Was Gordon Brown the true investors’ champion?

For incentivising risk capital, Gordon Brown comes out on top
For incentivising risk capital, Gordon Brown comes out on top - Mathieu Polak/Sygma
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After I mourned the lack of growth stocks on the London market three weeks ago, I was on the lookout for any radical initiatives in Jeremy Hunt’s Budget that might improve their supply.

He said pension funds would be required to disclose to what extent they invested in London-listed shares, to “focus minds” and boost investment in Britain. Gosh!

Individuals will be offered a new “UK Isa” with a £5,000 annual allowance, on top of the existing £20,000 stocks and shares Isa allowance, if they invest in “British” stocks (to be defined in a way not yet decided).

If that focuses on companies listed, domiciled and with a majority of operations here, yes maybe it will provide a modicum of help, although individuals own only around 10pc of Britain’s quoted shares, against 20pc in 1985.

But if it chiefly allows the already wealthy to shelter a bit more from tax, often invested conservatively for income in the likes of BP and Shell – or, heaven help us, in British American Tobacco – how does that reinvigorate risk capital for new businesses in Britain?

Annual contributions to Isas have been frozen at £20,000 since 2017 so this new £5,000 is effectively an inflation-linked adjustment that restores what we used to be able to put aside, if with strings attached. It illustrates “fiscal drag”, where the tax take increases even when the nominal threshold doesn’t change.

Hunt also reaffirmed the Government’s commitment to a sale of its one-third stake in NatWest this summer, presumably in the hope that it would revitalise “Sid” from the 1986 British Gas flotation campaign.

Privatisations back then were really significant in getting me and others into direct share ownership after an initial dabble in funds. But they coincided with a rising stock market, helped (some would say) by the Thatcher government tempering inflation and by cutting income tax rates – initially in 1979, then in three successive Budgets from 1986 to 1988.

It all came together such that most weeks there was at least one “new issue” coupon to cut from a newspaper for a slice of the action.

The Government is doing the right thing by offloading NatWest. As I explained two weeks ago, it is already modestly rated for earnings and yield. The public sale is likely to price it a bit more keenly. But mass participation, if it happens, looks likely to be an isolated event; there aren’t any other obvious candidates for privatisation in view.

What is needed is for owners of dynamic businesses once again to regard the stock market as the prime place to be, instead of under the wing of a private equity group or working towards a trade sale.

Can the current Tory party re-incentivise share ownership?

At least this Budget did not make investors wince under another turning of the screw, as when the Tories raised dividend taxation in 2022 and cut the annual allowance for capital gains tax from £12,300 to £6,000 in April 2023 – it will fall again from £6,000 to £3,000 in a month’s time.

This week Hunt even reduced the CGT rate on second and further homes, from 28pc to 24pc, which he said should improve residential supply. A dilemma I feel with the Tories – even though the party should be my political home – is that they continually make property their economic priority. This fixates people around bricks and mortar instead of growth businesses.

The Budget did indeed help small to medium-sized firms by extending until March 2026 the post-Covid recovery loan scheme that makes up to £2m available per business – the £200m extra funding is said to aid 11,000 businesses.

Absent nowadays, however, is the crusade for “wider share ownership” as a wealth spreader that originated with the Liberals before the Conservatives.

The benefits go beyond quoted shares to private companies whose share-owning employees, by receiving dividends, would be incentivised to see the overall firm prosper rather than regard it just as a means to be paid a wage. Something of the kind happened to me just the once but the dividend stream amply justified holding the shares after my involvement with the company had ended.

Gordon Brown took bold initiatives on tax

For incentivising risk capital, I would put Brown top – or in second place after Margaret Thatcher, who radicalised share ownership.

Brown declared in his first Budget in 1997: “For those who build businesses or stake their own hard-earned money in them, the long-term rate of capital gains tax will be reduced from 40p to 10p in the pound – the lowest rate ever achieved.”

It was a balanced approach, with capital allowances on plant and machinery doubled for one year for small to medium-sized firms.

He then introduced “taper relief” such that the gain liable to CGT would reduce the longer an asset was held, with a 10pc rate on business assets after 10 years. I am probably appreciative of Brown after a holding in Dana Petroleum “10-bagged” over such a timescale – after it was taken over I got the CGT relief. But it was the right thing for Brown to do – it fostered a long-term approach.

His next actions were to shorten the business asset taper to four years to be “more into line with entrepreneurial investment patterns” and to reduce the percentage thresholds for business asset holdings to qualify.

And in 2002 he shortened the minimum holding period for business assets to attract maximum taper from four years to two. I recall this seeming to be a significant incentive to own Aim-quoted shares, which typically qualified, although much care was needed to avoid the tax breaks tempting one into flaky companies.

Labour then flip-flopped at Alistair Darling’s first Budget in 2008 – he withdrew taper relief and introduced a flat rate of CGT at 18pc irrespective of how long the asset had been held. The justification was “simplifying” the tax system, a weasel term not unknown to Tory chancellors either when taxes are stealthily raised.

In fairness, the CGT rate nowadays ranges from 10pc for individuals who pay the basic rate of income tax to 20pc at the higher rate. You could say that pales into insignificance relative to ensuring one is invested in growth companies that can effectively compound their intrinsic value – assuming one can find such stocks nowadays and avoid paying inflated prices for them.

The current Business Asset Disposal Relief – where CGT is charged at 10pc, subject to a lifetime limit of gains totalling £1m – is also similar to Brown’s taper relief for qualifying business assets, but you would need to check individual Aim-quoted shares, for example.

Some would say investors have nothing to complain about – the Government has given them tax-free “wrappers” by way of self-invested personal pensions (Sipps) and Isas, which nowadays can also hold Aim-quoted shares. High-risk investment in emerging companies is well incentivised if you plan effectively.

But losses – which will happen – cannot then be offset against gains elsewhere. Take care putting risky shares in a tax wrapper; it can take years to build up with contributions yet is easily undermined by enthusiasm for the risky side of the market.


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