23rd March 2011
Investors seeking an inflation beating income have received two indirect Budget boosts.
Brokers are predicting that income funds should benefit from Government cuts to corporation tax as big firms pay more dividends, while National Savings & Investments expects to start reissuing inflation linked savings certificates.
The Treasury has relaxed a moratorium on N&SI attracting surplus money. It will now be able to attract net inflows of £2bn with an allowed overshoot to £4bn having been ordered to reduce this to zero last year. The move is reported here on Citywire.
The inflation linked certificates are very popular with pensioners who have struggled to find similar safe investments.
The certificates are linked to the higher of the two inflation measures – the Retail Price Index – making them even more attractive.
Many pensioners were bitter about last year's move suggesting it had thrown their savings plans into disarray particularly with the Bank Of England maintaining low interest rates despite high inflation.
In terms of income funds, broker Hargreaves Lansdown expects the capital gains tax cuts to encourage big UK firms to pay increased dividends which should benefit income investors.
Some funds in the sector had been hit by problems with the banks and BP.
Corporation tax is being cut from 28 per cent to 26 per cent from April and will fall at the rate of one per cent a year to 23 per cent at the end of this parliament.
"Dividends are paid out of after tax profits; therefore a cut in this tax means more is available for dividend seekers" said investment manager Ben Yearsley.