Reactions to the 2012 Budget

Kathleen Brooks, research director at GAIN Capital:
"A 'surprise' cut to corporation tax by an extra 1% will come into effect next month. The last Budget outlined a plan to cut corporation tax next month to 25%, so the decline to 24% was an added extra from Osborne and a little sweetner to the business community. [It may have been] an attempt to get them hiring again to help bring down the UK’s rising unemployment rate."

Dominic Rossi, global CIO for equities at Fidelity Worldwide Investment:
"The immediate cut in corporation tax to 24% is a great support to UK companies. Moreover setting out a clear path as to how the level of corporate tax will fall between now and 2014 gives companies the clarity they need to forward plan and invest for future growth. Creating this type of visibility clearly makes the UK a very attractive place to do business and is very good news for investors in UK equities."

Cuts to income taxes for the highest earners:

Toby Nangle, Head of multi-asset allocation at Threadneedle:
"The biggest headline was the announcement of a reduction of the highest rate of personal income tax from 50% to 45% from April 2013. Counter-intuitively, this has the potential to be quite revenue negative in the 2012-2013 tax year, although it may play to the Chancellor’s political narrative. The postponement of the tax cut will create the incentive to defer income until 2013 for those with the ability to do so, leading to a dip in receipts over the forthcoming tax year, followed by an increase in receipts once the tax rate is lowered."

Phil Orford, chief executive of the Forum for Private Business:
"Reducing the top income tax rate to stimulate entrepreneurship and continuing to cut corporation tax are much-needed measures.” According to a release from the Forum, the organisation “welcomes the Chancellor’s headline decision to cut the 50% top rate of income tax to 45% ... following figures from HMRC showing that the tax has raised just £1 billion of the £3 billion it was expected to raise."

Joshua Raymond, chief market strategist at City Index:
"We already knew about the cut in the top rate of tax to 45% from 50%, and in the rise of the personal allowance threshold by £1,100 to £9205 in 2013-2014; the biggest increase ever according to Osborne. Whilst this edges us closer to the £10,000 threshold that the Liberal Democrats demanded as part of the coalition agreement, the rise was slightly higher than expected. This still seems a politically motivated move than necessarily a fiscal one, though undoubtedly it does help to motivate more high calibre talent and businesses to remain in the city of London than Brussels."

Expectations for UK economic growth:

Douglas McWilliams, chief executive of the Centre for Economics and Business Research:
"In the medium term the UK has to cope with the pressures of being an uncompetitive medium-sized economy linked in trade with some of the slowest growing economies in the world. The OBR (Office for Budget Responsibility) forecasts that UK growth will magic its way up to 3% by 2014. This is well beyond most expectations and it is worth pointing out that the GDP growth forecast they made for 2012 for last year’s budget was 2.5%. We said that this was a pipedream at the time and so it has proved. It will need much more than what the Chancellor has done in this Budget to get growth up to these levels. And so we are pessimistic about getting the deficit down as fast as the Chancellor hopes."

Fixed income commentary:

Ian Spreadbury, portfolio manager for the Fidelity Strategic Bond Fund and MoneyBuilder Income Fund gives his perspective on how the budget impacts fixed income:
"The Chancellor was right to play it safe and stick with a budget that continues to reduce the deficit. I continue to expect growth to print at the low end of expectations, making fiscal consolidation harder to achieve. I expect this will eventually test the patience of gilt investors, especially the 30% or so non-resident investors who may be able to find safer ‘safe havens’ elsewhere in the world. With gilt yields so low, the upside potential for prices is limited, but the downside risks are significant. In my portfolios I’m keeping duration below benchmark and where possible I also hold UK credit default swaps which protect against deterioration in the country’s creditworthiness."

Reactions to other parts of the budget:

Toby Nangle, Head of multi-asset allocation at Threadneedle:
"From the equity side we were looking for the possibility of the Budget closing the door on the offshore tax exemption for the gaming industry, which could negatively impact stock values in that sector. And we were looking for a more positive tax environment for new investment into North Sea oil production for small companies. On both fronts our expectations were met."

Ian Sayers, director general of the Association of Investment Companies (AIC):
In a release, the organisation said it "welcomed the removal of the £1 million limit on investment by a VCT (Venture Capital Trust) in a single company, which comes into effect from April 2012, and the proposed rules to increase the range of companies eligible for VCT investment." Sayers also adds: "We are delighted that the Chancellor recognises the role that VCTs have to play in delivering increased economic growth and employment. The proposed rule changes allow VCTs to invest in a wider range of companies which is a welcome boost to the sector and businesses desperately seeking finance."

To read about some of the key announcements contained in the 2012 Budget, read "How the 2012 Budget Affects You... Now!"