Philip Hammond’s November Budget didn’t excite the press, says Michael Wilson. So what were we expecting, a full-on circus extravaganza?

Sometimes it’s hard to know what the world expects of a Chancellor of the Exchequer, especially on Budget Day. Should he exude quiet capability, or stand there blaring like a loudhailer with the volume turned up to 11? Should he go all out to trumpet his brilliant achievements, or should he simply thank his hardworking team and get on with the advancing slog?

Most of all, the papers tend to ask, where are the sweeteners in the Budget speech? Where are the headline-grabbing giveaways, the vibrant slogans, the last-moment rabbits pulled out of the hat in order to send the commentators home with big smiles on their faces?

That’s where Mr Hammond differs from his flashy predecessor George Osborne, who could never bear to finish a Budget speech without producing a surprise bunch of flowers from the tip of his Montblanc pen. Or, indeed, a welter of measures: by some estimates, Osborne’s last Budget speech carried 77 separate initiatives, compared with 40 in Hammond’s spring Budget and barely 30 in November’s address. (There were more to be found in the printed fine detail.)

But the point was, this chancellor wasn’t wearing a ring-master’s fancy regalia. It wouldn’t have looked good anyway, considering that the fanfares were falling a bit flat, the bears were growling ominously, the tigers were already out in the audience, and some of the other onlookers were plainly keeping an uneasy eye on the exit door. No, this was an occasion for sobriety. Which was exactly what we got. With just enough good jokes to keep it palatable.

Act One: The economic outlook

It says a lot for this chancellor that he didn’t try to dodge the problems with a lot of high-falutin’ language. As the Financial Times’s excellent Robert Shrimsley put it, his “economicky words” (a ministerial in-joke) “were not overly technical. They included such complex jargon as “stubbornly flat”, “regrettably” and “continues to disappoint”.

It’s hard to argue with that, but you’ll have seen the statistics yourself, so let’s move on quickly. The honourably independent Office for Budget Responsibility (established, to his credit, by George Osborne) had dropped its growth forecast for this year from 2% to about 1.6%, and its forecast for 2018 from 1.6% to about 1.4%.

Given that Moody’s had already downgraded the UK’s credit rating back in August, and that sterling had weakened significantly since the Brexit vote, it probably wouldn’t have made sense to duck the OBR’s assumptions for productivity growth, which were due to drop from around 1.5% this year to 1.3% in 2019/2020 before returning to 1.6% by 2022.

But then, that wouldn’t have been Spreadsheet Phil’s style anyway. And nor would it have fitted his other moniker, Box Office Phil (surely ironically intended?) The point we’d make here at IFA Magazine is that Britain’s business partners in Europe would rather have it straight from Hammond’s honest mouth than from a dozen razor-tongued self-publicists. If Theresa May were to fall under an NHS bandwagon bus next year, there’s no doubting who they’d like to see batting for Britain. Are we allowed to say that?

Act Two: Personal finance

Readers, unless your clients are heavily into universal credit, which we doubt, the ramifications of this particular Budget will have been largely confined to the impact on higher earners.

Income tax brackets moved largely in line with inflation. Tax rates remained un-tinkered-with. Even pensions were (perhaps surprisingly) untouched, apart from the long-trailed progression of the lifetime allowance, which rose from £1 million to an inflation-adjusted £1.03 million. There were no changes to ISAs, and no fancy new investment vehicles, and….hang on, what’s this?

Act Three: Risk investing and patient capital

The Chancellor’s changes to the risk investing regime were announced so sotto voce, and so briefly, that we at IFA Magazine spent hours debating whether he had in fact opened his mouth on the subject at all. If you’d coughed at the wrong moment you’d have missed it. But the implications for risk investing are significant nevertheless.

You won’t need reminding (will you?) that, for the last eighteen months or so, the Treasury has been debating a new regime for risk investment, known as the Patient Capital Review. To put it succinctly, HMRC had become concerned that investors and scheme administrators were weaselling their way around the adventurous intended scope of the Enterprise Investment Scheme parameters, by setting up ‘ultra-safe’ instruments that kept the investor risk to a minimum. Which was not what the concessionary tax environments for EIS and VCT were meant to do at all.

For the last 15 months or so, the debate has raged as to whether EIS investors should be allowed to build ‘safe’ risk investments that centred on property or capital-rich operations, or which sought to offset any such risks through large up-front tax rebates which would all but negate the risk. And the final consultation process, which had ended in September, had given rise to the final Patient Capital recommendations, to which the Chancellor was due to respond on Budget Day.

He duly did so, although not immediately obviously. Let’s explain.

On the plus side (for investors), the Chancellor doubled the allowable EIS limit for investors in “knowledge-intensive companies” from £1 million to £2 million – which means, at 30% upfront tax relief, that your clients can obtain a maximum £600,000 from next April, instead of £300,000 at present. The Treasury is well aware that EIS is an attractive way of soaking up the money that would once have gone to a pension fund, but which has been forced to decamp now that the lifetime allowance has been slashed.

That’s the obviously welcome news. The Treasury thinks that around 4,000 investors a year will want to take advantage of the increased limit from next April – and it says that as much as £7 billion a year more may be raised for early-stage enterprises as a result.

There’s more good news for Venture Capital Trusts, which will effectively be able, like EIS, to put in £1million a year. But again, the rules were not entirely clear at the time of writing.

Is low risk still bad?

Time will also tell as to whether the Chancellor’s changes to the EIS entitlement in “knowledge-intensive companies” are in fact a full response to the reservations that HMRC had expressed about EIS tax exemptions being used for low-risk investments instead of the higher-risk vehicles that the original inventors of the EIS scheme had envisaged?

