This article has been updated to include all the main announcements and analysis following the Chancellor's statement today.

Welcome to our coverage of the Spring Budget. 

It’s strange that in a pre-election budget (an election that does not look like it is going to go the way of the incumbent party) the Chancellor does not feel able to be bold.

“Growth” is the tagline of choice for Jeremy Hunt but growth opportunities are thin on the ground in the UK and today’s announcements don’t sound like they are going to do much to stimulate change. Key takeaways for investors are the announcement of a British ISA and a handful of minor tax adjustments which will impact certain sectors. But this was an uninspiring announcement, devoid of any measures that will truly stimulate some much needed excitement in the economy.

Updates from the Office for Budget Responsibility (OBR) have confirmed that inflation has fallen to 4% (from 11% when the Chancellor and Prime Minister took office) and will dip below the target 2% in just a few months time (well ahead of the timeline set out in last year's statement). This should give the markets some hope that interest rate cuts will soon be on the cards, providing some much needed stimulus.

But while Britain’s economy goes through what is described as a very ‘mild’ recession, its economic growth lags behind many of its international peers, as can be seen by the OECD GDP growth chart below. The European Union narrowly avoided entering a recession last quarter (Q4), however, the UK has a lot of work to do if it wishes to catch up to the growth rates seen across the pond.

Source: OECD

In this budget, Mr Hunt shied away from any decline in the headline corporate tax rate (a change that many economists suggested could bolster investor sentiment and stimulate investment). Instead, the Chancellor has targeted incentives for investment, including applying full expensing to leased assets - the previous announcement of full expensing has been described (by Mr Hunt) as "the most attractive tax regime in the G7". I am less convinced that it provides more of a growth stimulus than a corporate tax rate cut. 

Beyond this minor tweak to expensing and some impressive boasting about the (mainly foreign) companies looking to increase investment in the UK, the budget was largely devoid of any real proposals to stimulate investment. The business recovery loan scheme has a £200m extension to help support SMEs, while he VAT threshold has been increased from £85,000 to £90,000. The latter point probably comes as a bit of a kick in the teeth considering companies like Google are not troubled at all by VAT. 

British ISA: Additional allowance for domestic investment

The much anticipated British ISA has now been confirmed, providing private investors with an additional £5k allowance (on top of the annual £20k allowance) for investment exclusively in UK listed stocks.

That sounds a bit more like it. No one wanted a cut to the proportion of the allowance available to invest in international markets at a time when the UK market is in the doldrums.

An additional allowance is sensible. It gives a focus to investors who may have fallen out of love with the domestic market - I for one am already pondering where I could use my additional allowance most effectively.

And it seems I am not the only one. The FTSE 350 has jumped on the announcement from Jeremy Hunt, led by the investment platforms that will be able to facilitate such investment including AJ Bell (LON:AJB) and Hargreaves Lansdown (LON:HL.).

But there is an argument to be made that Mr Hunt should have gone further with his British ISA and rather than simply providing an additional allowance, he should have offered additional tax breaks for investments in domestic shares.

And it’s unlikely that the British ISA will stimulate much more interest in the FTSE or Aim. British investors are uninspired by the domestic markets because of the lack of opportunities available. Providing an additional allowance for investment in these laggards will not fix the problem. Nor will the flotation of additional shares in Natwest (LON:NWG) - an idea first mooted in the Autumn which Mr Hunt confirmed was still on the table.

A bigger stimulus could come from the pensions sector. According to the Chancellor, only 4% of pensions are invested in UK stocks which is very poor, especially compared to other countries. Mr Hunt has now announced that pension funds will be forced to publish details of the geographic breakdown of their investments.

It's unlikely that these measures will do enough to cull the slump in IPO activity in London (which recently reached its lowest point in a decade) and has been underlined by innovative UK-headquartered companies opting to list in the US (Cambridge-based chipmaker, Arm, for example).

