T: +44 (0) 1872 262622 F: +44 (0) 1872 265326 E: mail@galvan.co.uk W: www.galvan.co.

uk

Award Winning CFD Advisors

R E P O R T

Budget 2013: Special Report

Andrew Gibson, Head of Research 22 March 2013

So the latest government budget is out. As always, its important to cut through the political waffle and understand how it really affects you. In this Special Report we will take a concise look at what the budget really means for savers, investors and pensioners AND of course house prices. Whats the latest for savers?
Bad news Im afraid. George Osborne has cleared the way for Mark Carney, the incoming central bank governor, to launch the biggest shake-up at the Bank of England for more than two decades. Carney will have new powers to target jobs and economic growth while pretending to the still care about the inflation target. Lets face it, the 2% inflation target hasnt been taken seriously anyway (despite it being the Bank of Englands core function). Inflations been above target now for 3 years thats 36 consecutive months! Under the new powers, the Governor will officially be able to pursue growth at the expense of inflation. Unofficially, theyve been throwing the kitchen sink at growth for over four years now. After all, the base rate is already at 320 year lows and the Bank of England is working its way through 375 billion of money printing (quantitative easing). Now when Carney takes over in July he will also be given the flexibility to pursue unconventional measures he can pretty much do anything as long as he gets growth going again, preferably before the next election. One obvious thing is to copy what he did in Canada and just let the market know the base rate will be staying this low for a long time to come so called explicit forward guidance. Cash left sitting idle in the bank is already earning next to nothing, usually less than inflation, so its already making a negative real return. 1

Galvan Research and Trading is authorised and regulated by the Financial Services Authority no. 401179

T: +44 (0) 1872 262622 F: +44 (0) 1872 265326 E: mail@galvan.co.uk W: www.galvan.co.uk

Award Winning CFD Advisors

R E P O R T

According to Moneyfacts, of the 891 savings accounts available in the UK, only three are better than inflation. And to rub salt into the wounds, the Bank of England also recently raised its Inflation Forecast. So its really making people think hard about leaving too much cash lying around because inflation is eating away at its value every day. Not a good situation for a saver, but its the painful truth. Hint: the government wants you to spend or invest it and help revive the economy.

buyers only need a 5% deposit, bringing back 95% loan-to-value mortgages to the nation. The government estimates that up to 130 billion worth of home loans could be supported by Help to Buy, which is equivalent to the current annual volume of mortgage lending. The government will be hoping Help to Buy is this decades version of Thatcher's famous Right to Buy. Maggie came into power in 1979 and by 1980 had introduced Right to Buy. The scheme was such a success that by 1987, more than 1,000,000 council houses in Britain had been sold to their tenants. So will Help to Buy boost property prices? Well it certainly wont do any harm. UK property prices have been fairly flat for two years now, which would indicate that supply and demand are evenly poised. Anyone in the property industry will tell you that demand for property market is primarily driven by the availability of credit. When people can get loans, demand rises and property prices go up. The supply side, while important, is not as volatile as demand due to natural constraints such as land availability and planning laws.

Whats the Budget mean for house prices?

Good news. The boldest policy in this Budget was the governments new Help to Buy scheme. Its really a bigger and better version than FirstBuy the 2011 policy to help people get on the property ladder. While FirstBuy was restricted to first time buyers on houses costing up to 280,000, Help to Buy will extend to anyone wanting to buy new and existing homes up to the value of 600,000. In other words, Help to Buy is all about the mass market. The scheme means

Galvan Research and Trading is authorised and regulated by the Financial Services Authority no. 401179

T: +44 (0) 1872 262622 F: +44 (0) 1872 265326 E: mail@galvan.co.uk W: www.galvan.co.uk

Award Winning CFD Advisors

R E P O R T

The biggest hindrance in the property market over the last few years has been buyers inability to provide a 20% deposit. That will no longer an issue, so demand looks set to accelerate (for as long as the programme exists). The problem with all these sorts of programmes is that markets become distorted in this case through artificially creating demand. Economists would argue that by subsidising buyers you are not creating demand but merely borrowing demand from the future which will eventually come back to bite you. Whatever the intellectual argument, the government is well aware of the formula from the Blair-Brown era: rising house prices (and rising personal debt) = reelection. Tomorrow be damned.

big companies of tomorrow. From the governments point of view, they are the key to jobs growth. Indirectly, there was good news for big companies (think FTSE 100 and FTSE 250). The UKs corporation tax rate will fall to 20% from April 2014. It was already due to fall to 21%, so its a double bonus. Its not just good for boosting profits, but also encouraging investment in the UK. This will now mean the UK has the lowest business tax of any major economy in the world. By way of comparison heres the nominal rate for other countries: Germany 30%, France 33.33%, Italy 31.4%, Japan 40.69%, USA 35% and China 25%. And last but not least, the Help to Buy scheme could give stocks in certain sectors a real boost. Obviously, the big house builders will benefit, such as Persimmon (PSN), Barratt Developments (BDEV), Taylor Wimpey (TW), Bovis Homes (BVS) and Berkeley Group (BKG). But theyre not the only beneficiaries. Estate agents will be licking their lips too. Some of them are listed companies such as Savills (SVS) and Winkworth (WINK).

