Changes to carried interest, non-doms and wealth tax rumours are putting investors under pressure. Time for Rachel Reeves to adopt a more pragmatic, pro-growth approach, says Michael Moore
In her October Party Conference speech, the Chancellor Rachel Reeves declared that ‘If growth is the challenge, investment is the solution’.
She is right.
The Chancellor has shown commitment to delivering that.
In recent months we have seen a boost to public sector investment and infrastructure, action on regulatory reform focused on growth, an Industrial Strategy that is clear on long-term priorities, and pension reforms to boost investment into private assets.
Private Equity and Venture Capital are ready to invest.
2024 saw a 44 per cent increase in private capital investment on 2023 in the UK to £29.4bn. Something which should be celebrated.
But we are approaching an inflection point where the question of whether this is only half the story will need answering.
At the Budget the Chancellor felt she needed to address the very real fiscal challenge she inherited. But the measures, however necessary, presented significant challenges to investor sentiment.
The changes to taxation of carried interest, whilst more pragmatic than many feared, must still be seen alongside other measures.
In its current form, the abolition of the non-dom regime, partially inherited from the previous government, risks making it harder for international investors to come into and out of the UK to do business.
Higher national insurance contributions for employers hit the profitability of many UK firms. And the increases to capital gains taxes and reductions in entrepreneurs relief sent negative signals to investors and founders.
Investors are feeling under pressure. The opposite of the intention which underpins much of the Chancellor’s agenda.
Everybody recognises the difficult fiscal position. And that working people’s incomes are tight, so the government must be mindful of the burden it places there.
Yet nobody, including in Downing Street, denies that growth needs investment funded by UK and international capital.
As we head into an awkward summer of Budget speculation, we urge a renewed focus on the pragmatic and the pro-growth.
In particular, loose talk of a ‘wealth tax’ is hitting investor confidence – for founders, entrepreneurs and their private equity or venture capital backers.
An ill-defined tax on assets cuts across the competitiveness message from government. To ensure that the UK is open for business, the government must find a way to make their rejection of this idea explicit.
