The Chancellor, Symvan and the Productivity Puzzle
The folks at Symvan were watching the budget yesterday with no preconceived expectations, but we were slightly surprised that the Chancellor did not continue a long-standing attack on pensions, which has been a bit of a sport of late. It is worth noting that there were no changes to tax-efficient investing in this budget. However, there were two points of interest for those interested in divining future developments concerning EIS and VCT investing and it is quite possible that we will see more action on this front in the autumn. The first point of interest involves the Chancellor in the role of the economist and the other in his role as the accountant. To judge strictly by the headlines, we feel that the Chancellor was primarily wearing his economist hat yesterday. He is painfully aware of the main challenge to the UK economy – poor productivity growth – which has been very weak since the financial crisis almost ten years ago and seems destined to continue its weakness almost irrespective of how Brexit negotiations conclude. Here is the Chancellor in his own words: "Mr Deputy Speaker, This House knows, that the only sustainable way to raise living standards is to improve our productivity growth. Simply put, higher productivity means higher pay. The stats are well known. We are 35% behind Germany and 18% behind the G7 average. And the gap is not closing. Mr Deputy Speaker, Investment in training, and investment in infrastructure, will start to close this gap and this government places addressing the UK’s productivity challenge at the very heart of its economic plan. ... Today to enhance the UK’s position as a world leader in science and innovation, I am allocating... £270 million to keep the UK at the forefront of disruptive technologies like biotech, robotic systems and driverless vehicles." The aformentioned 35% gap to Germany is clearly of concern to the Treasury, and it is clear that there will be future funds for training and infrastructure investment. In fact, when is the last time you remember hearing anything different in a budget? However, we do not always hear praise being heaped on disruptive technologies such as robotics and even driverless vehicles - a sector close to Symvan's heart as one of the members of our Investment Committee is at the forefront of this revolution. This quite clearly states that the Treasury sees tangible economic benefits from the sectors that we are involved with, and the Chancellor has been very explicit that there will be continued government involvement in promoting these industries in a bid to improve the nation's lagging productivity problem. Less pronounced, but equally interesting, was the Chancellor with his accountant hat prominently on display. Of particular interest to the EIS/VCT market is the following: 3.13 Patient capital review – The review aims to ensure that high growth businesses can access the long-term capital that they need to fund productivity enhancing investment. Alongside identifying barriers to institutional investment in long-term finance, the review will also consider existing tax reliefs aimed at encouraging investment and entrepreneurship to make sure that they are effective, well targeted, and provide value for money. Source: HM Treasury Spring Budget 2017 This is clearly a Chancellor who appreciates long term trends in labour and product markets and the nature of the evolving workplace. For instance, although some criticism has been levelled against him on business rates, one gets the sense that he will continue to approach the ‘Amazon-versus-Bricks and Mortar’ debate with some panache. In a similar vein, we believe that he will approach the question of tax-efficient investing in a pragmatic fashion, but probably one that is quite discriminating in what it considers eligible for tax relief. At a recent visit to HM Treasury that I attended, they were quite clear that not all sectors would be treated equally, and that they were very pleased with how effective they believe EIS and SEIS has been in generating investment into growth sectors such as technology. At that visit, they also confirmed that EIS will be included as part of this review and a consultation will take place in May 2017 with a view to making recommendations which will then be announced at the Autumn Budget 2017. To conclude, there were no short term headlines on the EIS/VCT front yesterday, but do not be too surprised if the 'productivity puzzle' is at the heart of the next round of changes to EIS/VCT legislation.