Fall Out from March 2021 UK Budget

3rd Mar '21 by grumpy5

11 comments 1017 reads

It would be useful to have a thread aggregating Stocko members' thoughts on Rishi's Spring dishes. 2 issues come to my mind ahead of his speech today:

1. The Hill Report. Whilst not strictly part of the Budget, this imminent report is closely tied to it. Is loosening the rules for UK listings, in order to attract the likes of SPACs, necessarily in the interests of PIs like us? Particularly when the FCA and the UK judicial system seems glacial in prosecuting and preventing market abuse (eg Pat Val).

2. The impact of a rise in Corporation Tax. The political appeal is obvious - those companies most badly affected by Covid will be making losses, and hence not subject to any rise in CT for some time. Clearly this will dent EPS progression; but will share prices absorb the impact on EPS with a rise in ratings? We should also be on our guard for managements rushing to alter LTIP and other remuneration schemes that are based on EPS perforamance, so that they don't suffer from Sunak's move. In my view this would be reprehensible. And we should be prepared to make representations against it.

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doug2500

3rd Mar '21

LTIP's - hate them, a third of the annual report to explain them! That's a good point though.

Would imagine CGT might get a mention too? Dividend income allowance too?

Kevin Holloway

Corporation tax rising to 25% in April 2023 except for companies with profit less than £50k who will continue to pay 19%. Surely some sort of tiered system would be fairer?

Glad to see the stamp duty and furlough schemes have been extended as expected though...

Epitychia

Budget has been a farce for a number of years. Spends £400 billion on covid, puts taxes up £5 billion. Anyone see the problem with this?

Stocks123456

Super deduction at 130% may offset some of the corporation tax increase.

shanklin100

Anybody who believe the Corporation tax rate will actually increase to 25% just before a General Election is frighteningly naive. It will obviously be reduced to whatever level can be afforded just beforehand and presented as a result of good economic management. Even an increase to 22% could be presented as a triumph rather than deep disappontment.

And in the meantime, corporate tax rates are effectively being reduced from the current 19% for any company prepared to invest to grow.

The Phoenix

Its all an illusion the Bank of England have paid for all the support through qe 400 bil since March 2020 it will just be cancelled off when it comes due, from memory £176 billion was cancelled off last Oct the bank even then gave the Government all the interest back as well.

However for the 99% of the public who don't understand how the game works the illusion of being prudent has to be maintained I'm not knocking the Government if we couldn't pull this trick off we would probably be sitting on unemployment north of 20% and to pay it off from real taxation basic rate tax would probably be 80p in the pound.

Momoko Miyamoto

the Tory press have done a great job scaremongering about potential tax rises only for Sunak to provide relief with quite modest rises and lots more giveaways. With all central banks printing money to buy govt bonds, control of interest rates is not really much problem but high inflation could be. Sunak seems to be tapering in inflation with graduated VAT rises and another fuel duty delay. The Hill report and consultation seems to be a done deal and will likely result in relaxation of UK market listing regs, coupled tax breaks for innovative companies could mean open season for new listings (and decent profits for brokers).

No rise in CGT rate to match income tax, Sunak (aka Maharaja of the Dales and married to a billionaire heiress) clearly not choosing to improverish himself or his obscenely wealthy mates. I'm not complaining tho ;)

Whitbourne

Hi Kevin, the top corporation tax rate will be phased in up to £250,000 profits so as to avoid the cliff-edge you mention. Agree on stamp duty/furlough!

good to know, thanks

mojomogoz

Just put this in SCVR and then realised there is this thread. So copy and paste to here. A view (that's not very well thought through as haven't read up):

An area that is perhaps missed in the first flush of analysis on the 130% super deduction is startup and early stage businesses.

