Budget reaction – macro-economic, anti-avoidance, offshore, infrastructure, healthcare

Industry reaction to the 2012 Budget

Macro-economic perspectives

Ian Winship, manager of the BlackRock Absolute Return Bond fund: “The Chancellor presented a fiscally-neutral Budget today relative to the Autumn Statement. There were two major issues of interest to fixed income investors– what the government’s intentions are regarding the Royal Mail Pension Plan’s assets, and the planned issuance of UK Gilts over the next fiscal year. The government will add the £38bn of Royal Mail pension liabilities to the general government pension pot, while taking the £28bn of assets onto its balance sheet.  This will reduce the deficit this year as the assets are treated as a one-off capital grant, but will be a further burden for taxpayers over time. The assets consist of both UK Gilts and other assets – the other assets will be sold over the next two years, giving the government a cash boost, but the Gilts will be cancelled, thereby reducing outstanding debt.
“As a result, the Debt Management Office will issue £167.7bn in Gilts this year to fund the deficit and redeem Gilts. This was lower than the market expected, and was taken positively by the market with the cost of borrowing falling.  If the actions taken to stimulate growth are successful, we would expect to see a natural rise in Gilt yields. However, as the Chancellor noted, the outlook for the eurozone remains the major risk for the UK.”

Colin Robertson, global head of asset allocation at Aon Hewitt: “The Budget was very much as expected and fiscal rigour is greater in the UK than in most other large developed Western economies. However, from the perspective of financial markets, monetary policy is more important at this juncture than fiscal policy and global developments are more important than domestic ones. “

Anti-avoidance measures

John Cridland, director-general, CBI: “We welcome the consultation on the proposed General Anti-Abuse Rule (GAAR). The legislation needs to balance the need to stamp out truly abusive avoidance schemes with the need for clarity and certainty around legitimate tax management.”

Offshore measures

Graham Bentley, head of investment strategy, Skandia UK: “The Budget measures are unlikely to keep wealth in the UK. George Osborne is offering high earners a carrot by reducing the 50 per cent higher rate of income tax to 45 per cent in the budget but is beating them with a stick by increasing the stamp duty levy on house purchases over £2 million from 5 to 7 per cent, at least £40,000 extra.  These measures are unlikely to do much to appease increasingly discontented millionaires and prevent wealth being moved offshore.
“A new study of millionaires in the UK shows that a third (34 per cent) have seen their finances shrink over the past 12 months. This has led to a drop in the number that say they have confidence in the government’s economic policies, falling to less than half (49 per cent) compared to over half (55 per cent) when the first survey was run in June 2011.
“This discontent about the government’s economic policies continues to fuel a desire to leave Britain for just under half the UK’s millionaires.
“Economic policies that attack the UK’s higher earners echo those of the Labour government of the late 1970s, and are fuelling their discontent about living in Britain.
“Mr Osborne has rightly admitted that 45 per cent of a great deal is better than 50 per cent of nothing but by charging people at least £140,000 to buy a property worth over £2 million he is hardly encouraging the wealthy to stay within these shores.”

Infrastructure

Joanne Segars, chief executive, NAPF: “The Pension Infrastructure Platform is an exciting opportunity that could bring real benefits to UK pension funds. It will provide the long term inflation-linked cash flows which pension funds need.
“Since signing the MoU with the Treasury in the Autumn, we are making good progress on the development of a pension infrastructure platform. We are working with a core of 10-12 pension funds and the PPF on the details of the Platform.
“The Platform, which will be owned by pension funds for pension funds, will seek to invest in a wide range of infrastructure assets. It aims to raise £2 billion which could be leveraged up to £4 billion of new money for investment in infrastructure and be open for business in early 2013.”
 

Healthcare

Jamie Wilson, sales and marketing director, Simplyhealth: “We are pleased that the government has chosen not to increase IPT in this year’s budget. We believe this shows that it understands that health insurance is an important part of our healthcare system, and rewards individuals that are taking a proactive approach to their healthcare. We hope that more individuals will look into the different ways they can take further responsibility for their healthcare needs.
“We believe that companies have an important role to play in helping employees to look after their health, and it is therefore encouraging to see that they are not facing increased IPT costs. We hope that this stability will now encourage more companies to invest in health and wellbeing benefits.
“There are also healthcare options for employers that do not incur IPT.”