Budget 2017: crunch time for tax efficient investing
Later today the Chancellor of the Exchequer will take to the House of Commons dispatch box to deliver the Budget. Even at this early stage in the 2017-2022 parliament, it has the feel of a pivotal event.
Keen Westminster commentators will already be aware that this represents the first autumn budget since 1996; signalling a new convention where a single fiscal event will take place in the autumn.
Significant influences on this budget
This is also the first budget since Prime Minister Theresa May triggered Article 50 at the end of March 2017. Brexit dominates public policy coverage across a full range of media, but its economic impact remains contested. Furthermore, its true impact, positive or negative, is unlikely to materialise until there is greater clarity over the nature of the UK’s future trading relationship with the EU. It is conceivable that this will not be resolved until the finish line – 29th March 2019 – comes into sharp focus.
Furthermore, it is the first budget since the June 2017 general election, the outcome of which surprised many and didn’t fit the Prime Minister’s script. The consequences of the result look set to both compel (the terms of the political deal struck with the DUP in Northern Ireland) and coerce (the call from colleagues to loosen the purse strings) the Chancellor to make some bold financial commitments.
There are many other influences for the Chancellor to consider, not least continued evidence of sluggish productivity in the UK.
Although today’s Budget has the potential to overwhelm, such are the competing demands being placed upon the public finances, there are two areas that will prick up our ears.
1. Tax efficient investing
The first is the future of tax efficient investing. We have blogged previously about concerns that today’s budget will draw upon the recent Patient Capital Review consultation to justify amendments to some of the tax advantaged venture capital schemes that most effectively incentivise investment into early-stage UK businesses.
Our October blog post set out the legitimate concerns that critics of the schemes may express. However, addressing these concerns without detrimentally impacting on early-stage businesses’ access to capital would require a precise policy prescription that Government would be difficult to achieve.
Reflecting on evidence documented within the Patient Capital Review itself, 0.5% of businesses established in 1998 were responsible for 40% of job creation over the following 15 years. Depriving the equivalent 0.5% of firms in 2018 of the investment they need to emulate job creation on that scale is simply not a risk worth taking.
Investors into early-stage businesses will observe the Budget with this uppermost in their thoughts, particularly if any change to the legislation will apply retrospectively. However, if such changes are introduced for the 2018/19 financial year, investment managers can expect a spike in demand in the four months that remain of the current financial year.
2. Transforming housebuilding
The second area of interest to us is housing. From a Government perspective, this is perhaps more a social challenge than a financial challenge; a lack of affordable housing is increasingly cited as a constraint on social mobility.
Increasing the supply of housing is part of the solution to this. Previous interventions, whilst well intentioned, have further inflated the housing bubble through boosting demand alone.
The chart below underlines the decline in contribution made by SME housebuilders. Existing initiatives that seek to extend support to SME housebuilders are welcome but, without an exclusive focus on SME housebuilders, insufficient.
Furthermore, all commentators make demands of the Chancellor, encouraging him to pledge financial support to their area of interest. Borrowing to fund investment that would accelerate the rate of housebuilding would be welcome, and it is great to see the Federation of Small Businesses endorse the potential contribution that SME housebuilders can make in pursuit of this, but raising awareness of innovative financial solutions is also valuable and likely to place more modest demands on the public finances.
Innovative financial solutions to housebuilding
This combines our passion for innovative finance and housebuilding. Our equity co-investment platform – GrowthFunders – is well established. We’ve worked with several ambitious early-stage businesses to secure the investment they need to grow, create jobs and add value.
We’re now able to take forward this financial expertise and apply it to housebuilding. The first example of this is a property co-investment scheme that targets a 1.6x return on investment. As a co-investment initiative, institutional investors invest alongside everyday retail investors.
This represents a form of property crowdfunding; a special purpose vehicle (SPV) established to receive investment and deliver a business plan that will build houses. Once these houses are sold, investors are repaid in line with the business plan.
If you have a broader interest in emerging forms of property investment, you may be interested to download your free 48-page guide that explains how you can integrate property investments into your portfolio.
With the Budget scheduled to start at 12.30pm today, we'll be keeping you updated with the tax efficient investing and housebuilding aspects over on Twitter. Yet regardless of what will - or will not - happen, it's undoubtedly going to be an interesting Budget.