I hold two popular UK companies in my Stocks and Shares ISA that have featured in Autumn Budget speculation in the past couple of weeks.
They could both be affected, one positively and one negatively. But in both cases, I won’t let it distract me from the one thing that matters above all else — the fundamental strengths and weaknesses of the companies themselves.
Hit on banks?
The first is Lloyds Banking Group (LSE: LLOY), along with the rest of the UK banking sector. And the risk is a windfall tax on bank profits. Rumours of such a move emerged some time ago, though it looked like Chancellor Rachel Reeves had pulled away from the idea.
But in recent weeks the idea resurfaced as an alternative to raising income taxes. The banks benefitted when taxpayers’ money bailed them out in the financial crisis. And the high interest rates of recent years have boosted their net interest margins while hitting borrowers’ pockets. Lloyds in particular, as the UK’s biggest mortgage lender, has enjoyed healthy interest income.
So taking a slice off the top of their windfall profits is only fair, right? I can see that as a powerful political argument. Analysts suggest it could take the form of a one-off levy, or an increase in the 3% corporation tax surcharge already imposed on banks.
The Chancellor, however, has also suggested she doesn’t want to damage financial sector competitiveness.
But if it happens, it’s almost certain to reduce reported profits. And I could see a Lloyds share price dip as a result. But if it’s genuinely a one-off, I don’t see it making any real long-term difference. I’m holding.
Boost for builders?
I also have Persimmon (LSE: PSN) in my Stocks and Shares ISA. And might the Autumn Budget ease stamp duty? There’s even talk of replacing it completely, by property tax on homes worth more than £500,000.
Such a move could mean a boost in the low-to-medium price bracket. And that’s pretty much where Persimmon lands. In its third-quarter update on 13 November, the company reported an average forward selling price of approximately £295,000. We might just see an uptick in demand for new homes in Persimmon’s price range.
The housing market is strongly restrained by a shortage of supply. And that means prices will tend to rise to whatever buyers can afford. And history shows changes in taxation in a market like this can be quickly balanced by changes in prices. So maybe the real long-term beneficiaries will be the builders themselves, with the potential for better margins?
Other taxation changes might have adverse effects on housing affordability. And the Persimmon share price could even dip in the short term if stamp duty doesn’t change, and investors are disappointed.
But this is another hold for me. No UK Budget has ever changed the way I invest, and I doubt one ever will.
