A regular briefing for the alternative asset management industry.
Just over a year ago, the UK's incoming finance minister, Chancellor of the Exchequer Jeremy Hunt, cancelled a range of tax cuts that had been unveiled only a few weeks earlier by his short-lived predecessor, Kwasi Kwarteng. That reversal calmed the financial markets, but disappointed many in his ruling Conservative party. This week, in an Autumn Statement that had a pre-election feel, the Chancellor's central message was clear: inflation is coming under control, tax receipts are better than expected, and the headroom will be used to kick-start growth. This time the markets merely shrugged. (Our Autumn Statement website, with extensive commentary, is available here.)
Against an economic outlook that remains gloomy, the government's focus was on investment. The hefty 2% cut to employee national insurance from January signalled a desire to reduce the personal tax burden but – given that commentators have been quick to point out how meagre that reduction looks compared to the impact of frozen tax allowances – further reductions may be expected in the spring budget. In this autumn package, the Chancellor's "110 measures for growth" were mostly targeted at the business and investor community. As it happens, a number were specifically aimed at the private markets.
Perhaps the most widely anticipated – and very welcome – measure was the decision to make permanent the 100% tax deduction available for capital expenditure on plant and machinery. The government knows that meeting the UK's productivity challenge will require investment, and this announcement, billed as the "biggest business tax cut in modern British history", makes the UK's capital allowances regime among the most competitive in the world.
There was more qualified welcome for the government's response to the BVCA's call to restore the tax incentives for research and development. The government will merge two existing regimes and, broadly, all companies (other than R&D intensive SMEs) will receive a credit of 20% for qualifying expenditure. The separate scheme for R&D intensive SMEs will be made available to more businesses but this revised regime is still less generous than it was before April 2023.
More positively, additional funding was announced for "the UK's most promising R&D intensive companies" through the British Business Bank's Breakthrough programme. Confirmation that the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) tax advantages will continue until at least 2035 – another request from the BVCA – was also very welcome, and will help stimulate investment in unlisted companies.
The name-check for the BVCA's VC Investment Compact will be applauded by private fund managers. This initiative, following the so-called Mansion House announcements in July, is the next step for the industry in building "a long-term and constructive working relationship" between venture and growth equity fund managers and UK pension funds, it now has over 80 signatories.
Other measures to support increased investment in private capital included an announcement that guidance for local government pension schemes will include a target "10% allocation ambition for investments in private equity", estimated to unlock around £30 billion. A pledge to build on the work of the Productive Finance Working Group to focus pension funds on "long-term pension investment performance" (rather than low fees) and to build their knowledge and expertise in alternative investments will help private funds. Drives to consolidate pension schemes should also unlock more capital for alternatives.
... the Chancellor's "110 measures for growth" were mostly targeted at the business and investor community. As it happens, a number were specifically aimed at the private markets.
The shake up to the ISA rules – the main vehicle, outside of pensions, that individuals use to save for the future – also had an important consequence for alternative asset managers: the Long-Term Asset Fund, or LTAF, will be eligible for inclusion in an ISA, making it a more attractive way to access suitably qualified or advised individual investors.
Investment companies and UCITS managers will also be pleased that the government's UK Retail Disclosure Framework, published alongside the Autumn Statement, includes a commitment to hand the FCA power to reform cost disclosure "in a holistic way; ensuring it is accurate, does not impact the competitiveness of firms and is not misleading to retail investors".
The publication earlier this week of the spin-out review (co-chaired by Andrew Williamson, chair of the BVCA's Venture Capital Committee) and a commitment to implement its recommendations will help stimulate investment in early stage businesses, while Lord Harrington's review of Foreign Direct Investment seeks to make the UK "the most attractive destination in Europe for inward FDI". Much of that review – which was the result of extensive engagement with companies and investors – encourages a joined-up approach, acknowledging that there is an important role for government, and recommending the appointment of a Cabinet-level Investment Minister to push this forward. There are five growth strategies which the government has identified as the focus: Green Industries, Advanced Manufacturing, Life Sciences, Digital Technology and Creative Industries. That's a good list, but the government should not lose sight of the importance of promoting London as the leading European financial services and asset management hub – at a time when our continental neighbours are pushing hard to win that business.
Overall, it is notable that businesses – especially those that are investing – were the main beneficiaries of the Chancellor's measures this week, and the desire to channel investment to the UK's growth companies is certainly laudable. But there was limited room for manoeuvre and – despite the brave face – the official forecasts confirm that significant economic challenges remain. Those challenges will need to be addressed by the next government.
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