A neutral Budget for sterling overall has indirectly provided the pound with some relief, given lack of materially deficit-worsening news, confirmation of stronger than expected growth this year and the Chancellor’s overall prudence.
Cable traded some 40 points off lows during Chancellor of the Exchequer Philip Hammond‘s speech, even tugging the benchmark index slightly into the red. There was little else to read across to the main stock market from what Hammond said. The index’s slight retreat into negative looked precautionary. No detriments for UK-based multinationals were expected, and none were mentioned. Hammond’s reiterated commitment to a planned reduction in corporate taxation from 20% to 19% this year and to 17% in 2020 were even somewhat reassuring for investors—the index headed for its first higher close in four sessions, though in the end it didn’t quite achieve one. All in though, this was not a particularly equity market-moving economic statement and attention is quickly moving on to other main scheduled economic news points of the week.
The handful of corporate tax announcements that were made were more of a small positive for SME’s than FTSE multinationals. Whilst further tweaks of the R&D tax credit regime now look unlikely after Hammond said the government’s review found the scheme to be “globally competitive”, additional assistance for the “admin burdens around the scheme” will be forthcoming—in due course, Hammond said. The extension of business rates relief and “scope” to reform the business rates revaluation process would also appear to be more of a help to small-to-medium-sized groups than the biggest UK-listed firms. The FTSE 250 outperformed the more valuable index for most of Wednesday, though the lowest-capitalised shares on the FTSE SmallCap and FTSE AIM All Share traded flatter than mainstream markets.
Among UK consumer stocks, there was just a hint of negativity, particularly for large sugar refiners and sugary drinks companies from detail of the well trailed Sugar Tax Levy (18p-24p per litre). AG Barr, Tate and Lyle and Coca-Cola HBC were down no more than 1% a piece. Sugar futures are around 20% lower since October, which tends to sweeten news of tighter conditions for industry buyers of the product.
A clearer post-Budget market move was seen among mid-sized oil firms—particularly oil services companies. This followed Chancellor Hammond’s confirmation that the Treasury would investigate ways to help the North Sea industry further, on top of tax relief announced in 2015. Any new measures are likeliest to target the ease of disposing of assets in the region. The aim on the government’s side appears to be to extend the useful life of oil projects. That may point to lower thresholds of capital gains tax for oil companies. A further reduction of the supplementary tax charge for the oil industry from 20%, and another cut of the Petroleum Revenue Tax from 35% could also be on the cards.
The long lead time to any material announcements (likely in the autumn Budget) suggests that even after the £2.3bn in relief for the North Sea oil industry in the last few years, the government is considering further substantial benefits. Of the two main oil services providers, Wood Group and Amec Foster Wheeler, the smaller, Amec outperformed the market most, with a 1% rise. Oil companies will need ancillary services providers to facilitate the fairly complex application processes for new tax relief and to assist in transferring productive assets between companies following deals. £2.9bn Wood Group looks more exposed to the North Sea, as it makes 32% of its revenues in UK, but Amec notably scored two significant North Sea contract wins last July. Record revenues from deals in the region helped prevent its first half performance from tanking, following a poor Americas performance.
Shares of Premier Oil stood out the most amongst North Sea oil producers with a rise of 3%, whilst several direct peers slipped. Premier’s “tax-advantaged production and development” (to use the company’s own words) in the North Sea (bought from E.ON) is one of the most obvious assets that can be expected to receive a shot in the arm from extended relief to oil groups. Again, the boost will be most beneficial for firms worth no more than a few billions rather than majors like Shell and BP. Their shares were weak on Wednesday.
