Philip Hammond, chancellor of the exchequer, today laid out his plans for the future of the UK economy in the Autumn Budget 2017.
With Brexit, the deficit and public services and welfare all under the microscope, the chancellor offered a “balanced budget to prepare the UK to tackle the challenges of Brexit head-on.
The budget, while tempered and criticised for being ‘boring’, offers the UK a glimpse into what the nation will be like after Brexit. Mr Hammond jabbed and prodded at the Labour party over inherited economic problems, while offering a chance to reduce borrowing and make the average British life easier with a healthy dose of conservative realism.
Investing in the future
Stuart Veale, managing partner, Beringea says, “We welcome the changes Chancellor Hammond has announced in today’s Budget to support fast-growth businesses.
“As the response to the Financing growth in innovative firms: consultation makes clear, the UK is seen globally as a “place for growing businesses to obtain the long-term patient finance they need to scale up”. We are delighted that the government recognises the positive economic impact that Venture Capital Trusts (VCTs) have had. It is clear from the review that VCTs are a very effective source of Patient Capital and support the growth of the UK economy. In fact, companies currently backed by the VCT scheme have created 27,000 jobs since the date of the first investment by a VCT.
“We are also glad to see a recognition that more needs to be done to support British businesses at the scale-up stage alongside supporting the thriving funding ‘ladder’ at earlier stages – including SEIS, EIS and VCTs. In particular, the Budget addressed this by announcing that the annual investment limit for knowledge-intensive firms will be doubled from £5 million to £10 million through the EIS and by VCTs. We believe this will begin to address the funding gap for growth capital which is most acute for companies seeking between £5 million and £20 million.”
Sacha Bright, CEO of businessagen, agrees, saying, “Hammond’s budget today will be welcomed by the alternative investment community. More money to the British Business Bank is likely to feed through to the peer-to-peer (P2P) community and changes to EIS and VCT investments are about trying to encourage more direct investing in genuinely entrepreneurial companies which is what crowdfunding is all about.
“It seems clear that the government is targeting large sums of money invested in tax-vehicles, rather than growth company investment vehicles, with the EIS and VCT changes. This makes it awkward for some investment managers for whom tax efficient investment in so called ‘safe investments’, where the risk to your capital investment is minimised as much as possible, has been highly profitable. In effect HMRC policing of the types of companies that are eligible for EIS and VCT funds will be stricter and this may put off many current investors who prefer some degree of reassurance from their high risk growth company investment.
“But for those investors looking for long term growth in young, entrepreneurial companies the changes should be welcomed. Increased limits could make a big difference and whilst the tap of money from fund managers may temporarily reduce in flow, there appears to be an awareness and support of the role that crowdfunding has to play in funding these companies. All in all we think the news today has been positive for young, growing companies, particularly those in the digital space; direct investment is being encouraged and government funds are being deployed.”
Caroline Elston, european grants manager, for ayming adds, “This October, the European Commission’s website made it clear that UK applicants will no longer be given access to funding from the Horizon 2020 once the UK leaves the EU. And importantly, funding will be pulled out from current projects across the UK.
“The knock-on effects of this are severe. Horizon 2020 is crucial to a huge number of scientific and technology based research projects in the UK, ranging from personalised medicine and big data to environment and climate change projects.
“If the government does not push on constructively with negotiations and begin determining a deal, whether that be a transitional arrangement or a clearly defined agreement, hundreds of research projects risk losing their funding on June 19th 2019.
“Not only does this jeopardise funding for UK-led projects but, without a predetermined agreement, it will also push UK participants out of wider European projects. Once again, this will send immediate shockwaves of risk and uncertainty to UK research and technology organisations, and indeed to our European partners who regularly integrate UK participants into their research projects.
“The government must give these projects more security by providing guarantees and taking steps to ensure funding will not be withdrawn. Hammond also needs to look at ways to provide funding for projects that will no longer be able to receive Horizon 2020 funding.”
Economic growth to stall?
The biggest takeaway from the budget would be the slashed forecast in growth. The OBE growth forecast for 2017 was reduced retrospectively from two per cent to 1.5 per cent, with GDP reduced to 1.4 per cent, 1.3 per cent and 1.5 per cent in subsequent years before rising to 1.6 per cent in 2021-22.
Productivity growth and business investment also revised down from previous estimates. On a slightly brighter note, another 600,000 people are set to be in work by 2020 to help contribute to the economy.
In response to the Autumn Budget 2017, Simon Browning, tax partner at UHY Hacker Young in Nottingham, says, “With the cloud of Brexit hanging over us, it is worrying to see the reduced productivity and growth forecasts as low as 1.3 per cent and 1.5 per cent over the coming years. Wage inflation could be limited as a result of this and it will have a knock-on effect in terms of business confidence.”
Ed Molyneux, CEO and co-founder of FreeAgent, adds, ‘It’s important to note that the UK’s growth forecast has been slashed, which is a clear indication of the economic uncertainty we are currently facing as we get closer to our exit from the EU. Our own research has found that 70 per cent of UK micro-businesses think that Brexit will have a negative impact on the economy – with half believing the economy will get worse over the next six months – so there is obviously a lot of concern within this sector. The Budget is therefore a missed opportunity to provide some much-needed relief and reassurance to these five-million business owners, who make up the backbone of the economy.’
The announcement focused heavily on the potential ladder that technology offers Britain after Brext, allowing them to move into other markets and exploring entirely new opportunities.
James Kitching, solicitor in the corporate team at Coffin Mew, says, ‘This was very much the budget for tech, start-ups, and scale ups. However, the development of new technologies, such as autonomous cars and AI, is very much at the mercy of our legal and regulatory systems. Already there are issues with how fast these kinds of ideas can advance while there are questions about insurance and liability. While producing an environment for greater investment in future technologies is a start, the law needs to adapt to allow our nation to lead the way.
‘There is talk of making a friendlier regulatory environment but with the fast pace of change, this needs to happen sooner rather than later. Hopefully Philip Hammond and the government recognise this and the ideas in the budget are a start of greater things to come.’
Agreeing with this sentiment, David Galsworthy, CEO and co-founder of Techspace, says, ‘Today’s move by the government is critical for the growth of scaling technology companies in the UK in the coming years.”
“After the Brexit vote there’s been a lot of uncertainty around what would replace the European Investment Fund. With the promise of a new £2.5 billion investment fund, the government is seeking to help the UK’s scale up companies bridge the funding gap and help them grow into the next technology unicorns.
“This is welcome news in a post-Brexit UK tech economy.”