The finance industry had mixed feelings about Chancellor George Osborne's budget, delivered as the UK Treasury's independent forecaster halved its growth forecast for the year to 0.6%.
Asset managers were pleased to hear Osborne propose to abolish stamp duty on investment funds, the so-called Schedule 19 rule, which would leave investors better off and ease tax reporting requirements for asset managers.
The proposed stamp duty cut “levels the playing field with other European fund locations and should help to encourage more UK and non-UK asset managers to launch UK based fund products”, says Rob Mellor, PricewaterhouseCoopers asset management partner.
The chancellor also said he wanted to make the UK into one of the most competitive places in the world for investment management and identified the sector as one of a handful capable of providing significant new employment.
Osborne promised to cut the UK's already low corporate tax rate to just 20% by 2015, lower than Luxembourg, in a bid to attract more international companies to set up in the country — a move welcomed by some, though others noted the cost to the Exchequer would be in the hundreds of millions.
Meanwhile, the chancellor was praised for efforts to encourage small business to hire new workers through a National Insurance employment allowance and for his plan to extend the Funding for Lending Scheme, in which the Bank of England lends money cheaply to banks to pass on to their customers as mortgages or business loans.
However, there was criticism of Osborne's commitment to fiscal tightening in the face of a lingering recession. The budget was described as “unapologetic and almost confrontational” on this score, given that it plans to pay for tax cuts with a further squeeze on departmental spending.
Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, says “the world is coming round to realise that a loose monetary, tight fiscal policy mix is unlikely to lead to a recovery in growth when interest rates are close to zero and consumers are intent on paying down debt”.
“We are living in a time of great experimentation that academics will study for generations to come,” he adds. “Countries that opt for the wrong fiscal-monetary policy mix will find themselves on the wrong side of history.”
The Treasury forecaster, the Office of Budgetary Responsibility, has cut its growth forecasts for 2014 and onwards — though some say by not enough — and raised its inflation predictions.
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