Matthew Moynes, Director of Investor Relations
It is often said that fact is stranger than fiction, and this recent election campaign has been a true testament to this adage. Its very inception was sudden and abrupt and the lead up to election day was fraught with scandal and missteps. However, despite the rollercoaster campaign the outcome always looked to be certain, with the result of the election quickly switching from not who would win, but by how much?
The low turnout figures for this election seemed to capture the overriding mood of a tired and despondent nation. Nevertheless, as expected, Labour delivered a landslide victory. The message from voters has been resounding; a change is needed.
So, with Kier Starmer now patiently waiting to be handed the keys to Number 10 and Rachel Reeves set to become his new neighbour, how can investors prepare for a new political landscape. The challenges facing this Labour government are not new. Public debt remains at record levels and fiscal policy manoeuvrability limited. The Labour manifesto identifies a reduction in tax avoidance and adjustment to the taxation of UK non-domiciled resident as two major sources of Treasury income, but more is needed to reduce the ratio of public debt to GDP, currently sitting at concerning levels.
As Chancellor, Jeremy Hunt appeared to deliver some welcomed tax breaks for workers in both his Autumn and Spring Budget. However, perception is not always reality. We soon became educated in the impacts of fiscal drag, a term which explains increased personal income tax liabilities caused by inflation and subsequent increased earnings and static income tax thresholds. As a result, the public eye has been keenly focused on a particular topic during the election campaign, taxation. When looking at the Labour Party manifesto it is important to not only focus on the subjects and topics addressed, but also what some perceive as deliberate omissions. Labour have made clear their intentions to leave the three main revenue-raisers alone, Income Tax, VAT and National Insurance. No such pledges have been made for Capital Gains Tax (CGT), or Inheritance Tax. With this in mind, a lot of recent speculation has centered around CGT and how changes could raise well needed funds for the Treasury. Details of such adjustments will likely remain largely unknown until the 2024 Autumn Budget. More recent rumours have focused on the ever-controversial inheritance tax rules, but again, specifics will remain allusive for the time being.
In periods of uncertainty and unknowns it helps to focus on the controls and actions investors have influence over. The benefits of tax efficient investment products and their crucial role in stimulating the flow of capital to early-stage, high growth UK companies and driving greater overall economic expansion, is one of the few topics which continue to generate bipartisan support. Investment vehicles offering a range of tax reliefs including tax free capital growth, 30% income tax relief on the value of the investment, and in the case of the EIS, full IHT relief after 2 years, continue to provide credible and dependable tax mitigation options for investors during times of material tax adjustments.
In September 2023, Labour published their ‘Start Up, Scale Up’ report which outlined the party’s plans to make Britain the high growth, start up hub of the world. The EIS and VCT schemes will be vital in delivering this target. Rachel Reeves, set to become the UKs first female Chancellor (a long overdue milestone) has on numerous occasions made clear her support and appreciation of the importance of the EIS and VCT schemes. Reassuringly, tax efficient venture capital managers will continue to play a vital role in stimulating investment and entrepreneurship across the UK and supporting this Labour Government in its journey to deliver sustained economic growth.