Tax

Investment Managers React To Tax Cuts In UK Mini-Budget

Amanda Cheesley, Deputy Editor, London, 26 September 2022

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After the UK Chancellor of the Exchequer delivered his mini-budget on Friday, which he said was designed to stimulate the economy, investment managers gave their reactions.

In the package of tax cuts worth an estimated £45 billion ($49 billion), the UK chancellor, Kwarsi Kwarteng, cancelled his predecessor's planned increase in the corporation tax rate, reversed April's national insurance tax hike and scrapped income tax rises. The measures have been regarded in some quarters as a return to the more "Thatcherite" brand of low-tax, pro-enterprise policy stance of the 1980s and 1990s. and an embrace of the "supply-side" argument that tax cuts actually raise, not cut, revenues in the medium term.

The planned rise in the corporation tax rate from 19 per cent to 25 per cent from 1 April 2023 will no longer take place under the package. The bank corporation tax surcharge will also remain at 8 per cent, starting from April 2023.

The government also proposes two measures to help companies improve access to finance and talent. Firstly, it is expanding the Seed Enterprise Investment Scheme to help more UK start-ups raise higher levels of finance. From April 2023, companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase.  

The government is also expanding the Company Share Option Plan scheme, enabling companies to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit.

In the aftermath of the Kwarteng statement, sterling weakened against the dollar and gilt yields rose, taken by some commentators to imply that investors are concerned about whether the measures might increase inflation rather than cut it. The Bank of England last week hiked interest rates, as did the US Federal Reserve. 

Here are some reactions to the news from investment managers.

Duncan Simpson, chief economist at the TaxPayers' Alliance
The TaxPayers’ Alliance dynamic tax modelling estimates that the measures could boost output by £99 billion over the next 10 years, recouping around three quarters of the lost revenue due to faster growth.

“Our modelling suggests the chancellor has been true to his word, providing a package that will have a significant impact on long-run economic growth. The reversal of short-sighted rises in corporation tax and national insurance contributions will offer the lion’s share of the impact, while reforms to income taxes and stamp duty will better incentivise productive economic activity alongside a welcome retail offer for taxpayers." 

Rebecca Fisher, partner in the private client group at Russell Cooke   
“Some of the measures are clearly designed to stimulate the economy, not least the reduction in basic rate income tax to 19 per cent from 2023 and the freeze on corporation tax at 19 per cent. SDLT rates have been lowered. Although that may help first-time buyers, the jury is out on whether this will impact the housing market with interest rates rising and the consequential hikes in monthly mortgage payments.

The removal of both the 45 per cent top rate of tax from 6 April 2023 and the cap on bankers' bonuses will surely grab some headlines. In reality, there are very choppy waters ahead and the government may hope that this package will stimulate the economy. With the cost of living ever rising coupled with interest rate rises on a monthly basis this remains to be seen.

There was a notable silence on capital gains tax. For years there has been speculation that CGT will increase but based on this latest budget, any tax increase looks unlikely for a good while yet.”

Andrew Aldridge, partner at Deepbridge Capital     
“The new chancellor’s overt commitment to the Enterprise Investment Scheme and Seed Enterprise Investment Scheme could well be the single most important decision he takes during his time at 11 Downing Street. These world-class propositions are fundamental to the creation of the innovative companies of tomorrow. Particularly within our specialist sectors of disruptive technology and life sciences, EIS and SEIS are key in ensuring the UK is globally recognised as one of the best places to start and scale business. Being a leading EIS and SEIS fund manager, we are naturally delighted that any shred of doubt has been removed for investors and entrepreneurs.”

Nicholas Hyett, investment analyst at Wealth Club
“In what is probably the most pro-business budget this century, the Chancellor has acted to support Britain’s “unbounded entrepreneurial drive.”

Confirmation that the VCT and EIS schemes will continue, a long overdue extension to the SEIS scheme and initiatives to unlock money from the UK’s pension schemes all provide fuel to support an entrepreneurial fire that is already burning bright. Small innovative businesses are key to the government’s 2.5 per cent economic growth target and creating the high value jobs that will drive wealth creation more broadly.

There is still plenty of work to do, with the government planning radical supply side reform as well as dramatic changes to the tax system. Those are no easy tasks, but the government clearly recognises the importance of a thriving private sector and the crucial role entrepreneurs play in building a successful economic future.”

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