Budget 2016: winners and losers

The UK economy might not grow as fast as expected this year and next, warned chancellor George Osbornen, but his eighth budget was packed with enough tax breaks and tax hits to send share prices crazy. In fact, the value of London's FTSE 100 index swelled by over £12 billion during the course of the hour-long speech.

Just four months after it forecast economic growth of 2.4% in 2016 and 2.5% next year, the Office for Budget Responsibility (OBR) now predicts GDP of just 2% this year, 2.2% in 2017 and then 2.1% in each of the following three years. That's less than both the Bank of England and International Monetary Fund (IMF).

Of course, that could change, either way, and the OBR's numbers are predicated on Britain remaining in EU. A vote to leave at the forthcoming referendum could have "negative implications for activity via business and consumer confidence and might result in greater volatility in financial and other asset markets," said Osborne quoting the OBR directly.

Osborne's speech was peppered with the usual soundbites and popular phraseology. Among the favourites this time was "next generation", which featured 18 times in the hour and three minutes it took to deliver.

Businesses will cheer changes to corporation tax - it will fall from 20%, to 18%, then 17% by April 2020 - will raise £9 billion in extra revenue for the Exchequer. There's a crackdown on overseas suppliers storing goods in Britain and selling them via eBay and Amazon without paying VAT.

Fundamental reforms to the business tax system also provide a "huge boost for small business and enterprise". But the biggest tax cut for business in this Budget was a decision to more than double the threshold for small business rate relief from £6,000 to a maximum of £15,000. The threshold for the higher rate almost triples to £51,000.

That means from April next year, 600,000 small businesses will pay no business rates at all, and a further quarter of a million businesses will see rates cut: "A £7 billion tax cut, for our nation of shopkeepers," roared Osborne.

Market reaction

In terms of the impact on individual share prices the most damage was done to makers of sugary drinks, "one of the biggest contributors to childhood obesity," claimed the chancellor.

A so-called sugar levy on the soft drinks industry has hammered companies like Nichols, AG Barr and Britvic whose shares plunged on the news. There's been a slight uptick as buyers went bargain hunting, although Vimto, Sunkist and Panda firm Nichols is still down 7%. The £520 million it's expected to raise will be spent on school sports.

A cut in the Supplementary Charge on oil and gas from 20% to 10%, and effectively abolishing Petroleum Revenue Tax (backdated to 1 January 2016), also gave the Tories a chance to goad Scottish National Party MPs:

"None of this support would have been remotely affordable if, in just eight days' time, Scotland had broken away from the rest of the UK, as the nationalists wanted."

Investors piled into North Sea oil companies like Cairn Energy (up 7%), Premier Oil (up 7%), Ithaca Energy (up 6%) and The Parkmead Group (up 10%).

Elsewhere, fuel duty will be frozen for the sixth year in a row, and freezing beer and cider duty was well-received by the pubs industry. Enterprise Inns, Punch Taverns and Mitchells & Butlers have all reacted well.

Predictably, housebuilders received a much-needed shot in the arm. Down in recent months on fears about a possible London property crash, players like Taylor Wimpey, Galliford Try, Bellway, Barratt Developments and Persimmon all jumped around 3%.

There were no further attacks on the buy-to-let industry, and investors loved Osborne's new tax-free savings idea. From April next year, anyone under the age of 40 will be able to open a Lifetime ISA and save up to £4,000 each year. For every £4 saved, the government will give you £1.

"You don't have to choose between saving for your first home, or saving for your retirement," says Osborne. "With the new Lifetime ISA the government is giving you money to do both."

Blackrock's head of retirement for Europe, Tony Stenning, liked it too: "Not only does the Lifetime ISA cater for people trying to save towards their retirement but it also provides help to first-time buyers," he says. "Given rising property prices and the challenges this presents people in trying to get a foot on the property ladder, the linkage of long-term savings and your house purchase is a welcome move."

No mention of further tax hikes was great news for William Hill and Labrokes, up 5% and 8% respectively. Meanwhile, insurers turned north as the standard rate of Insurance Premium Tax, to pay for better flood defences, rose just 0.5%.

"The market had expected approximately a 3% increase," said Guy Ellison, head of UK equities at Investec Wealth & Investment. Standard Life, Prudential, Legal & General and Aviva are also being chased higher Wednesday.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.