Michael Moore’s Outlook on plans for growth
In the UK the most keenly awaited political events, outside election time, are statements by the Chancellor of the Exchequer.
Other events may have more prestige and quite a lot of significance. Not least the government’s legislative programme for the next year of a parliament. And the Prime Minister’s speech at his or her party conference.
But when a Chancellor oversees a ‘fiscal event’ it is guaranteed attention on a different level (most of the time). The reason is simple - the amount of tax we pay can change on the day of the announcement; the outlook for growth in the economy and the level of government borrowing have a direct effect on confidence; and expectations about inflation, and the impact that has on interest rates, matter, too.
Time was when a fiscal event happened once in the year at ‘the Budget’, usually in the Spring. But now the ‘Autumn Statement’ has achieved almost equal status and rivals it for detail and immediacy, as we saw with the National Insurance tax cuts announced just recently.
It’s no longer just a moment to clarify the direction of fiscal travel and set out high level thinking on future policy changes. Instead, it’s a time to make announcements every bit as significant as those contained in its March rival.
Last year, not that you will have forgotten, the newly-appointed Chancellor, Jeremy Hunt, spent an hour at the despatch box undoing the work of his immediate predecessor, Kwasi Kwarteng. The latter’s ‘mini-Budget’ had quickly entered folklore for its unintended significance, not least its negative impact on the financial markets. The term ‘mini-budget’ has earned pejorative connotations from which it may never recover, though that is no doubt least amongst the lasting effects.
‘Stability’ was Mr Hunt’s watchword a year ago. But scroll forward 12 months, and as he oversaw his third fiscal event, his new word was ‘growth’. There’s a reason for the switch.
Not to put too fine a point on it, the short-term growth outlook in the UK is not as bright as the country needs it to be. The Office for Budget Responsibility, which independently assesses the measures in Budgets and Autumn Statements (and whose work Mr Kwarteng wished to put to the side), published new figures in November, materially downgrading expectations for next year and the year after.
Low growth rates are not a new reality, it must be said. But the Chancellor’s clear prioritisation of growth measures in his remarks (welcomed by his opposite number, Rachel Reeves) indicated a desire to change both the story and the substance for him and the country.
To underline his point, Mr Hunt mentioned ‘growth’ on 29 occasions, a frequency only beaten in his hour long address by ‘investment’ (33) and ‘tax’ (39 – well, it was a fiscal event after all…). He mentioned that there were 110 growth measures that he was announcing, but stopped short of enunciating each one of them there and then (thankfully).
Suffice to say, there was a lot to interest us in the private capital industry directly (through the pension reforms which are designed in part to deliver more capital for us to invest) and indirectly (via the full expensing of investment and the rowing back on earlier R&D tax credit reforms, both of which will help portfolio companies).
The specific measures aside, the key point was momentum – keeping things moving to get DC pension capital into the industry’s funds, where it can be deployed to deliver growth, drive up productivity and produce strong returns for savers.
Mr Hunt announced that 11 financial institutions are now signed up to the Mansion House Compact. And with proposed reforms of local government pension schemes, a total of £75 billion of investment funding is in prospect. Alongside that commitment, over 80 firms are now signed up to the BVCA’s Investment Compact for venture capital and growth equity.
Combined, that means there is serious intent to make the pension capital reform project work, and finally solve the conundrum of why UK pensions invest so much less in UK venture and growth funds than their international counterparts. We are already partners for growth for policymakers and now have a chance to change the scale of the growth we can offer.
So, watch out for progress at the next fiscal event – handily, like those London buses I mentioned last month, we won’t have long to wait until the Budget is upon us. Time to get cracking.
Michael Moore
Chief Executive, BVCA
This article was originally published on 5 December 2023 on the Private Equity News website here.
