These Are the Stocks to Watch as Hammond Delivers U.K. Budget

(Bloomberg) -- Ending the era of austerity. That’s what U.K. Chancellor of the Exchequer Philip Hammond is under pressure to do in an Autumn budget that follows eight years of spending cuts and which will be delivered in the shadow of ever-fraught Brexit negotiations.

In order to do so, he’ll be partly dependent on the Office for Budget Responsibility reducing its borrowing forecasts, in a move that’s akin to pulling 13 billion pounds ($16.7 billion) “from down the side of the sofa,” HSBC Senior Economist Elizabeth Martins wrote in a report.

But Brexit looms large. Hammond chose to bring forward the budget from the expected timing of mid-to-late-November, presumably to avoid it clashing with any potential fallout related to the final Brexit deal, according to Societe Generale Chief U.K. Economist Brian Hilliard. And markets should expect another budget from Hammond to materialize once the shape of a deal emerges, Hilliard adds.

Hammond said at the weekend that he thinks a new budget would be needed in the event of a “no-deal Brexit,” though a spokesman said Monday’s plans are fully funded. Regardless of the outcome, elements of today’s speech could have big implications for many companies. Below is a list of some of the industries and stocks in focus, and readers can follow Bloomberg’s live blog as events unfold here, from around 3.30 p.m. local time.

Retail

Business rates -- a tax on commercial-use property -- should be frozen for two years, and the government needs to consult with retailers to build a better system, according to the British Retail Consortium. The taxes are hindering the attempts of High Street shops to reinvent themselves amid the shift to shopping online, the lobby group says. Everyone from grocers like J Sainsbury Plc to Primark-owner Associated British Foods Plc could be impacted.

Reports on Friday said Hammond will announce a new business-rates relief for almost half a million shops and pubs, cutting their bill by about a third.

Online

Tesco Plc Chief Executive Officer Dave Lewis has called on the government to impose a 2 percent levy on all online sales, the Mail on Sunday reported earlier this month. His push for a so-called “Amazon tax” is, to date, the most dramatic call for action by the retail sector, according to Shore Capital’s Greg Lawless and Clive Black. The analysts question whether the measure could apply to goods bought outside the U.K., and also wonder if it would impact online food retailers like Ocado Group Plc.

The U.K. has already said it wants to raise the amount of overall tax paid by the industry’s biggest firms, like Amazon.com, Inc. and Google-owner Alphabet Inc., either through international agreement or via its own measures. “If we cannot reach agreement the U.K. will go it alone with a digital-services tax of its own,” Hammond said this month, according to media reports. In an interview with The Sunday Telegraph at the weekend, he suggested he could announce a deadline for a multilateral agreement to be reached.

Homebuilding

Having been battered by Brexit concerns and a soft London market, housebuilders may face more pain if the government starts a consultation process to increase stamp duty for foreign home buyers. On the flipside, the sector could get a little support if the chancellor extends the Help-to-Buy scheme, which assists first-time buyers. Overall, the key thing is less likely to be a single policy but any indication of the macroeconomic outlook, Liberum analyst Charlie Campbell said. Followers of companies like Barratt Developments Plc and Taylor Wimpey Plc will be watching.

Roadworks

Hammond will announce a 28.8 billion-pound cash injection for England’s roads, being billed as the largest investment in the network ever, ITV reported. The funding will be used to upgrade and maintain the country’s motorways and other major routes. Kier Group Plc would be a “clear beneficiary” of the increased spend, according to analysts at Peel Hunt, which represents the construction-services firm as corporate broker. Watch shares of Balfour Beatty Plc, too.

Bookies

The gambling industry is preparing for hits on both brick-and-mortar shops and online gaming. Remote Gaming Duty, a tax imposed on online betting sites, is expected to be raised to between 20 percent and 25 percent from its current 15 percent level. Add to this, calls for Hammond to provide details on when a 2-pound limit on fixed-odds betting terminals will be imposed. The moves could affect GVC Holdings Plc, Paddy Power Betfair Plc and William Hill Plc.

Banks

The U.K. Finance lobby group has called for a removal of the bank levy, saying it’s a competitive disadvantage post-Brexit, according to The Daily Telegraph. A surprise removal of the balance sheet tax -- introduced in response to the financial crisis -- would benefit domestic-focused firms like Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc most, while impacting other lenders with U.K. operations.

Booze

Duty on normal strength cider should be cut by two pence a pint in order to reduce the beverage’s competitive disadvantage versus beer, according to closely-held brewer Thatchers Cider Co. Ltd. Heineken N.V.’s Strongbow and Bulmers brands, as well as C&C Group Plc’s Magners, would be winners. Duty on higher strength “white” cider, with alcohol volume of more than 6.9 percent, is set to be raised, but that’s not an important market for the publicly traded firms. Watch for any comment on duty on beer and cigarettes. Freezing the former goes down unsurprisingly well with the British electorate.

NHS Beneficiaries

The headline pledge to mark the end of austerity is for the government to start pumping more money into the National Health Service. Should that translate into higher spending, it could boost companies that manage NHS contracts, including Spire Healthcare Group Plc. Firms that clean hospitals, like Mitie Group Plc or Interserve Plc, or provide them with IT support, like EMIS Group Plc could also gain. Those same outsourcing companies could also benefit from an increase in spending on the armed forces and social care

Utilities

There’s some concern that the U.K.’s carbon price support mechanism -- intended to reduce the use of coal in electricity generation -- could be adjusted in order to lower bills for consumers and remove a disadvantage for British firms, according to analysts at JPMorgan Chase & Co.

Reducing the 18 pounds-a-ton floor could cut the earnings of companies like British Gas-owner Centrica Plc, SSE Plc, and EDF by 2 percent to 7 percent, the bank said in a note, although it added that it doesn’t forecast a change to be announced on Monday.

Pensions

Pension-tax relief, described recently by Hammond as “eye-wateringly expensive” as it hits the Treasury’s pocket to the tune of about 39 billion pounds a year, is likely to be reduced. Six separate cuts have been made to pensions tax relief since 2010 as it tends to be an easy way to fund other pledges, in this case the money promised to the NHS, RBC Capital Markets analyst Gordon Aitken wrote in a note.

In the short term, the life insurance industry could benefit from savers rushing to make use of unused allowances. But longer-term flows to pensions are likely to be reduced, putting pressure on the likes of Aviva Plc, Phoenix Group Holdings Plc and Legal & General Group Plc, Aitken said.

--With assistance from Lisa Pham.

To contact the reporters on this story: Joe Easton in London at jeaston7@bloomberg.net;Sam Unsted in London at sunsted@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Jon Menon, Blaise Robinson

©2018 Bloomberg L.P.