Whats in it for investors?

The only direct measure for stock market investors is scrapping the 0.5% Stamp Duty on shares of companies listed on growth markets including the Alternative Investment Market (AiM) from April 2014. This policy is aimed at encouraging investors into smaller, more adventurous, high-growth companies. Its along the lines of the small companies of today are the

Galvan Research and Trading is authorised and regulated by the Financial Services Authority no. 401179

T: +44 (0) 1872 262622 F: +44 (0) 1872 265326 E: mail@galvan.co.uk W: www.galvan.co.uk

Award Winning CFD Advisors

R E P O R T

Its no co-incidence that Countrywide (CWD) has just been floated and theres talk of Foxtons doing the same soon. Some of the retailers will also be cheering the budget. Places like B&Q (Kingfisher : KGF) and Homebase (Home Retail Group : HOME) are quite dependent on home buyers because people tend to spend a lot more on home improvements just after theyve moved house. Carpetright (CPR) and Topps Tiles (TPT) also rely heavily on people moving homes. As always with the stock market, its not a case of whether things are good or bad, but whether they are getting better or worse. So making money is about identifying an improving trend and riding the rally.

Treasury. Everyones jealous of DB pensions so they make an easy target. Thankfully, Equitable Life customers are finally seeing some justice. What a debacle thats been. Anyway, those who bought with-profits annuities before 1992 and then lost money will be given 5,000 each in compensation. If youre reliant on income support, you will receive 10,000.

Summary
The big losers are savers punished for being prudent. The big winners are home buyers (dare I say debtors) the government knows how to warm the hearts of the British public. Stock market investors can be pretty pleased too its a pro-business budget in many ways. Overall, the 2013 Budget is a decisive shift away from austerity and towards growth in an effort to kick-start Britains stagnant economy before election time.

How have pensioners fared?

For once pensioners havent been royally raided. In fact, the Chancellor sounded quite proud of this, describing the budget as "one for retirement savers". Not sure about that. Defined benefit (DB) schemes will pay the same rate of NI as everyone else, which is expected to raise 6 billion for the

Galvan Research and Trading is authorised and regulated by the Financial Services Authority no. 401179

T: +44 (0) 1872 262622 F: +44 (0) 1872 265326 E: mail@galvan.co.uk W: www.galvan.co.uk

Award Winning CFD Advisors

R E P O R T

Whos Galvan?
Galvan Research and Trading is a specialist advisory CFD broker. Weve been going since 2004, helping private investors make the most of CFDs. We help you at every stage: from setting up your CFD account, showing you around the dealing platform and of course providing you with hands-on advice. Our analysts are always on the look-out for opportunities. We let you know what we think is a good buy or sell, but just as importantly when to open and close your positions. All our clients have their own personal advisor. You can receive as much or as little advice as you need, and you are under no obligation to trade. If you would like to find out more about our CFD advisory service or have any questions please call us on 01872 26 26 22.

This report is provided for information purposes only. It is general in nature and does not constitute an offer or a recommendation to enter into any transaction. The research may be unsuitable for certain investors, depending on their specific objectives and financial position. The value of securities mentioned in this report can fall as well as rise and may be subject to large and sudden swings. No responsibility is taken for any losses, including, without limitation, any consequential loss, which may be incurred by acting upon the contents of this report. Trading in Contracts for Difference (CFDs) and forex may not be suitable for all investors due to the high risk nature of the products. You may lose all of your initial stake through the use of leverage and may be required to make additional payments by way of margin on a frequent and sometimes daily basis. Failure to do so can result in the closure of part or all of your position. Past performance is not necessarily a guide to future performance. Tax laws may be subject to change. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Further distribution or redistribution of this information, regardless whether it is or is not meant for commercial purposes, by any form of media, is prohibited without prior written approval by Galvan. Any reproduction, copy, multiplication, transfer or hypertext link, in any way, of a part or of the whole of the information in this report, must receive Galvan's written approval in advance.
Galvan Research and Trading CMA House, Newham Road, Truro, Cornwall, TR1 2SU Galvan Research and Trading Authorised and regulated by the Financial Services Authority WINNER Best Derivatives Advisor Shares Awards 2005-2009, 2011 & 2012 WINNER Best CFD Advisor Money AM Awards 2008-2012