Toby Nangle, Global Head of Asset Allocation
“In aggregate, the extension of various Covid-19 support packages to households and businesses, as well as the 130% Super Deduction to businesses making capital investment, provides a modest stimulus to the UK economy before fiscal tightening proceeds through 2026. The sizing of the stimulus makes sense using the Office for Budget Responsibility’s estimate of economic slack, but is too cautious to return the economy to potential if international estimates like those prepared by the International Monetary Fund are believed.
The Gilt market and value of sterling were not impacted meaningfully by the announcements.”
|Support for UK companies |
James Thorne, UK Equities Portfolio Manager
“The Budget focused on removing the cliff edge from business support, the housing market and consumer spending. In our view, the schemes were broad but uncertainty remains as to whether they are enough to stop a much bigger rise in unemployment in the second half of 2021, nor is it clear if there is enough in the Chancellor’s measures for SME’s that are close to insolvency.
The biggest change for quoted companies is the rise in corporation tax to 25% in 2023. The offset is the Super Deduction which will allow business investment – a move which is welcome and sorely needed. How significant the Super Deduction is will be in the detail, but in theory it could allow a significant stimulus to business investment. Training schemes and software investment will go some way to offset the impact of rising corporation tax where qualifying investment is not possible. Lastly, the freeze on fuel and alcohol duties combined with keeping VAT lower for longer should help stimulate a consumer recovery post lockdown.”
In today’s Budget the Chancellor confirmed that the UK retail investor will be offered a green savings bond. In our view, this could help strengthen retail investors’ involvement in the green investment revolution. Whilst it may not by itself make a significant impact in paying for green transition or infrastructure, it is inclusive, taps into people’s desire to express their green credentials and to do good through their investments.
The details of the savings bond are not yet clear but it fits alongside the announcement last year, confirmed at today’s Budget of a Green Gilt to tap into similar demand from the institutional bond market of up to £15bn. Both these products will direct investment proceeds to predetermined green projects and we would encourage the Government to follow the ICMA Green Bond Principles, which include specific use of proceeds and solid reporting of key metrics. This reporting is key and we believe should cover both environmental as well as social co-benefits of the funding. The UK is also developing its own green taxonomy which will further aid the direction of proceeds towards clearly defined green projects.
The key driver of success for this green savings bond will be around the yield offered and the maturity profile of the product itself. This bond might not raise significant funds without offering more attractive rates than Gilts. However, the bond might be advised to target a shorter maturity date (for example five years) for retail whereas our clear view is that UK Green Gilts should target longer dated institutional demand.
The most important aspect of this announcement, however, is to enable the Government to provide a leadership role and act as a catalyst for change, encouraging further product innovation of green investment funds and products. This is a particularly important focus in the run up to COP-26 in Glasgow later this year (November). We are confident that this type of innovation and product development will meet with solid investor demand of the kind we have encountered for our own responsible investment bond products, including the Threadneedle UK Social Bond fund.