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Emergency Budget will be more brutal than expected, says F&C’s Lees

F&C head of UK equities Peter Lees says the June 22 emergency budget will be more brutal than people expect but will also indicate support for British industry.

Speaking today at a press roundtable in London on the UK economy, Lees predicted that capital gains tax would go up to a “positively ghastly” level but that corporation tax would come down. 

He said: “I can see CGT going up to 40 to 50 per cent but I think they want to get as much long duration capital to support British industry as they can so if you hang on to your shares it comes down to 20 per cent.  In other words, as soon as we are out of this mess, CGT will come back again but we have to be part of the same system. 

“The only way we can get out of this is making sure the balance sheets of the businesses, instead of being crucified by paying taxes, are allowed to be free to invest.  I think there will be balance there but for a person who is highly geared and is living their life on credit cards, June 22 is going to be one hell of a wake up call.”   

Lees says political risk has increased but in the international earnings world of economic recovery, the UK remains one of the best stock markets to be. He says he will look to utilise Ucits III derivatives strategies as a risk tool within F&C’s UK equity fund to counteract volatile markets.

He says: “If we anticipate life getting more difficult again, which we are beginning to at the moment, it makes sense to write some protection. We are getting a situation imposed on us where we have got interesting politics in the UK, the sovereign debt crisis and markets hate this uncertainty. As a stockpicker this presents exciting opportunities as good companies should still be able to differentiate themselves very well but what is not ok is the regulators and politicians doing what they are doing.”

Lees says strategies could include investment in private companies in the resource sector or future options against vulnerable sectors.

He says: “The fallback we have had over the past month is considerably sharper than other cycles. If politicians and regulators are imposing their will in an emotional way on the market, if the bond markets fall again, the equity risk premium has to rise and therefore the valuation of equities has to come down.”

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  1. Financial planning and advice on investments and second properties will change drastically. A 40-50% CGT bracket will make UK one of the least tax friendly economies to invest in. This in turn will hamper any recovery and even a further downturn with many choosing alternative jurisdictions, thereby, slowing any further growth in the economy.

    Already, directors are offloading shares ahead of the potential CGT rises and many are selling investment property (leading to oversupply of property and thereby accelerate the fall in property prices is supply outstrips demand).

    I guess we just have to get on with it – or leave.

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