City: Lamont may prove too clever by half

THIS was a Budget that had the City desperately trying to get to grips with the complexities of Advance Corporation Tax, phased VAT rates, scale charges for company cars and the special pleadings of pressure groups like racehorse owners and the scotch whisky industry; in other words, it was a Budget viewed as neither particularly positive nor negative for the markets - a neutral Budget that shouldn't unduly undermine the bull market in British equities and bonds or significantly affect the value of the pound, a Budget more for the attention of tax experts than pundits.

Certainly it was one of the most complex in recent memory, and not just because of the introduction of a Soviet-like three-year plan. It was also a minefield of mind-boggling fiscal changes, some of which seem to make little sense.

For the stock market the most important detail involved Advance Corporation Tax. The rate is being altered in a way that undermines the privileged tax status of Britain's most powerful group of investors, pension funds; it reduces their actuarial valuation by about pounds 10bn, a shortfall that will have to be made good over a period of time, either through extra contributions or higher dividend payments by companies.

The ACT change, therefore, becomes a new tax not just on savings but also on companies. On top of that, it has the effect of reducing the income attractions to pension funds of equities over bonds. The overall effect is therefore negative for shares, though not hugely so.

Has Norman Lamont done enough to restore his shattered credibility in the City and thus help save his job? Superficially, the Budget looks clever, despite the broken pledge not to increase VAT; it is a good wheeze to leave any serious attempt to tackle the budget deficit until years two and three of the plan when, hopefully, economic recovery should be well under way. But you have to wonder how much these good intentions mean.

All plans are made to be broken and this one, I suspect, more so than most. Many of the fiscal changes announced in the Budget look to the City like little more than meddling; they create the impression of frantic activity but are they necessary? The markets are once again being asked to put much faith in Mr Lamont's hopes for economic recovery. Though some sort of upturn looks to be under way, it will have to be impressive to sustain share prices at present inflated levels.