By Jamie Chisholm
British Individual Savings Accounts would allow an extra GBP5,000 in tax-free investment into U.K. equities
Britons will get a tax break to encourage investment in the London stock market, the U.K. government said as it set out a spring budget that also cut workers’ employment taxes, as the Conservative party looked to boost its election hopes.
Chancellor of the Exchequer Jeremy Hunt told a packed Parliament on Wednesday that new British Individual Savings Accounts would allow an extra GBP5,000 in tax-free investment into U.K. equities. Rules currently allow investors to put GBP20,000 a year into the accounts, which are exempt from capital-gains tax.
The move is an attempt to revive the London stock market, which has been suffering from a lack of liquidity, low valuations and a scarcity of IPOs. A recent report from Calastone found that British investors are increasingly selling their U.K. holdings to purchase shares in the U.S., particularly tech stocks.
The FTSE 350 UK:NMX, an index of large- and midcap U.K.-listed stocks, is down 2.9% over the past 12 months, whereas the S&P 500 SPX on Wall Street is up 27.9%.
As part of the drive to encourage more investment in the London stock market, Hunt confirmed plans to introduce a new requirement that pension funds must disclose their allocations to the U.K. and said he would consider what “further action” could be taken to stimulate domestic investment by funds.
“We strongly welcome the chancellor’s announcement of a British ISA,” said Charles Hall, head of research at investment bank Peel Hunt. “It is an important initiative that should encourage saving, start to reverse the outflow from U.K. equity funds and support investment in our growth companies.”
Shares in ISA providers such as Hargreaves Lansdown (UK:HL) and AJ Bell (UK:AJB) rose 2.2% and 2.7%, respectively, on the news, although AJ Bell chief executive Michael Summersgill played down how much of a boost Hunt’s decision would provide the London bourse.
“Increasing investment into U.K. companies is a laudable aim, but this ill-conceived, politically motivated decision will simply not achieve that objective,” Summersgill said.
“Fifty percent of the money our customers currently invest through their stocks-and-shares ISAs is invested into U.K. assets, so this new allowance will have no impact whatsoever on their investment behavior,” he added.
Still, the FTSE 250 index UK:MCX, which is populated by domestically focused midcap stocks, was up 1.4% Wednesday afternoon in the U.K.
The spring budget came ahead of a U.K. election that must be held this year, with the incumbent Conservatives heading for a heavy defeat, according to polls. Capital Economics, the London-based research boutique, titled the occasion: “Jeremy Hunt goes shopping for votes.”
There were some crowd-pleasing fiscal tweaks. The most notable was a two-percentage-point cut in national insurance taxes, which according to Financial Times calculations would add GBP29.04 (the equivalent of $36.95) to the monthly take-home pay of someone on a GBP30,000 annual salary.
Hunt also extended the freeze on alcohol duty to 2025, a measure he said would support “the great British pub.” Shares of pub giant J.D. Wetherspoon (UK:JDW) rose 2%, and smaller competitor Marston’s (UK:MARS) added 1.9%.
Another popular measure supports reducing the cost of driving, so Hunt said he would maintain the 5-pence cut on fuel duty and freeze it for another 12 months, a move he said would save the average driver GBP50 next year.
In terms of spending, Hunt said the government would allocate GBP6 billion ($7.6 billion) in additional funding for the NHS, which included GBP2.5 billion to cut wait times for appointments, a particularly sore point for many Brits.
Hunt said that the government was in a position to help families with permanent tax cuts given that inflation has slowed. “Lower tax means higher growth. And higher growth means more opportunity, more prosperity and more funding for our precious public services,” he said.
The pound was little changed at around $1.2724 after the budget was delivered, though government bond yields were quite choppy, with the 10-year later trading down 1.8 basis points at 4.088%.
Concerns about extra gilt supply came after the U.K.’s debt-management office said Britain aims to sell GBP265.3 billion in government bonds in the 2024-25 fiscal year, higher than analysts’ forecasts of GBP258.4 billion, according to Reuters.
Hunt said that the Office for Budget Responsibility, the independent fiscal observer, estimated that inflation would likely fall back to the Bank of England’s 2% target in a few months’ time, a move in line with the central bank’s own forecasts.
The OBR expects the economy to grow by 0.8% this year and 1.9% next year.
-Jamie Chisholm
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
03-06-24 1048ET
Copyright (c) 2024 Dow Jones & Company, Inc.
