UK Budget to Trim Expenses; VAT to Rise

Arthi Gupta, Mayank Mehta and Sanjay Barot
22 Jun, 2010
New York City

The UK indexes traded lower after the interim budget that proposed higher VAT and eliminated nearly one million tax payers with low income and lowered the corporate tax to 24% . The government also cuts growth outlook and public sector pay freeze for two years.

[R]4:30 PM London – The UK indexes traded lower after the interim budget that proposed higher VAT and eliminated nearly one million tax payers with low income and lowered the corporate tax to 24% . The government also cuts growth outlook and public sector pay freeze for two years.[/R]

Halma Plc and Whitbread PLC quarterly sales rise but Chemring Group PLC net profit declines.

In London FTSE 100 Index traded lower 57.75 or 1.09% to 5,241.36 and the pound edged lower to close at $1.469 and edged higher to close at €1.198.

The UK Chancellor of the Exchequer George Osborne presented his first budget today. According to the Chancellor, the economy is estimated to grow 1.2% in 2010 and 2.3% next year. followed by 2.8% in 2012, 2.9% in 2013 and 2.7% in both 2014 and 2015, Osborne told Parliament.

Consumer price inflation is expected to reach 2.7% by the end of the year before returning to target in the medium term, the Chancellor noted.

Public sector net borrowing is seen at £149 billion this year and decline to £116 billion next year. Borrowing is expected to drop to £60 billion in 2013 and £37 billion by 2014, Osborne said,

Further, the VAT will rise to 20% from 17.5% on January 4 next year.

There will be an increase in the personal income tax allowances by £1,000 in April. The chancellor said 880,000 of the lowest income taxpayers will be taken out of tax altogether.

Osborne also unveiled four annual reductions in the corporation tax rate, which will take it down to 24% and introduced a bank levy from January 2011.

The Chancellor also announced a public sector pay freeze for two years. He said the Spending Review will be published on October 20.

Aegon is contemplating to sell its Transamerica life reinsurance business in the U.S. and plans to restructure its UK operations.

Aegon is looking for a ""suitable buyer"" for the Transamerica business. According to a statement released by Aegon today, it ""believes that, over the longer term, there is only a limited strategic fit between Transamerica Reinsurance and Aegon''s core activities.""

As for its U.K. businesses, Aegon said it would cut 25% of costs by 2011 and withdraw from the ""bulk annuities"" market.

Gainers & Losers

British Airways Plc fell 0.2% to 213.20 pence.

Bunzl plc, the distribution and outsourcing group fell 1.8% to 733.00 pence.

Chemring Group PLC fell 5.5% to 3.126.00 pence. The defense equipment maker said first half revenues rose 10% to £255.9 million from £233.5 million a year ago. Net profit for the first half fell 14% to £18.4 million or 52 pence per diluted share compared to net profit of £21.5 million or 61 pence per share a year ago.

Great Portland Estates plc fell 1.8% to 290.40 pence.

Halma Plc fell 0.3% to 270.00 pence. The health and sensor technology company said fiscal year 2010 revenues rose 1% to £459.1 million from £455.9 million a year ago. Net profit for the year rose 15% to £60.4 million or 16.05 pence per diluted share compared to net profit of £52.6 million or 14.03 pence per share a year ago.

Mitchells & Butlers plc, the operator of managed pubs and pub restaurants fell 2.8% to 296.00 pence.

Norcros Plc rose 0.8% to 7.56 pence after the shower and tile maker said fiscal year 2010 revenues rose 10% to £169.6 million from £154.2 million a year ago. Net loss for the year was £10.0 million or 3.4 pence per diluted share compared to net loss of £6.3 million or 4.2 pence per share a year ago.

Segro Plc, the real estate company fell 1.7% to 266.00 pence.

Velosi Limited, the provider of engineering services to oil and gas companies rose 1.9% to 104.50 pence.

Whitbread PLC rose 2.5% to 1,516.00 pence after the hotel and restaurant chain said first quarter sales rose 13.5% and like-for-like sales rose 7.6%. Premier Inn sales up 14.1% and like-for-likes rises 10.5%.