Chancellor’s Autumn Statement – What’s in it for investors?

The Chancellor’s statement yesterday was clearly aimed at the typical house buying, ISA invested, traditional Conservative voter, anticipating the May general election next year. The reform of stamp duty on houses is surely rational, but won’t necessarily have a lot of impact on those who already own a house other than at the very top end in London. The share prices of Berkeley Group and Foxton’s fell on the announcement but soon recovered. Other housebuilders were viewed as benefiting however.

Apart from an increase in personal allowances and the higher rate threshold, the changes that are most likely to gladden the hearts of ShareSoc Members are the new ability to pass an ISA to one’s spouse on death.  Instead of an ISA having to be liquidated and hence be subject to Inheritance Tax on death, it will be able to be passed to your wife or husband. In addition the ISA allowance, the amount you can invest in any one tax year, is being raised from £15,000 to £15,250 and you may even be able to put “crowdfunded debt-based securities” into ISAs.

The ISA changes mean it is becoming a more viable alternative to a traditional pension, and the recent changes to pension rules mean that many people will be able to avoid substantial amounts of inheritance tax in comparison with past regulations.

The banks continue to be the whipping boy of the financial world, with restrictions on using past losses to offset current tax liabilities. No doubt a politically popular move but not necessarily rational. A new attempt to tackle those international companies (such as Google) that appear to generate large profits from their UK operations but shift the profits to low tax countries is surely to be welcomed, except by investors in such companies. But it may also affect such businesses as Reckitt Benckiser who are based in the UK but generate a lot of their profits overseas, particularly if other countries retaliate. A review of business rates is also promised in response to complaints that high street retailers suffer in comparison with on-line retailers, but it’s going to be some time before any outcome is seen.

One tax raising measure is to stop takeovers by “schemes of arrangement” where stamp duty is avoided. This will also please many investors because voting arrangements are different and such schemes made it easier to push through take-overs or mergers against the wishes of minorities. The tax advantages currently obtained by private equity fund managers are to be tackled. Those measures and others are expected to raise £2.8bn.

All of this good news for investors is offset by the fact that the deficit (the difference between what the Government raises from taxes and what it spends) is not falling as expected due to lower tax receipts. The latter is allegedly explained by more people being in work as we came out of recession, but they are mainly lower paid jobs. So the Government is going to reduce expenditure even more, and particularly after the next election. This might reduce the amount of UK total expenditure taken by the Government to historically very low levels – back to the 1930s some people calculate. In other words there will be a substantial reduction in the size of the Government.

But the key issue is that as the deficit continues, total Government debt continues to rise. It’s as if you as a person wished to continue living an expensive life style when you don’t have the income to support it, so you borrow more money to maintain your profligacy. Only Douglas Carswell, newly elected UKIP Member of Parliament, seems to have the answer to that. He has suggested it could be solved at a stroke by cutting out overseas aid, altering energy policy (e.g. removing renewable subsidies) and making some other tough decisions. This writer certainly thinks the Government has avoided facing up to some of the problems and presenting the truth to the electorate. But that’s politics for you, particularly coalition politics.

Roger Lawson

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