However, oil and gas companies will pay a higher windfall tax, with the chancellor confirming that the government will increase the rate of the energy profits levy from 35 per cent to 38 per cent, and extend it until March 31 2030, a year later than previously.
The share prices for BP and Shell moved marginally higher in the 24 hours after the Budget, but this needs to be set in the context of a significant decline for both groups over the past month.
The impact on bond markets
The other area of focus has been the bond market. Chancellors live in fear of a Liz Truss moment, where their actions derange the gilt market, sending the cost of borrowing soaring and forcing them to backtrack on tax or spending pledges. So far the chancellor appears to have avoided this fate, but the bond market is still wobbly.
James Lynch, investment manager on the fixed income team at Aegon Asset Management, which runs the Aegon High Yield Bond fund, says public spending is set to exceed Labour’s original manifesto promises, and some of the chancellor’s revenue-raising tactics have triggered market doubts.
“Measures like intensified tax-avoidance crackdowns and clawbacks from Covid contract firms fall short of robust solutions. Since the chancellor completed her final statement, the 10-year gilt yield has risen from 4.19 per cent to 4.36 per cent, while the 30-year yield hit 4.93 per cent.” Gilt yields have continued to rise subsequently.
Investors are split on whether gilts look good value from here.
Felipe Villarroel, portfolio manager on the TwentyFour Dynamic Bond fund, says the main impact in financial assets and investors’ expectations in the short term is likely to be a flatter path for interest rate cuts in the UK.
He says: “We have thought for a while that, in the context of a global fixed income portfolio, there are better risk-off assets than gilts. This has not changed.”
Stuart Chilvers, manager on the Rathbone Ethical Bond fund, says there were also technical considerations weighing on the gilt market: “Given the amount of information that had been leaked ahead of the Budget, bar a major shock, we had felt that the revisions to the Debt Management Office financing remit were likely to be the key driver of gilt yields today.
"On that front, the increase in issuance for the year was roughly in line with estimates we had seen.
"That being said, the increase in allocation to long gilts was unexpected in our opinion and likely explained some of the steepening we saw."
All in all, it appears the new government has failed to convince investors that it is a ‘Budget for growth’, with many seeing it as a more traditional tax, borrow and spend Budget.
