TheChek News Flow

Chancellor weighs up halving annual tax-free savings allowance to encourage wider investment in UK stock market

Chancellor Rachel Reeves is looking to use her Budget to revive plans for a major overhaul of tax-free Isas to divert tens of billions of pounds of savings from cash into domestic stocks, as she tries to import a US-style investment culture to Britain.

But Reeves knows that lowering the tax-free limit for cash ISAs — possibly halving it from £20,000 to £10,000 per year — will provoke a fierce backlash from building societies and wants British business to help her make the case for the changes.

“She wants to see people investing more in British stocks because it’s good for growth and it generates better returns for savers,” one ally of Reeves said. “But we can’t win the argument on our own. Lots of businesses support the idea but never say it.”

Her plan stalled in the summer following heavy lobbying by building societies, who warned that they used cash Isas to fund mortgages and that reducing these inflows would potentially make home loans more expensive.

At present, British savers have a £20,000 annual ceiling on the amount that can be shielded from tax in Isas. The cash Isa is by far the most popular product with an estimated £300bn deposited, followed by the stocks-and-shares Isa.

While Reeves has committed to keeping the overall £20,000 ceiling, she was looking at cutting the cash Isa limit as one of several options, people familiar with the plans said.

City minister Lucy Rigby told the Investment Association dinner on Tuesday that savers could more than double their savings if they chose to invest in the stock market. “We are committed to building a shareholding democracy,” she said.

“Someone who put away £1,000 in a cash Isa every April since 1999 would now hold about £34,000. If they had instead invested in a stocks-and-shares Isa instead, they could now have around £83,000.” 

Treasury officials have held meetings with financial services companies in recent weeks to discuss plans to limit the amount that can be put in cash Isas.

The meetings came after Reeves said in her Mansion House speech in July that she would be considering “further changes to Isas” and “engaging widely in the coming months”, in an attempt to achieve “better outcomes for both UK savers and for the UK economy”.

A person close to the process said the Treasury was considering a £10,000 annual cash Isa limit, higher than the £5,000 previously suggested by industry figures.

Reeves’ allies say she wants people to invest more in London’s equity market, which has struggled to attract sufficient investment in recent years, leading to a drought of company flotations.

Treasury officials are also weighing the revival of a previous Conservative plan to create a “Brit Isa”, which would have provided an extra £5,000 tax- free allowance for UK equities. The idea was killed off by the Labour government on the grounds it would overcomplicate the Isa market.

Reeves’ team confirmed that cutting the cash Isa limit was being considered ahead of the Budget on November 26 but stressed that “a number of options are on the table and no decisions have been made”.

The Treasury said: “Cash savings are important for people looking to put cash away for a rainy day and we will protect that.

“But the chancellor has been clear that she wants to get Britain investing again, so British companies can grow and British savers who choose to invest can get more in return.”

Proponents of Isa reform — including asset managers and advisers who would benefit from companies raising more money via the London stock exchange — have argued that people should not be given a tax break for holding cash when it could be used to support the economy.

But some of the UK’s largest investment sites, such as Hargreaves Lansdown, have argued that capping the cash allowance could deter people from saving and might make it more complicated for people to switch between different types of Isas.

Reeves’ plans would mark the biggest overhaul of the Isa regime since it came into force in 1999 under the then-chancellor Gordon Brown. 

The government and regulators have already taken several steps to encourage people to invest. The Financial Conduct Authority said earlier this year that companies would be able to provide customers with “targeted support”, including generic suggestions, rather than more expensive financial advice.

The government also announced a campaign, set to launch next year, to raise awareness of the potential benefits of investing for individuals and the broader economy.

Clinical studies can be finished faster and cheaper than in US and provide an earlier sign of a drug’s potential

US weight-loss biotech Kailera Therapeutics has raised $600mn from investors buoyed by the company’s ability to accelerate drug development by relying on China for cheaper and faster clinical trials.

Massachusetts-based Kailera raised the funds from Bain Capital, the Canada Pension Plan Investment Board, the Qatar Investment Authority and others, one of the sector’s largest deals this year. This follows a $300mn infusion last year.

Kailera’s deal underscores China’s emerging status as the go-to country for drug development. Kailera acquired the global rights for its weight-loss drugs from Jiangsu Hengrui Pharmaceuticals in Lianyungang, China. Drug trials in China can be finished faster and for less money than in the US, making the country increasingly important for biotech investors and global pharmaceutical companies looking for early signs of a drug’s potential.

