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Rachel Reeves has just announced £40bn of tax increases, most of which will come from businesses. But what does this mean for UK stocks?
The answer will vary from company to company. But there are a few FTSE 100 again FTSE 250 firms that I think are very interesting.
BP
Windfall taxes are a constant risk with BP (LSE:BP Shares). And the big news is that this will increase to 38%, bringing the total tax to 78% on hydrocarbon exploration and production.
The government also canceled the 29% subsidy on oil and gas. Although the commitment to decarbonisation has not changed, BP has shifted its focus to this area recently.
Worse, the company may face steep tariffs even if oil prices fall. The mechanism to reset taxes back to 40% only works if oil falls below $71.70 and gas goes below £0.54.
Although oil is close to this level, gas is not close. So BP may find itself having to pay higher taxes while also seeing its revenues reduced by low oil prices.
UK natural gas prices
Source: Trade Economics
In some ways, the company may have to pay more tax, which will mean that the profit will be lower than it would have been. But something is wrong.
With the withdrawal of tax benefits, BP may withdraw from its investment. In that case, the company may decide to return cash to shareholders instead – making profits stronger.
JD Wetherspoon
Because JD Wetherspoon (LSE:JDW), things could have been worse. While costs may have gone up, there was also some good news for the company.
The biggest challenges will come from increasing National Insurance contributions from employers and a higher Minimum National Wage. That's something the company has to deal with.
On the other hand, the Chancellor announced that the duty on alcohol will be reduced. That's an unexpected development for the pub industry as a whole.
This gives JD Wetherspoon a choice. It can use a cut to reduce high costs, or it can pass it on to customers and look to widen the gap between its prices and its competitors.
Other good news has been the expansion in business spending that the tourism industry has been benefiting from since Covid-19. This should also help the company's mission.
Overall, Budget was better than I expected from JD Wetherspoon. And the stock is up 5% as a result.
Hard times ahead?
Before today's announcement, it was widely understood that the tax would increase. And businesses are likely to have a big contribution.
The latest announcement gives UK investors a clearer sense of what the tax landscape will look like over the next few years. So the next question is which stocks to buy.
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