With just five weeks to go until Chancellor Rachel Reeves presents her first Budget on 30th October, a letter written to the FT by six distinguished economists including Lord Gus O’Donnell, Lord Jim O’Neill, Marriana Mazzucato and Mohamed El-Erian, advising her to be mindful that any real-term substantial cuts in public expenditure would not enhance the opportunities for the Government’s plans for ‘a decade of national renewal.’
This respectful letter reminded the Chancellor that implementing draconian expenditure cuts could only lead to ‘low’ investment, withering growth, thus delivering a weaker economy. The credence and importance attached to growth has been the key ingredient for the Government’s recovery plans.
The PM was quick to repudiate the concerns expressed by these distinguished economists, bankers and civil servants. These veiled signals presumably imply that the Government is not planning many measurable tax increases such as ‘National Insurance.’ Nonetheless, the Chancellor will need to find money to fill in her celebrated ‘Black Hole’ of £22 billion. Will that leave CGT, Inheritance Tax, an indiscriminate raid on pension contributions and maybe a property tax as the chosen weapons to balance the books? If so, I smell danger.
It is a pity that PM Starmer chose to be so downbeat about the UK economy in his Rose Garden speech on 27th August 2024. It was generally thought that when a government is perceived be rock-solid and stable by potential inward investors, it is essential for it to exude confidence in creating an atmosphere of upbeat sentiment. PM Starmer sent out a rather obtuse message, when promising hardship, until the economic sun shines brightly above the yardarm. A week after that speech there was an £8 billion 15-year Gilt-auction with a coupon of 4.345%. It went like a rocket. It was heavily over-subscribed attracting bids of £110 billion! The positive reaction by international bond markets was testament to opportunities that are open to stable administrations.
Our economy has much to be enthusiastic about. Assets are cheap. London hosts the world’s largest foreign exchange and derivatives markets, a decent international bond market and apart from ‘big-ticket IPOs’, an improving equity trading and fund management operations. Fintech operations are on fire, as are innovative drug operators. I admit to being disappointed that only 4% of the LSEG’S income is derived from equity business; the majority emanating from Refinitiv, a technology titan. Aquis Exchange is there to provide opportunities for aspiring IPOs and I hope that AIM will also be equal to the challenge.
The return of a Labour administration, with an overall majority of 174, seemed to have ‘put the fear of God’ into owners of valuable assets. Fund managers and brokers have rarely been busier applying creative accountancy attributes to CGT tax management. Charlie Mullin, the flamboyant creator of Pimlico Plumbers, has already expressed his displeasure at the threat of higher wealth taxes, by packing his bags for warmer climes. He will not be the last.
A study by UBS Wealth Management in July 2024 suggests circa 500,000 millionaires will leave the U.K. by 2028, equivalent to a 17% fall, leaving questions about the U.K. and London’s position as a haven for the global elite. That is the biggest relative fall in the millionaire population among the countries covered by UBS. The Netherlands will also experience a net exodus of millionaires by 2028. Belgium, Germany, Spain, and Italy are among the European countries that are expected to see their millionaire populations grow. Continental European hotspots, including Milan, are becoming the new stomping ground for millionaires, all sick of London.
Please Chancellor, do not stamp on private equity, by driving them abroad, thus denying innovative operations much needed investment. The National Wealth Fund and the British Business Bank will hopefully provide money and access to funds respectively to meet the demands of the government’s ambitious plans.
If an increase in Capital Gains Tax is necessary, I hope the Chancellor will taper the Government’s fresh levies. In other words, the longer the investment is held, the less tax will be payable. Failure to do so, will inevitably kill investors’ appetite to support the voracious demand for funds for UK business development. The opportunities are boundless. I beg the Government not to be short-sighted.
David Buik of AQUIS EXCHANGE