Source: S&P Global

No help for housebuilders but reforms for property tax

Recently, The Independent disclosed the government's deliberation on a scheme enabling young individuals to embark on homeownership with a mere 1% deposit. This proposed 99% mortgage initiative surpasses the previous Help to Buy program, which facilitated first-time buyers in acquiring newly built properties with only 5% deposits. This initiative could significantly benefit housebuilders by expanding the pool of potential homebuyers and stimulating demand for new residential developments.

Pressure had also been mounting to reconsider stamp duty policies, especially in England and Northern Ireland, where it applies to properties over £250,000. There are calls to abolish stamp duty for older homeowners downsizing to smaller properties, a move supported by academics from LSE and the University of Sheffield.

But these initiatives failed to materialise. The main property takeaways from the announcement were plans  to abolish the ‘multiple dwelling relief’ furnished holiday lettings and a decrease in the higher rate of capital gains tax on the sale of properties from 28% to 24%. The latter point is expected to raise more revenues by increasing the number of transactions.

Tempering expectations: A cautionary approach to tax cuts

The main feature of Mr Hunt’s autumn statement, was a further cut to national insurance, reducing worker contributions from 10% to 8% starting April 6, 2024. According to the latest figures, these cuts have translated to substantial savings, with an average worker on a £35,400 salary saving over £900 annually. And in this statement the NI contribution has been cut again, by another 2% - all part of the Chancellor's plan for lower taxes stimulating higher spending and better growth prospects.

The Office for Budget Responsibility (OBR) forecasts that the national insurance cuts will contribute positively to GDP and GDP per capita, expecting a 0.4% increase in both metrics. Additionally, the personal tax rate is now at its lowest since 1975, positioning the UK lower than all G7 countries in terms of tax burden.

The government's long-term ambition includes ongoing reductions in national insurance contributions, aiming to ensure that work remains financially rewarding and incentivised for individuals across the country.

Additional contributions for the UK creative sector

A range of policy enhancements aim to bolster the UK TV/film industry and cultural sector through strategic financial measures. By doubling studio space, increasing tax credits by 5%, removing the 80% cap on audio/visual effects relief, and introducing new tax credits for independent films, the government seeks to stimulate production and investment.

The additional funding of £26 million for the National Theatre and the permanent 40-45% relief on tourism-related expenses further contribute to sector growth. These initiatives are projected to drive economic expansion, enhance cultural offerings, and solidify the UK's position as a global leader in entertainment and creativity.

A new Vape Levy and Tobacco tax... from October 2026 

Mr Hunt has decided to go ahead and make a provision for tax increases on tobacco and vaping products. An excise duty will now be payable on vaping products and one-off increase in tobacco duty will also come into effect, but not until October 2026. This news will have come to the relief of those operating within the sector such as Supreme (LON:SUP), Imperial Brands (LON:IMB) and British American Tobacco (LON:BATS), who may have expected the changes to take place sooner. 

Confirmed extension of the EPL Levy until 2029 

The windfall tax on the profits of oil and gas companies by Jeremy Hunt will likely continue to affect plenty of companies operating within the North Sea. The proposals will see an extension of the energy profits levy, currently set at 35% and due to expire in March 2028, to March 2029. 

This prolonged rate of taxation will amplify the tax burden on North Sea oil and gas producers, already among the highest globally, following the tax hike from 25% to 35% in November 2022. Companies such as Harbour Energy (LON:HBR), Serica Energy (LON:SQZ), Enquest (LON:ENQ), Ithaca Energy (LON:ITH), and Kistos Holdings (LON:KIST) are particularly vulnerable to the extended levy, potentially facing constrained earnings for an additional year for their UK-based assets. 

However, the Chancellor did confirm that the EPL levy would indeed be abolished if oil and gas prices ever retreated to more historical norms.

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In summary, while the budget statement on March 6th may not have unveiled sweeping tax cuts, Chancellor Hunt's deliberative approach underscores the government's commitment to fiscal prudence and economic stability.

We’ll have to have our fingers crossed for some promising announcements in the future that may provide a much-needed boost to our stock markets. It's been a tough decade for UK markets, as can be seen by the chart below. The upsurge in takeover activity in the country right now further highlights the extent of the undervaluation of UK equities compared to international peers.

Source: MSCI United Kindgom Index Returns (www.msci.com)