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Private markets to gain from UK mini-budget

·2 min read

The UK's controversial mini-budget could hold some good news for private markets as it slashes taxes in a bid to bolster the British economy.

Despite its diminutive name, the mini-budget—the first drawn up by new finance minister Kwasi Kwarteng—is ambitious. Headline policies include scrapping a 45% income tax rate for high earners, removing a cap on bank bonuses, and reversing a 1.25% tax increase on national insurance.

While cutting taxes seems to be the main tool for mitigating a cost-of-living crisis impacting both individuals and businesses, the new budget also includes plans aimed at incentivizing investors—private equity and venture capital among them. Here are some of the highlights: Corporation tax hike canceled Starting April 2023, the tax on company profits was to increase by 6%, a move that would have impacted many private equity firms and their portfolio companies. However, the new budget cancels the increase, maintaining the current 19% rate.

When the tax hike was first revealed by former finance minister Rishi Sunak in early 2021, it was described as "fair and necessary" for companies to contribute to the post-pandemic recovery. That thinking has since changed. Tax relief for early-stage vehicles expanded The government will extend tax relief on investment vehicles including venture capital trusts and enterprise investment schemes. These vehicles were previously subject to a sunset clause which prevented them from qualifying for tax relief after 2025. There are also plans to increase the amount that companies can raise through seed enterprise investment schemes from £150,000 to £250,000. Meanwhile, the annual investor limit is to be doubled to £200,000. Incentives for tech investment and R&D As much as £500 million is being offered to funds backing science and tech businesses through a Long-Term Investment for Technology & Science competition. The Treasury said that after consulting the industry in a process led by the state-backed British Business Bank, the government will call for proposals from "promising fund structures and vehicles" by the end of the year, with a view to distributing funds in 2023. Pension fund reform to boost private markets investment The budget confirmed plans to reform the pension charge cap in order to increase investment by pension funds into UK assets, including private markets funds. This is not the first time the UK government has put forward these plans. In October last year, Kwarteng's predecessor Sunak detailed plans to review a fee charge cap of 0.75% on employees' defined contribution pension schemes, aiming to increase investment in long-term assets.

Featured image of UK Chancellor of The Exchequer Kwasi Kwarteng by Carl Court/Getty Images

This article originally appeared on PitchBook News