Morningstar on UK Autumn Budget

Michael Field, European Equity Strategist, Morningstar, said this about today’s Autumn Statement from the UK Government:  

“Austere budgets are nothing new from this government, the difference being this time around, is there have been significant allowances made for the least-well off in society, with committed amounts to the NHS, social services, and schools all raised significantly. A flat FTSE, and GBP to EUR and USD exchange rates, represents tacit approval from financial markets, a requisite after the disastrous attempt at a mini-budget by the chancellor’s predecessor just two months ago.  

“The truth of the matter, however, is that many of the commitments laid out in this statement don’t come into effect until 2024/25, so there is a large chance that they will never be implemented, with a general election due to occur by 2025 at the latest, and the incumbent party massively behind in the polls. This budget will also do little to help the Bank of England, who were likely hoping for more near-term fiscal tightening to work alongside their monetary policy tightening.  

“From the perspective of the equity markets, the budget was mildly positive. The commitment to a 15% global corporate tax rate was well trailed, and expected. The energy sector specifically had expected much a much harsher outcome. While the headlines read that the government will be introducing a new temporary 45% levy on electricity generators, the devil was in the detail, with investment allowances set to offset this levy to a large degree. Should the current government manage to remain in power, businesses will have clear guidance on tax structures for the next six years, which will be taken as a positive.  

“From the perspective of the individual investor and the high-earner, today’s budget was mildly negative. The high rate tax threshold was dropped from GBP 150,000 to GBP 125,140, as of April 2023, while dividend allowances are being halved, from GBP 2,000 to GBP 1,000, and capital gains allowances hit even harder. This will certainly do nothing to ingratiate the current government with middle and high income earners, but with debt service costs to GDP at their highest level post WW2, it seems a necessary part in balancing the books.”