Budget 2015 number 2.

8th July 2015

Ian Copelin, Investment Director, my wealth comments “Although George Osborne, the Chancellor of the Exchequer, only delivered his sixth Budget in March, he stood up in Parliament earlier today and put a Tory stamp on Britain as he delivered the first budget by a Conservative-majority government in almost two decades (as the last Budget on 19 March was produced by the Conservative/Liberal Democrat coalition Government). Despite the fact that the UK economy has grown for nine straight quarters George Osborne had previously signalled that there would be no let-up in his austerity drive, and as with previous Budget Statements much of today’s announcements had already been leaked, such as stopping higher-income earners (anyone earning over £40,000 in London or £30,000 outside of the capital) who live in social housing from claiming state subsidies for their rent. Consequently, ahead of his statement there was a disproportionate amount of interest in what colour tie he would be wearing (it was blue) and which clichés he would use (there were several references to his favourites, including: ‘long-term economic plan’; ‘hard-working people’; ‘we’re all in this together’; ‘aspirational’; ‘Northern powerhouse’; and ‘fixing the roof’). George Osborne also delivered a couple of one-liners, including the ‘regressive’ road tax (which was introduced by the previous Labour government) and one directed at Boris Johnson (who is campaigning against the expansion of Heathrow) ‘to celebrate the days when planes flew freely over the skies of west London’. However, for me the most notable announcement George Osborne made which impacted equity markets today was that on the bank levy. The bank levy needed altering after HSBC Holdings Plc announced that it was examining whether to stay in the UK (HSBC has been the bank hardest hit by the levy at £750 million as it is applied to a bank’s total balance sheet). George Osborne said the bank levy will be gradually reduced over the next six years, and it will be combined with a new 8% surcharge on bank profits from 1 January 2016. As a result shares in HSBC ticked up after the announcement, while UK focused banks such as Lloyds weakened slightly. George Osborne also announced that mortgage tax relief for buy-to-let properties would be restricted to the basic rate of tax (consequently, house builders, including Persimmon, Taylor Wimpy and Barratt Developments have fallen by around 4%) and that Corporation tax will fall to 19% in 2017 and 18% in 2020. Elsewhere, George Osborne announced that the dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers – the rates of dividend tax will then be 7.5%, 32.5% and 38.1% (an increase of 7.5% where dividend income exceeds £5,000 for basic, higher and additional rate taxpayers respectively). Dividends paid within pensions and ISAs are unaffected by these changes and will remain tax-free. However, for me, today’s excitement will come this evening when the US Federal Reserve releases the minutes from the FOMC meeting in June. It will be interesting to see how much discussion there was on Greece and other international developments. The market is still expecting US interest rates to start rising in September. However, I believe that interest rates will not change until 2016, especially given the ‘no’ vote in the Greek referendum on Sunday coupled with recent weakness in Chinese equity markets and commodity prices.”