Budgets may come and Budgets may go, but the 2024 edition brought some significant changes for UK investors and businesses. As ever, it will take time for the impact to feed through.
Nonetheless, we believe three key announcements paint a particularly positive picture for UK smaller companies. And, while this is one of the last Conservative budgets we expect to hear for some time, we would be surprised if Labour reversed any of the measures discussed here.
1. A brand new (British) ISA
The announcement of a British ISA will allow UK savers to invest an additional £5k of annual tax-free savings in UK listed assets. This is welcome news for the UK small and mid-cap market. The smaller companies segment has been plagued by outflows over the last few years. As investors have sold out of smaller companies more broadly, their valuations have fallen, due in part to them being harder to trade. The British ISA attempts to encourage increased investment into UK-listed assets, which includes these companies.
2. Mandating UK pension fund asset disclosure
The government will work with the FCA to demand UK defined contribution (DC) and local government pension funds disclose their holdings in UK equities. The government will review this data and if it shows that UK equity allocations are declining, they will look at options to reverse this.
Encouraging increased investment in UK equities are clear first steps taken by this government to reinvigorate the UK equity market. At the same time, increased investment in UK listed assets should enhance the attractiveness of the UK stock market to fast growing innovative companies. If this happens, it will allow UK pension funds to share in the capital growth and success of such companies. It is a virtuous circle.
3. A reduction in national insurance contributions
An additional 2% reduction in national insurance tax contributions will put more pounds in the pockets of UK consumers. This change will also take effect in the same month as the 12% reduction in the price cap for utilities and the 10% increase in the national living wage. An increase in real wages and disposable income should benefit the more domestic small-cap index which includes housebuilders, retailers and travel and leisure stocks.
Glossary
Equity – A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.
Index – A statistical measure of group of basket of securities, or other financial instruments. For example, the S&P 500 Index indicates the performance of the largest 500 US companies’ stocks. Each index has its own calculation method, usually expressed as a change from a base value.
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