Investors dump UK shares amid Budget fears

Reeves’ expected raid on capital gains alongside downbeat messaging blamed for stunting short-lived recovery in pro-UK sentiment

Britons dumped more than £600m worth of UK shares last month ahead of an expected raid on capital gains tax by Rachel Reeves at the Budget, figures show. 
A total £666m was withdrawn from funds that invest in UK companies in September, data published by Calastone showed, the first time since October last year that funds have suffered monthly outflows.
Almost £420m flowed out of equity income funds, which are heavily skewed towards UK stock, during the month.
It comes amid fears that the Chancellor could hike capital gains tax in her maiden Budget later this month. Ms Reeves is reportedly considering increasing the rate of capital gains tax, which is paid when shares are sold, from 20pc to as much as 45pc so it is equalised with income tax.
The Government’s bleak outlook ahead of the Budget on Oct 30 has been blamed for killing off a short-lived recovery in sentiment towards the UK. 
Ms Reeves rejected the idea that business leaders were feeling “gloomy” ahead of the Budget, insisting: “I don’t buy [that] everyone’s really negative.”
Announcing a series of clean energy investments that she claimed would attract £8bn of private investment from companies including Equinor and BP, Ms Reeves said: “You could say people are feeling gloomy, but it hasn’t stopped these companies signing contracts to invest £8bn in Britain.”
The Chancellor said that up to £22bn of public funding would be available over 25 years to fund a series of carbon capture and hydrogen projects designed to attract additional private cash.
Ahead of a flagship Investment Summit at the Guildhall later this month, which will be followed by the Budget, Ms Reeves warned the economy had to “break out of this doom loop of low growth and deteriorating living standards”.
She added: “And that means prioritising capital investment, and particularly capital investment that can leverage in private sector investment.
“I’ve been really clear that this Budget is about protecting living standards, beginning to fix the problems in our NHS and then fixing the foundations so we can rebuild Britain.”
However, George Osborne, the former chancellor, said Ms Reeves was likely to be forced into delivering a “relaunch Budget” after the chaos of Labour’s first three months.
“This Budget was supposed to be the five-year plan for the Starmer government and some tough decisions early on that would reap benefits later, politically and economically,” he said on the Political Currency podcast.
“The truth is it’s becoming increasingly a relaunch budget. The Government is in such trouble politically, because of all the things we’ve been talking about.”
Both Ms Reeves and Sir Keir Starmer have delivered gloomy predictions about the UK’s finances, saying the Budget was “going to be painful” because the “road ahead is steeper and harder than we expected”.
Edward Glyn, head of global markets at Calastone, said: “The new Government’s rather pessimistic commentary about the UK economy appears to have put a stop to the nascent revival in interest in domestic equities that we first detected in trading data in July.
“UK-focused funds seem to be off the menu for investors for the time-being.”
The snub to the UK market is even more pronounced because overseas funds recorded net inflows during the month.  
EU funds absorbed £43m of net inflows in September, according to Calastone, while US funds saw £413m paid in and global funds recorded inflows of £422m. The UK was the only geography to shed money. 
The exodus reverses a brief reprieve for the embattled London market, after Labour’s election victory boosted investor confidence and outflows from UK-focused funds fell to their lowest level since August 2021.
Charles Hall, from Peel Hunt, said: “There was enthusiasm when Labour came in that the dynamic was changing in the UK and that has dissipated fairly quickly with the threat of tax changes.
“Although investors were getting more minded to invest in the UK that has been put to bed until we get the Budget. We are in a holding period.” 
“If capital gains tax on equities went from 20pc to 45pc that will totally kibosh people’s desire to invest in equities because why are you going to take any risk when almost half of the value upside disappears?
“Confidence was returning in July, and then it got scotched because of the question marks. If you’re making an investment decision, you need to know that the criteria that you’re investing on is going to still be there in the years to come.”
Overall equity funds of all types and geographies fell out of favour in September with British investors pulling a net £564m from their holdings, the first outflows since October 2023, Calastone said.