Budget 2011: What Are The Implications For Investors?

23rd Mar '11 by Stockopedia Features

5 comments 5791 reads

We were over at the Reuters live Budget Blog earlier discussing this year's budget. In summary, it was a fiscally neutral budget, reflecting the spending constraints that the Government is under. In terms of OBR forecasts, 2011 growth has been downgraded from 2.1% to 1.7%, while inflation is expected between 4% and 5% in 2011, falling to 2.5% in 2012.

It definitely had a strong pro-Business flavour. The big news was the cut in corporate tax, with the Chancellor aiming to make Britain the most competitive corporate tax regime in the G20 ("Britain is open for business"). This will now be reduced by 2% this year, targeting a 23% rate within 3 years.

There was a fair amount in the Budget to help SMEs/startups through a range of initiatives including reform of EIS and VCT, funding for new enterprise zones and improving access to credit facilities for smaller companies. There was not much sign of any of the recommendations we made to fix SME-funding, but we live in hope! This was accompanied by (and somewhat in contradiction of) a declared intent to simplify the tax system. On that note, as expected, the tax and national insurance systems may be merged (about time!) but it's only a consultation exercise, so don't expect it to be swift. And reforming the Planning system will apparently be a priority so good news hopefully for Britain's rotting infrastructure.

Frankly, though, there wasn't that much to encourage savings and investment, but that's perhaps not surprising in the difficult fiscal circumstances. The most salient bullets for investors seemed to be:

Investors in North Sea Oil won't be pleased to hear that there is an increase in taxes (from 20% to 32%) on oil and gas producers in order to fund a cut in fuel duty. This apparently only applies when the oil price is over $75 apparently. As an illustration, Nautical Petroleum is currently down almost 8% following the budget.
Bad news (relatively) for Bank investors in that they will not benefit from lower corporation tax (the bank levy will be adjusted).
Inheritance tax will be reduced by 10% for those who leave 10%+ of their estate to charity. George makes a smart play for the Big Society!
Increase in tax relief for EIS schemes from 20% to 30%, plus 4x increase in the EIS allowance.
Under new rules, VCTs…

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Fangorn

23rd Mar '11

http://www.whatinvestment.co.uk/trading/markets/news/1612608/budget-2011-tax-hike-for-north-sea-oil-companies.thtml?

BUDGET 2011: Tax hike for North Sea oil companies

Seriously not amused at this move. Penalised yet again, for being prudent. What's a saver to do?

EO down 4.7%
NPE down 5.3%

And all for a lousy 1p off a litre of petrol......The reason why fuel is so expensive is the 75% Government tax take,the Oil companies dont get anywhere near that so why tax them substantially more. That move just cost me far more in the value of my savings than I'd ever hope to save on the filling up of my car for a whole year.

NPE down 8% (36.7p). Costing me 4000 pounds today alone.

Thanks for nothing George. And all for a measly 1p off a litre.

marben100

Alongside the negatives for UKCS companies, there may be some positives for other sectors.

R&D is favoured, which is seen as boosting "big pharma":

...The group also backed a recommendation made by British inventor James Dyson that tax relief should be raised to cover 200% of qualifying R&D expenditure, from a current level of 175%.

Osborne not only raised the rate of relief to 200% from April 2011, but pledged to increase it again to 225% a year later.

The government also announced other measures which pleased the life sciences sector.

GlaxoSmithKline PLC (GSK), the country's biggest drug maker, said they contained "a suite of measures that, taken together, have the potential for a significant positive impact on the life sciences sector in the U.K."

Glaxo's head of R&D, Patrick Vallance, said in a statement that "GSK warmly welcomes the government's plans to streamline regulation of clinical trials and improve the efficiency and cost-effectiveness of conducting them in the U.K."...

Glaxosmithkline (LON:GSK) being one of my largest holdings (alongside £EO. ), that will be helpful. Though E&Ps took an immediate hit, the market may not have digested the impact of these R&D reliefs before today's close. These reliefs may also help other UK based-holdings of mine with large R&D budgets (relative to earnings), including Indigovision (LON:IND) , Brady (LON:BRY) and Ceres Power (LON:CWR) .

Cheers,

Mark

doverbeach

hi Mark,

the R&D increase is to the SME scheme, see http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm#2, so it definitely won't help 'big pharma'.

db

bugsmunny

I guess we'll have to wait and see how this tax increase affects the economics of developing new fields in the NS.

Still, given worries about funding the large Capex, and the marginal profitability of smaller accumulations and heavy oil, it looks like a very ill-conceived move against a superficially popular target.

Where the real villain rather than oil companies, is the government itself, already helping itself to a huge increase in fuel duty, to squander on who knows what.

As a big holder of EO, SLG and NPE - it's been an expensive afternoon. :-(

Budget 2011: What are the implications for investors?

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