Financial Review 08/07/2015 – UK Summer Budget 2015, Wednesday 9th July 2015

George Osborne produced the first purely Tory budget for the first time since 1996, and he gave the markets plenty to chew on.

Before getting into the nitty gritty, Osborne announced that the UK economy is growing faster than any other major economy in the world; however, this didn’t prevent the growth forecasts for 2015 being revised down from 2.5% to 2.4%.

With the aim of £12 billion in welfare cuts and £5 billion in tax evasion/avoidance measures, Osborne laid out with glee the Tories plans for the future. Normally one of the darlings of the Tory government, the housing sector took a tumble during the Budget, as Osborne announced mortgage tax relief for buy-to-let landlords to be restricted to the basic rate, alongside the fact that non-dom status will no longer be inheritable for people born to parents domiciled in the UK. It is this latter point that really hit the sector, especially those who have dominant presence in London, as Zoopla, Berkeley Group Holdings and Foxtons all dipped into the red.

After days of Greek-fear sapping the life out of the sector, the as expected announcement that the bank levy will be phased out allowed the banking stocks to edge into the green, however briefly, as the dust settled on the latest Budget. The market boost isn’t as big as it could have been given the latest reports that Greek banks will remain closed until next week, and the fact an 8% surcharge on bank profits will be the levy’s replacement, but it goes some way to appeasing the institutions, HSBC especially, that were displeased with Osborne’s previous actions towards the city.

The increasing pension freedoms, with Osborne’s claim that he is consulting on creating ISA-like pensions countering the announcement that the tax annual allowance will be cut to £10,000, helped companies like Aviva, Standard Life and Just Retirement jump onto the day’s top risers list.

The first in what is likely to be a long squeeze on the BBC came in the form of the previously announced transference of funding free TV licences for the over-75s to the institution itself. This appeared to be good news for the British Broadcasting Corporation’s rivals ITV and Sky, which both crept up as Osborne spoke.

Osborne’s commitment to NATO’s 2% of GDP spending target for defence helped ease the profit-warning woes of Rolls-Royce Holdings, helping lift it away from yesterday’s 3 and a half year low, with similar gains for Airbus and BAE Systems as the thought of all the potential contracts sparked the imagination of investors.

The cherry on the top for the Tories was the surprise announcement of a national living wage, from £7.20 per hour next year but rising to £9 by 2020. This news will be of special interest to retailers, who employ a large chunk of low-wage workers. Interestingly, in the grocery sector for example, Sainsbury’s and Morrisons had a fall, whilst Tesco (who can easily, if unhappily, bear the extra cost) remained steady. The rise seems to have exacerbated Home Retail Group’s problem, meanwhile, as the owner of Argos and Homebase slid by over 3% on the day.