Looking back to the Treasury’s August consultation paper, “Financing Growth in Innovative Firms”, it’s a little difficult to see how the Budget’s patient capital reforms have made it harder for investors to dodge the higher-risk requirements. Part of the problem lies in the Chancellor’s use of woolly terms like ‘knowledge-intensive’ and ‘low-risk’ without cleanly spelling out what he means by them – are we to assume that the current range of low-risk options will still be available, but up to the existing £1 million limit?

In practice, we suspect that the essential details will emerge only slowly as to how the Chancellor intends to put the squeeze on the cowboys. What his statement does do, however, is to fully address the August paper’s expressed need for covering an estimated £4 billion funding gap between US and British firms – and, with luck, it should create more and better ways for start-ups to access the financing they need.

Act Four: The crackdown continues

Elsewhere, as you’d expect from any self-respecting Chancellor, the onslaught against tax-dodging by both British nationals and foreigners is set to continue. Mr Hammond told us that the more than 100 new measures since 2010, both by himself and his predecessor, have raked in a rather impressive £160 billion.

For foreigners and especially non-doms, the pressure comes from measures to chop the tax losses to certain offshore trusts, and the obligation to pay capital gains tax on UK property purchases from April 2019. (A move which has frightened the London property market quite a bit. Although it specifically excludes purchases by pension funds)

For UK nationals, some of the pressure will come from the double rates of council tax charging on vacant properties. More, however, can be expected from an enhanced crackdown on bogus self-employed workers who disguise their employee status under a tax-effective cloak of self-determination. Not to mention new measures against offshore companies that pay salaries via non-repayable loans that wangle their way past the tax laws.

More controversially, the Chancellor declared his intention to require that VAT should be collected at the point of purchase whenever consumer purchases are made online (so as to tackle tax-evading overseas sellers). Now, that might be a more courageous step than it sounds – how do you force the rest of the world to comply with your own extraterritorial demands? But it sounded good on the day. Let’s see how it fares during the parliamentary debate stage.

Act 5: Regional budgets, infrastructure and health

You’ll have heard, perhaps, that Mr Hammond chose in this Budget to reinstate one of George Osborne’s ideas, the so-called Northern Powerhouse, which the former chancellor launched amid considerable hoopla, but which had been all but buried in Hammond’s spring Budget.

That fits the political bill on a number of levels – firstly because it carries a promise of self-determination for regions which do not particularly love London at the moment. Secondly, because the provinces outside the M25 have been generally under-represented in government schemes hitherto but are in fact heavily represented by the EIS and high technology investment sector. And thirdly, because there are currently genuine needs for better infrastructure north or Birmingham. (And often south as well.)

One major area of infrastructural development, you’ll be glad to know, is the National Health Service, which has probably had time to resign itself to the unlikelihood of getting Boris Johnson’s £350 million a week after we leave the EU.

It may not have been a complete coincidence that that Mr Hammond declared the award of £350 million as a one-off payment to address this winter’s special seasonal pressures. Or maybe it was intended as irony. But otherwise the Chancellor’s figures looked slippery to us. On paper, the gist of it was that as much as £10 billion was to be sunk into a capital investment fund for hospitals; it was just a pity that nobody else seemed convinced that that was what he had promised. And anyway, it wasn’t clear that the £10 billion would come from government coffers – it might just as easily have been from PFI investment.

Anyway, the English NHS is to get another £2.8 billion a year (no obvious mention of Scotland, Wales or Northern Ireland); that in turn is less than the £4 billion that the doctors, nurses and administrators had been demanding, but you have to get your comfort wherever you can find it.

Act 6, the grand finale: Housing

Will all of this generate new potential for infrastructural and construction companies? And ae we going to see government cash going into major public construction projects? Motorways, airports, or even the odd rail line expansion? There seemed to be more bluster on this topic than you might have expected – but yes, he said, there would be £1.7 billion for urban transport, £2 billion for the Scottish government (all functions), £1.2 billion for the Welsh government (ditto) and £650 million for the Northern Ireland executive.

He declared that councils should be able to use more public land, and that it should be easier to force construction on land that developers were holding back for future capital gain. Some five new garden cities are to be built by 2050 – but gosh, that’s a long way away, so there’s no need to cost it.

But onward to the only real rabbit that Mr Hammond had brought along in his top hat. We already knew that the best-trailed measures in this year’s Budget was the government’s intention to build 300,000 homes a year. With £44 billion of loans and guarantees behind them!

Admittedly only by the mid-2020s, as it turned out, but as a statement of intent it was impressive anyway. And, according to the housing charities, it was a better response to the housing shortage than George Osborne’s help to buy programme, which had been accused (not entirely unfairly) of helping to drive up house prices rather than helping to make them affordable.

But the rabbit, when it appeared, was more like a mouse with a megaphone. To hear the fairground barker’s declaration that first time buyers would get 100% exemption from stamp duty on properties worth £300,000 (or to £500,000 in London, of which the first £300,000 will count), you might have concluded that this was a big deal and a major boost to the property scene.

In practice, however, the Treasury thinks it will produce only 3,500 additional sales. Which, according to our calculations, would be around £1 billion worth of extra money available for the nation’s housing stock. Which is not much, to tell you the truth. But it made for some good headlines on the day.

As the year moves toward its end and we approach the crucial phase of the Brexit showdown, it’s comforting to know that our Chancellor still has the ability to please the crowds with at least a little bit of feelgood sleight-of-hand. Send them on their way with a song in their hearts and a rousing chorus echoing in their ears. It never fails.

What did you make of the Budget? Have we been too hard on the Chancellor? And how do you see the Patient Capital trend evolving? Email me at editor@ifamagazine.com, and tell us what you think.