There's a lot of PE, VC and angel money sloshing around in the UK. There is a tendency for this to find its way into asset light businesses (SaaS-y) as these business take less capital and VCs etc are happier funding things that asset light. I know there are many incentives around new businesses (tax credit etc) bu nevertheless this is probably net (very) positive at the more capital intense areas (whether exciting or mundane...probably more the latter which is also probably better for general employment)

In addition, vanilla bank lending to industrial activities just became a whole lot more attractive and less risky. Move away from sexy tech/healthcare/ etc related stuff that VC is happy to chase after and into mundane workshop in Hull and this is big news. The bank is important to them as their primary source of meaningful capital.

I can immediately think of two of my holdings that benefit:

Mercia Asset Management (LON:MERC) -> Early stage investor with a decent exposure to capital intensive technology, industrial and medtech businesses. 130% super deduction could have significant revaluation impact on these cos. This is both in their balance sheet investments and their 3rd party fund management portfolios.

K3 Capital (LON:K3C) -> Seems less obvious but this tax change could be a boost to number and value of corporate finance transactions

I'd then add a third very non-sexy:

Time Finance (LON:TIME) -> Asset based lending and small corporate lending is a significant part of their book of business. They are a sort of non-bank bank. Their niche is lending to businesses that are too high risk for the high street lenders. High risk is as much about scale or early stage (but mundane like a builder rather than a PhD activity) as credit risk....they lend in an area where the main banks find it impossible to apply their data based credit process and uneconomical to pay for real eyeballs and shoe leather based assessment.

I read pessimism from timarr re freeports and economic zones as mere shuffling deckchairs on the Titanic as we head into to non-EU oblivion as we are not part of mega economic zone like US, China or EU. The first two are out of reach...and of course we left the latter...but the economies and benefits of scale in the EU are much less than US or China and the complaint is irrelevant IMO...

The issue is what best for us to do. An industrial and investment policy would be a good thing...and this seems a first step. Change is not usually a net neutral economic activity when are talking physical rather than virtual assets. Anyhow, most growth we experience over time is a result of mundane change....but we have a misplaced narrative that its 'innovation'.

I need to read more carefully but my first impression is that this could be impactful. Its likely to attract capital to UK as well...and it tends to want to come here for many structural reasons even if there has been a recent hiatus.

A step I would like to see is the govt enacting policy that more directly liberates the somewhat frozen out bank balance sheets that has happened post 2008 crisis and subsequent austerity and bank capital adequacy reforms. Productivity and growth is linked inexorably to credit growth. We now need a decade of credit growth. I outline how the above will encourage it...I had hoped that the govt would also target credit growth through effectively a credit policy whereby it partially underwrites lending to targeted areas (eg renewables, deprived economic zones, etc).

GrahamF

4th Mar '21

Interesting thought about the LTIPs. I’ve become very cynical about them. It seems to me that the remuneration committee is often too quick to change the metrics if it looks like they are going to be too difficult to achieve. And the notion that the top brass cannot achieve high performance without this additional incentive scheme is frankly insulting when they expect all their underlings to do so.

On a side note from the budget, what’s the betting that the joker who is going to be paid in Bitcoin suddenly has a flimsy excuse to change the amount of Bitcoin that he gets if the value of Bitcoin tumbles.

But back to the budget, the debt figures may be smoke and mirrors but we do have borrowing that has to be funded and so it is very important in my view that the chancellor and BoE maintain a posture that gives lenders the confidence not to demand higher interest rates when those loans need to be refinanced. I think Rishi said that a 1% increase in interest rates would mean that our interest payments would go up by £26 billion a year (but I may have remembered that incorrectly). So, we can be as cynical as we like about the debt and whether it matters or not but unless we are going to fund the whole shebang through money printing (and what would that do to inflation) it still remains highly important in my view that the chancellor maintains the confidence of the markets.

As to the point about the advantages of having a large home market, I think it is true in part. It does seem to me that there are many US companies who are not stunningly good at what they do but they achieve great success because their economies of scale in their home market gives them more money for R&D and to experiment. But, if I think about South Korea, Hong Kong, Singapore it seems to me that these economies can be be highly successful or produce global companies without having a huge home market. So, I welcome the freeports etc. Agreed it is little acorns but you know what they say about little acorns.

Fall Out from March 2021 UK Budget

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Grumpy5

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