Relying on China for the early stages has allowed the pharmaceutical industry to bring drugs to the US Food and Drug Administration for final approval sooner than it otherwise would have. Still, while the FDA has previously said it will consider foreign clinical data, it wants to ensure the drugs are safe for the US and has previously rejected Chinese clinical studies for not being representative of the US population.

While Chinese data does not fully align with other countries’ regulatory standards, “it builds a basis of knowledge for us to go to global regulators in Europe or the US and outline what we have seen with those programs,” Ron Renaud, chief executive at Kailera, said in an interview.

Jiangsu Hengrui has been running trials in thousands of Chinese patients already, Renaud said, “so we get to see results from their programme, and it allows us to make very good clinical strategic decisions as well as good capital allocation decisions.”

Renaud said final Phase 3 testing for its weight-loss injection drug is expected to start by the end of the year at the FDA. Similar to Eli Lilly’s Mounjaro, Kailera’s shot combines the gut hormone GLP-1, which lowers blood sugar and limits appetite, with another gut hormone GIP that aims to increase weight loss.

Kailera’s obesity treatments are coming into an increasingly competitive market for weight-loss drugs. The company is hoping to diversify its offerings by also developing pills, which are seen as the next frontier for treatment. The leaders in weight-loss drug sales, Eli Lilly and Novo Nordisk, are also working on oral treatments.

In the US, 43.1 per cent of US adults are obese, a slight decrease from 43.3 per cent in 2022 to 2023, according to government data. Before weight-loss drugs soared in popularity in recent years, obesity was increasing by nearly 1 per cent a year on average from 2011 to 2019. Last year, more than a quarter of US adults with diabetes, which can be a consequence of obesity, were using weight-loss drugs, according to the Centers for Disease Control and Prevention.

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Shareholders will get one TKMS share for every 20 they hold in Thyssenkrupp

Thyssenkrupp’s TKA -2.91%decrease; red down pointing triangle naval-defense business will start trading on the German stock exchange next week as the industrial company looks to cash in on a European drive to expand its submarine fleet in the face of geopolitical tensions.

The listing on the Frankfurt exchange on Monday will conclude the spinoff of a minority stake of Thyssenkrupp Marine Systems, Thyssenkrupp said Tuesday. Under the spinoff, set out last year and approved by shareholders in August, Thyssenkrupp will retain a 51% stake in the business.

Thyssenkrupp didn’t set out the new company’s valuation, but it could be worth some 3.4 billion euros ($3.9 billion) and perhaps more, according to estimates from Citi.

“We see the marine business re-rating as a catalyst for Thyssenkrupp,” the bank’s analysts wrote in a recent research note.

TKMS is targeting a growing market for marine defense systems, one that could reach as much as 61 billion euros by 2033, according to the company. TKMS Chief Executive Oliver Burkhard said last month that the market will expand as Europe ramps up military spending to defend against new forms of warfare, such as damage to undersea cables. The company order book stands at more than 18 billion euros as of June.

In Germany, defense spending is set to climb as a proportion of total economic output. Europe’s largest economy will spend some hundreds of billions of euros extra a year in the medium term, according to calculations by consultants Pantheon Macroeconomics.

Government of other European countries including France and the U.K. have similarly promised fresh cash for defense outlay in response to demands from Washington, and to Russia’s war in Ukraine. Spurred also by geopolitical tensions in the Middle East, the anticipated defense drive has contributed to a surge in European defense stocks this year. Companies such as German ammunition maker Rheinmetall and Italy’s Leonardo have seen their share price more than double since the start of the year.

Thyssenkrupp said shareholders will receive one share in TKMS for every 20 they hold in the parent company.

“We are facilitating growth opportunities and access to the capital market for TKMS, at the same time creating value for our shareholders,” the group’s Chief Executive Miguel Lopez said Tuesday.

Thyssenkrupp shares were down 1.7% at 12.67 euros in early European trade.

Rayonier could unveil all-stock acquisition of PotlatchDeltic Tuesday

Two of the biggest U.S. timberland owners, Rayonier RYN 1.81%increase; green up pointing triangle and PotlatchDeltic PCH 2.18%increase; green up pointing triangle, plan to combine in an all-stock deal that would create a more than $7 billion forestry giant, according to people familiar with the matter.

