The UK budget is a key event that sees the Chancellor outline and amend fiscal plans. Although investors like myself — and the public too, of course — have always paid attention to these events, since the pandemic that ate up so much public money, the budget is perhaps even more important than ever before. Apart from how it would impact my personal finances, here are some stocks that I think could be affected positively.
A large boost for transport
The largest expected announcement is a proposed £6.9bn transport package. This is likely to be focused on areas outside of London. The investment would include train, tram, bus and cycle projects.
From my perspective, UK companies that operate in these areas could benefit. This could be directly via getting contracts, or indirectly via increased demand for products or services associated with transport.
For example, I’m taking a look at FirstGroup and Go-Ahead Group. Both companies are transport operators in the UK (but have operations aboard as well). For example, Go-Ahead Group generates just under 50% of revenues from the UK, mostly from bus and train services.
Over the past year, Go-Ahead shares are up 32% and First Group shares are up 87%.
Both companies have struggled during the pandemic, but have benefited in the UK from Government support. Now, a boost from the UK budget could be a catalyst for turnarounds in years to come.
The risk here is that private operators can find it hard to run in an area that has links with state-owned bodies, that don’t have profitability as a key aim.
A UK budget focus on tax
Another area of focus in the budget is capital gains tax rates. There’s potential for the Chancellor to simplify these tax rates and bring them in line with income tax rates instead. This could see some earners pay considerably more in tax when selling shares.
For example, if I’m in the 40% income tax bracket but only pay the 20% rate of capital gains tax, my capital gains tax bill could double to match my income tax rate.
If this measure is brought in, I think more investors will look to take advantage of ISAs or other tax-efficient investments. So I think stocks like Hargreaves Lansdown and IG Group could benefit.
Hargreaves Lansdown is one of the largest UK-based ISA providers. And IG Group provides access to spread betting on financial assets, something that’s classified as gambling and so not taxed. It also offers ISAs.
Shares of IG Group are up 6% over the past year, with Hargreaves Lansdown shares up 12%.
One risk in this area is that the companies are reliant on volatility in the stock market to generate transaction fees. If we see a quiet period in the markets, then this will negatively impact revenue.
Overall, the UK budget could throw up some opportunities for me to take advantage of. I’m going to wait and see what gets announced and then make a call on whether it makes sense to invest in the above stocks.
