Columbia Threadneedle fund manager Julian Cane has slammed the Labour government’s autumn Budget for departing from its pro-growth manifesto pledges, which he said had delivered a range of unintended consequences.

Cane, manager of CT UK Capital & Income Trust (CTUK ), said that what had really upset companies was the gap between the manifesto pledges and their actions, such as the increase in employer national insurance contributions (NIC).

He believed the ensuing rise in UK government bond yields from 3.8% a month before the Budget to 4.2% today showed investors were nervous at chancellor Rachel Reeves pushing the envelope as far as it could go, and that Labour’s cards are marked. 

‘At an economic level, it would seem more sensible to increase the size of the cake rather than divide a shrinking cake,’ Cane (pictured) told Citywire.

He added that the increase in employers’ NIC from 13.8% to 15%, the drop in the threshold from £9,100 to £5,000 and minimum wage bump-up indicated the government did not have a handle on the consequences of its actions.

‘It was noticeable that when the changes were announced, it took companies days to work through what it meant for them individually. If they didn’t know how it would affect them, how can central government say they had the slightest handle on these things?’

Several unintended consequences include price increases, which are inflationary, while supermarket giants like Tesco and Sainsbury’s may be forced to cut their workforce and turn to automated services instead given the pressure of the NI contribution increases.

Cane’s £335m trust shouldn’t be knocked too hard by the changes, given his larger focus on financials and industrials rather than retailers, he said. 

Over the year to the end of September, the portfolio of large and mid-cap UK stocks delivered underlying total returns of 18.4%, beating the FTSE All-Share index benchmark’s 13.4% gain, while the shares added 16.6%, annual results showed.

Housebuilder Vistry (VTY) was a top performer, the shares vaulting 64% to win promotion to the FTSE 100 index, but since tumbling as a spike in construction costs forced the company to warn that annual profits would be £165m below guidance.  

Its upcoming demotion to the FTSE 250 index will exacerbate losses further, Cane said, as blue-chip trackers automatically exit their positions, magnifying what he believes is not an existential issue.

Takeovers were a key driver of returns, with both music royalty funds, Round Hill Music Royalty and Hipgnosis snapped up by private equity, as well as LXi Reit, which was bought by property investor LondonMetric (LMP), an existing holding.

Cane told Citywire that while there were issues with the management of both Round Hill and Hipgnosis, music royalties remains an attractive, if very complicated, asset class as the music industry becomes more subscription-based, driving higher revenues.

Pest control giant Rentokil Initial (RTO) was one of the poorer performers, with the shares hampered by concerns that its recently acquired US business was not growing as quickly as anticipated.

Cane bought the company because he believes the situation can be resolved. An increasing presence in the US could see the company move its listing there as well, as building materials group CRH (CRH) has done. Another driver of the share price is the presence of US activist investor Trian Capital, which has a seat on Rentokil’s board.

Advertising giant WPP (WPP) also knocked returns as investors deemed its large, complicated business inefficient. However, a new management team and recent contract wins has driven the early stages of a rerating.

The trust declared a dividend of 3.95p per share, bringing the full-year total to 12.50p, an increase of 2.9%, and the 31st consecutive rise. The board was forced to dip into reserves to pay the dividend as earnings softened after companies opted to buy back their own shares rather than pay higher dividends.

The shares traded at an average 3.8% discount to net asset value during the period and closed on Thursday 5% below asset value. The board bought back 4.3m shares over the period.

Over five years to date, the trust has delivered shareholder returns of 18%, which lags the FTSE All-Share index’s 31%, according to Deutsche Numis. Since Cane took over the fund in 1997, shareholder returns total 464%, well ahead of the benchmark’s 364%, Morningstar data shows.