The details

A deal between the two could come together as soon as later Tuesday, the people said.

PotlatchDeltic shareholders are expected to receive 1.7339 common shares of Rayonier for each share of PotlatchDeltic common stock, the people said. That implies a price of $44.11 per PotlatchDeltic share, and would value the newly combined entity at $7.1 billion, or $8.2 billion including debt, they said.

Rayonier shareholders would be set to own about 54% of the merged company following the deal’s close, with PotlatchDeltic shareholders owning the rest.

Rayonier had a market value of roughly $4 billion as of Monday. PotlatchDeltic was valued at about $3.2 billion, after its shares closed at $41.64 Monday.

Both timber companies are structured as real-estate investment trusts, which don’t pay much corporate income tax and instead pass most of their profits on to shareholders as dividends.

In addition to timberlands, PotlatchDeltic owns mills in Arkansas, Idaho, Michigan and Minnesota. A combined company would own roughly 4.2 million acres of U.S. timberland, second only to industry leader Weyerhaeuser, which is the country’s largest private landowner with more than 10 million acres and a market value exceeding $17 billion.

Nearly a million of the Rayonier-PotlatchDeltic acres are in the Northwest, where demand is high for logs from private land due to the yearslong decline in timber harvested from the region’s vast federal lands. The remainder are in the U.S. South, where a glut of pine trees has depressed log prices but made the region the most profitable place in North America to make lumber.

Rayonier President and Chief Executive Officer Mark McHugh is expected to lead the combined entity postmerger, the people familiar with the matter said. The new board of directors is expected to be split evenly with five people from each company.

The context

Lumber prices have been on a roller coaster this year, lifted by higher import taxes and pulled lower by deteriorating housing and construction markets. The climb from September’s low has been propelled by President Trump’s 10% tariff on imported softwood lumber, which becomes effective Tuesday, as well as recent sawmill curtailments.

The new tariff is on top of much higher duties on Canadian lumber, which are the result of a decadeslong trade dispute. The combined duty rate rose in August to about 35% for most of Canada’s producers, from roughly 15%.

PotlatchDeltic’s sawmills are among those that analysts expect to benefit from higher trade barriers, which should also boost U.S. timberland owners.

Both Rayonier and PotlatchDeltic have also benefited from surging demand from solar-power generators for swaths of land, especially in the South. They each have options and lease agreements with solar developers covering tens of thousands of acres at rates that are upward of 10 times more profitable than growing pine trees.

Hundreds of Tesla Cybertrucks have been spotted being delivered Elon Musk’s private companies, SpaceX and xAI, as Tesla is having issues selling the electric pickup truck.

Cybertruck turned out to be Tesla’s first real commercial flop.

After planning for a production capacity of over 250,000 units per year, Tesla is currently selling the pickup truck at a rate of ~20,000 units annually.

A ~10% utiliation rate of a production line is a terrible situation for an automaker as much of the capital invested in the vehicle program becomes sunk cost.

But things are even more difficult with Tesla, as even with much lower production, the automaker often ends up having inventory build-ups for the Cybertruck.

Elon Musk has a solution: he had his private companies buy hundreds if not thousands of Cybertrucks.

Several truckloads of Cybertruck were spotted being delivered to xAI’s offices this weekend.

Furthermore, SpaceX has taken delivery of hundreds of Cybertrucks at Starbase of the last week and it is expected to take delivery of hundres, if not thousands more in the coming weeks.

Wes Morrill, the Cybertruck lead engineer, commented on the delivery and said that SpaceX, along with Tesla, is replacing its support fleet with the Cybertruck:

Love to see the ICE support fleets from Tesla and SpaceX get replaced with Cybertruck. When we were engineering it, this was always part of the dream. Never imagined how hard the fleet photos at starbase would go. Looking forward to more of this.

He didn’t elaborate on how many vehicles SpaceX is expected to buy.

Electrek’s Take

As soon as it became clear that there was clear demand issues with the Cybertruck, I always wondered Tesla is not using them for its service fleet.

It looks like SpaceX is doing it before Tesla, or at least on a larger scale, though Morrill is also saying that Tesla is transitioning its own support fleet to the Cybertruck.