Economic overview: Iain
Armstrong, director of equity research, comments: ³Chancellor 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 signals².
Stamp duty/ETFs: Ben Gutteridge, head of
fund research, said, ³The abolition of stamp duty on the purchase of shares
in Exchange Traded Funds (ETFs) is as a positive development for the UK¹s
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 Œmarketing edge¹.
Pensions: John Fletcher, financial
planning director, comments: ³The 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. We¹re please,
though, that the Chancellor has not restricted pension savings further².
ISAs: John Fletcher,
financial planning director, comments: ³As predicted, no cap has been
proposed which is clearly positive news for savers, and the maximum allowance
has risen in line with CPI².
Housing: Stephen Williams, director of equity research,
comments: ³The 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.²
Bank levy: Ed Salvesen, deputy head of
equity research, comments: ³The 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 banks¹ 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 today¹s news is not a surprise given the misdemeanours of the
past.²
The opinions expressed in this article are not necessarily the views
held throughout Brewin Dolphin Ltd. No Director, representative or employee of
Brewin Dolphin Ltd accepts liability for any direct or consequential loss
arising from the use of this document or its contents
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