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Investors in Drax and challenger banks count cost of UK budget

Risers & Fallers budget special: featuring Drax, Aldermore, OneSavings Bank, Shawbrook, Virgin Money, Lloyds, Barclays, HSBC, RBS, Aviva, and all the housebuilders

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It was the first budget from a wholly Conservative government for twenty years

Britain’s servile workforce apparently got good news from the first Conservative Party budget for twenty years.

Minimum wage workers can thank George Osborne for a pay rise, as the national minimum wage will be increased to £7.20 per hour (for those over 25 years of age) from April and that will rise to £9 by 2020.

At the same time the chancellor of the exchequer also cut what are described as ‘working age’ social benefits. In all it is estimated that there will be around £12bn worth of welfare cuts.

But, what about investors? Who were the winners and losers on the London Stock Exchange?

Frankly, it will take more than a cursory analysis to spot the winners. Losers, however, can be spotted from about 500 yards.

Retailers and supermarkets will naturally feel the pinch, as they are among the more substantial employers of minimum wage workers; also fewer ‘benefit pounds’ in the economy may mean less consumer spending.

Drax (LON:DRX), down 28% at 254p,  the was probably the worst hit, as its shares lost nearly a third of their value.

The sell-off in the British coal-turned-clean-energy power generator was triggered by the government’s decision to withdraw tax based incentives for businesses to use renewably sourced power.

Users of renewably generated electricity have until now been exempt from the so-called Climate Change Levy. It is perhaps a particularly bitter pill for Drax to swallow as the owner of the Yorkshire coal-fired power station is increasingly reliant upon biomass operations these days.

Aldermore (LON:ALD) at 253p, OneSavings Bank (LON:OSB) at 280p, Shawbrook (LON:SHAW) at 326p and Virgin Money (LON:VM.) at 395p, all down between 14% and 9%.

The so-called challenger banks are expected to have tougher fight on their hands, now that the Government is reducing the Bank Levy.

Britain’s dominant banking establishment - a substantial portion of which is currently on the Treasury’s auction block - will be somewhat unshackled as this annual charge on their assets is wound down to 0.1% (from 0.2%) over the next six years.

The levy was introduced in the wake of the financial crisis and its critics, bankers for the most part, claim it has a more harsh impact on the sector’s bigger players and could be a factor in banking organisations moving assets out of the UK.

Up-starts such as Aldermore and OneSavings will be more proportionately affected by the to-be-introduced banking surcharge, which will see an 8% charge against banking profits, whereas Lloyds (LON:LLOY), Barclays (LON:BARC), HSBC (LON:HSBA) and Royal Bank of Scotland (LON:RBS) can return to being flat-track bullies.

Insurer Aviva (LON:AV.), up 3.5% at 497p. An increase in the insurance premium tax was pretty much on the cards and expected in today’s budget, though this afternoon’s 9% rally suggests a degree of relief that the tariff’s increase stopped at 9%.

It is therefore good news for Aviva which, to paraphrase Paul Whitehouse, is up to its knicky-knacky-noos in the British insurance sector.

Changes to tax breaks on buy-to-let properties dented the homebuilding sector.

Berkeley Group (LON:BKG), Bellway (LON:BWY), Barrat Development (LON:BDEV), Taylor Wimpey (LON:TW.) and Persimmon (LON:PSN), all down between 3.6% and 2.5%, were among the bigger names that will be impacted. 

Quick facts: Drax Group

Price: 296.2 GBX

LSE:DRX
Market: LSE
Market Cap: £1.17 billion
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