worth about 3p a pint and the one-year, 50% cut in business rates for retail, leisure and hospitality venues. By the time the Chancellor had sat down, JD Wetherspoon was up 10%, Revolution Bars 6% and Mitchells & Butlers and Marston’s by 5%.
  • Housebuilders gained some ground as the Government pressed ahead with its drive to increase the number of houses that are being built and the 4% Residential Property Developers Tax on housebuilders’ profits above £25 million proved no worse than expected. This will come into force on 1 April to help fund remediation work on cladding in the wake of the Grenfell Tower fire. Crest Nicholson and Vistry are both up by 2-3% and Barratt, Persimmon and Taylor Wimpey are the biggest gainers in the FTSE 100, with gains of around 1.5% to 2%. However, AIM-quoted Harworth does not seem particularly moved by £1.8 billion set aside for the redevelopment of brownfield sites, even though that is the Northern firm’s specialty, and its shares are unchanged.
  • easyJet is up 2% and Jet2 and International Consolidated Airlines by 1% after cuts to air passenger duties.
  • The big banks are flat to down, with Barclays the largest faller after a 1.5% drop, as the Chancellor retained the 3% surcharge on bank profits over and above corporation tax. However, Mr Sunak did increase the annual allowance on this levy for challenger banks to £100 million and shares in OSB are responding positively to that, with a 2% gain.

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