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Rachel Reeves has just announced £40bn worth of tax rises, much of which comes from businesses. But what does this mean for UK stocks?
The answer will vary from company to company. But there are a couple of FTSE 100 and FTSE 250 companies that I think are particularly interesting.
PA
Windfall taxes are a constant risk with PA (LSE: BP shares). And the great news is that it will increase to 38%, which will raise the general taxation to 78% on hydrocarbon exploration and production.
The government is also withdrawing the 29% investment subsidy on oil and gas. While the decarbonisation subsidy has not changed, BP has recently diverted its attention from this area.
Worse yet, the company is likely to face windfall taxes even with falling oil prices. The mechanism to restore taxes to 40% only applies if oil falls below $71.70 and gas below £0.54.
While oil is close to this level, gas is far away. Therefore, BP could be forced to pay higher taxes and at the same time see its income reduced by oil prices that are not particularly high.
Natural gas prices in the UK
Source: Commercial Economy
One way or another, the company will likely have to pay more taxes on windfall profits, which will mean that the profits will be less than they would have been. But there is a potential advantage.
With the withdrawal of the tax incentive, BP could withdraw its investments. In that situation, the company could decide to return cash to shareholders, making the dividend potentially interesting.
JD Wetherspoon
For JD Wetherspoon (LSE:JDW), things could have been worse. While costs are likely to increase, there was also good news for the company.
The big challenges will come from increased National Insurance contributions by employers and a higher national minimum wage. That's something the company will have to deal with.
On the other hand, the Chancellor announced a reduction in taxes on draft alcohol. This is an unexpected boost for the pub industry as a whole.
This gives JD Wetherspoon an option. It can use the cut to offset higher costs or pass it on to customers and try to widen the gap between its prices and those of its rivals.
The other positive news was an extension of the business rates relief that the hospitality industry has been benefiting from since Covid-19. This should also help the company's bottom line.
Overall, the budget was better than I expected for JD Wetherspoon. And as a result, the stock is up 5%.
Are difficult times ahead?
Before today's announcement, everyone knew that taxes were going up. And businesses are likely to be the biggest contributors.
The latest announcement gives UK investors a clear idea of what the tax environment will look like in the coming years. So the next question is what stocks to buy.
