City unfazed by Osborne's tax rises

22nd Jun 2010 13:51

The City has reacted positively to Chancellor George Osborne's first budget, which included a series of tax rises but emphasised cutting spending rather than raising revenues.'The coalition government believes that the bulk of the reduction must come from lower spending rather than higher taxes,' said Osborne, who claimed the Budget supports a 'strong enterprise-led recovery.'A widely expected rise in Capital Gains Tax (CGT) - the levy paid on the appreciation of investments such as shares and property - was implemented, with higher rate payers to pay 28% from midnight tonight, compared with the current rate of 18%.That was much less than the 40% rate some analysts had envisaged in anticipation that the Chancellor would seek to realign CGT with income tax. Some had even raised to possibility of CGT rising to 50% in line with the top rate of income tax. CGT will remain at 18% for basic rate payers. Osborne said that the annual exemption for paying CGT would remain at £10,100 this year and then rise in line with inflation.Sterling rose against other currencies after Osborne's Budget statement, as investors bet that his measures would help ameliorate Britain's unenviable fiscal position. 'The financial markets were already well prepared for austerity measures as the political pendulum inevitably swung from spending to cuts,' said Phil McHugh, a dealer at foreign exchange firm Currencies Direct. 'George Osborne said this was a budget to 'deal decisively with our country's record debt' and the pound has certainly responded well to this commitment.'Gilts also climbed, indicating that investors think the likelihood of Britain defaulting on its debts has receded.The retail sector appeared heartened by Osborne's proposals on VAT, despite a rise to 20% from the current 17.5%. The rise will not come into effect until January 4 and there was no move to extend VAT to items that are currently exempted, such as food and children's clothing.In the FTSE 100, shares in clothes retailers Marks & Spencer and Next, Argos and Homebase owner Home Retail Group, supermarkets Wm Morrison and Tesco and B&Q owner Kingfisher were among the top 10 risers following Osborne's Budget speech.Osborne also said that there will be no new tax rises on alcohol and a planned rise in cider duty to 10% above inflation will be scrapped.The Chancellor also announced a reduction in corporation tax, which will fall by 1% a year over the next four years, to 24% from the current 28%. He said the reduction in corporation tax would help 'a sign to go up over the British economy that says "Open for Business"'Elsewhere, plans to impose a levy on banks to generate £2bn per year from January 2011 were announced. This was less than £5bn that some had feared.The levy will come into force next January. It will be charged on the balance sheets of UK banks and very large building societies, and to the UK operations of banks from abroad.Institutions will only be liable for the levy where their relevant aggregate liabilities amount to £20bn or more. The levy will be based on total liabilities excluding Tier 1 capital, insured retail deposits, repos secured on sovereign debt and policyholder liabilities of retail insurance businesses within banking groups. Final details will be published later this year.Banks appeared unfazed by today's Budget announcement, with Lloyds Banking Group finishing on top of the pile in the FTSE 100.