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by Matthew Moynes, Director at Calculus

06 March 2024

From the very start, the Chancellor appeared to be delivering his budget to a particularly raucous House of Commons.  Heightened levels of jeering and frequent interruptions seemed to reflect the proximity of the upcoming general election and the influence this budget could have on moving the political dial. Hunt labelled the previous Autumn budget as a ‘budget for growth’. Unfortunately, the UK economy subsequently trickled into a technical recession at the end of 2023. With the added pressure of an impending election, Hunt was challenged with bridging the gap of what he wanted to do, and what fiscal headroom permitted him to do.

The Chancellor has been consistent with his belief and message that those that can work should, and that a willing and impassioned workforce is the key to unlocking sustained economic growth. This Spring budget was another opportunity to introduce further measures which incentivise a return to work. The headline cuts to National Insurance were identical to those delivered in the previous Autumn Budget, meaning the NI rate will be reduced by a further 2p from 10% to 8%. Officials calculate this will be worth an average £450 a year to 27 million workers. Hunt will present this as a material and sizeable tax cut. However, this falls short of what large sways of the public want, and importantly, feel they need. A popular discussion topic triggered by the Autumn budget was fiscal drag, a term which explains increased personal income tax liabilities caused by inflation and subsequent increased earnings and static income tax thresholds. This is in mind; an income tax adjustment would have been the preferred method of tax relief. There is, however, speculation that the Chancellor has left this available for further fiscal manoeuvring ahead of the next election. Timing can often prove to be crucial with an election just around the corner.

The Chancellor believes the success achieved in tackling inflation will soon convert to economic growth. Placing particular focus on the strength of the UKs technology sector, Hunt echoed his words from his first budget as Chancellor, stating the UK is on track to become the ‘world’s next Silicon Valley’. Recognising the important role of venture capital in stimulating the growth of technology businesses across the UK, Hunt identified the importance of these companies not just starting here, but also staying here. The Mansion House Pension reform appears to be the Chancellor’s initial solution to bridging the gap between growth and scale up capital. A funding stage the US has historically outperformed the UK in achieving. The Chancellor continues to show his passion and understanding of the UK start-up economy and its role in rejuvenating the UK economy. A sentiment further reinforced by the introduction of the new British ISA, carrying all the same tax benefits as the existing ISA, and encouraging more people to invest in UK assets.

The Chancellor also identified the importance of the creative industry and its role in delivering future economic growth. Hunt proudly stated that the UK has become Europe’s largest film and TV production centre, with studio space doubling in the last 3 years. At the current rate of expansion, the UK is on track to be second only to Hollywood in terms of studio space in the next year. This growth has been further encouraged by the Chancellor and the introduction of a 40% relief on growth business rates for all eligible studios in the UK. Such measures highlight the Chancellor’s conviction in the creative industry and the crucial role it will play in pathing the way to economic stability and growth.

The measures and commitments introduced by the Chancellor in this Spring budget to facilitate further growth across key sectors, including technology and entertainment, demonstrate a clear synergy between the government’s long-term plan for economic growth, and the investment strategy of the Calculus EIS & VCT. With a focus on the intellectual property rich sectors of technology and life science, and the rapidly growing creative industry, the Spring statement further endorses and validates our belief that Calculus investors are gaining access to the companies driving the UK’s ability to grow as global R&D powerhouse, as well as a creative and entertainment hub.