November promises to be an interesting month for FTSE 100 stocks. On 26 November, Rachel Reeves will release her long-awaited Autumn Budget. The rumours have already been swirling. It sounds like tax rises of some form are pretty much nailed on.
Last year’s Budget changes to National Insurance contributions and minimum wages heavily hit firms with lots of employees. The extra costs contributed to a rough 12 months for Greggs, which is down 40% since this time last year. Could we be in for a repeat? What stocks might be affected by upcoming changes to government finances?
Worries
The banking sector may have cause for concern. The grapevine has been abuzz with talk of a windfall tax on bumper profits. Banks across the board have had a surge of earnings in the last couple of years. That’s chiefly because interest rates are higher, which gives them more flexibility in lending or borrowing money.
Dipping into the profits of banks like Lloyds, Natwest, or HSBC to top up the government coffers would likely put a dent into their share prices. Even if this goes ahead, however, it’s almost certainly going to be a one-off. As such, I don’t think banks have the biggest cause for alarm.
The biggest Budget rumour is that of income tax. A 2p increase in the base rate might be necessary to cover government spending. For that reason, I think it’s the most likely rise, too. But what companies might it affect?
The likely target is companies that sell non-essential goods and services. If folks get a bit less in their pay packet, that’s less disposable income. Retails firms like Marks and Spencer, JD Sports, and Next would probably not welcome such a tax. It could impact gambling firms like Entain too.
Given the global nature of the FTSE 100, it’s worth bearing in mind that UK-focused stocks will be most affected. A company like alcohol drinks seller Diageo draws its sales across the globe, which means less exposure to what’s going on in British Budgets.
Good news?
In better news, one of the sectors that might get a boost is housebuilders. I own shares in Persimmon (LSE: PSN) and have been following the rumours about changes to stamp duty with great interest.
Removing this charge (up to 12% in some cases) on purchases would make houses a touch more affordable. These days, stamp duty costs many thousands of pounds. A reduction in these costs could provide a long-term benefit to the housing sector.
Persimmon shares are down 61% from their peak, too. This could be a good time to buy if the housing market starts to turn around.
Another advantage is that the red tape slashing in Labour’s reforms (that went through earlier this year) may start to make some impact too. I’d say this is a stock to consider.
