Capital gains tax hike will cripple investment, Peel Hunt boss warns as budget anxiety grips city

Steven Fine pulls no punches on the budget, especially when it comes to capital gains tax (CGT).

Rachel Reeves is reportedly planning to increase CGT on Budget shares by “several percentage points” from the current rate of 20 per cent.

That’s not what Britain needs if it wants to encourage “risk-taking and investment”, says Fine, chief executive of city brokerage Peel Hunt.

“A tax increase like this would send the opposite message to entrepreneurs around the world, as well as investors in our capital markets,” he says.

He urges the Chancellor “not to take such a damaging step and stifle investment.”

CGT applies to profits from the sale of assets, from shares to second homes, at different rates depending on the type of asset.

City figures such as Fine warn that raising the tax would erode the appeal of supporting growing British businesses.

“What’s the point of investing?” Fine asks, if the risky gains from doing so are so taxed.

It’s one reason why, as Fine says, Reeves’ tax debut later this month has the financial world on edge.

“I’ve probably never felt so much expectation around the budget in my career,” says Fine, 58, married to Jacqueline, three children and four grandchildren.

He suspects the Chancellor’s dire warnings about what the Budget could contain could be a case of expectation management. If so, “I might be too smart,” he fears.

Peel Hunt advises 145 public companies with a total value of £125 billion. Four of them are in the FTSE 100 and 42 are in the FTSE 250 mid-cap.

It’s what Fine says puts his company in the “engine room of the UK economy”, more so than rivals focused on either FTSE 100 multinationals or purely small-cap stocks at the other end.

But it has been a difficult time for the sector, amid a dearth of stock market deals and listings that, in healthier times, provide them with lucrative fee income.

Concerns about what Reeves will pull out of his red box on October 30 only make matters worse.

‘It has had a huge impact. You can see the slowdown in activity sooner than what may or may not happen in a Budget that has been the most anticipated in perhaps a couple of generations. “I think that has caused a bit of a pause in the markets.”

And it has disrupted what was shaping up to be a comeback for the city, Fine says. “I really believe we are in a new cycle,”

duck. ‘We’re in the early stages; it’s probably been going on for six or seven months now and I think if it weren’t for this impending budget, which at least has a fixed date, we’d have a little bit more momentum, it’s just taken a pause.’

In particular, London junior market Aim has underperformed the broader London market by up to 15 per cent.

The drop came amid speculation that an inheritance tax exemption for Aim shares, which was designed to encourage investors to fund smaller British companies, could be scrapped.

On the other hand, Fine notes, the pound has strengthened, bond markets have been quiet and UK growth has outperformed its G7 rivals in the first half of this year, while the Government is also making welcome noises. on regulatory reform.

It could be an opportunity for Britain to “reassert itself”.

“It seems as if the stars are aligning,” he says, “but it requires a vision of the future that has been missing in recent decades.”

However, Labour’s insistence that it is committed to a growth agenda is at odds with the impression that it wants to “raise a lot of taxes and stop growth”.

Hence the greater expectation before the Budget to see if – and how – the Chancellor can deliver.

Doing so, Fine argues, could, in a choice phrase, unlock the “constipation” holding back Britain’s IPO pipeline.

Private equity fund investors are clamoring to get out there by bringing companies to market, but first there must be demand.

“While there is no significant near-term pipeline, the potential is probably as good as I’ve seen it,” Fine says. “Something has to give.”

Fine says his investment bankers are “busier than ever.” And he adds: ‘I think they are working hard in many situations. IPOs are later. That question of valuation has to resolve itself.”

Much remains to be done, he maintains, including pension reform and stopping the “horrendous” outflow of funds from UK stock markets.

Another aim is to value British achievements and encourage innovation rather than letting foreign owners destroy it. This could be helped if pension funds invested more in Britain.

He says: ‘I’m passionate about the fact that there should be a greater sense of pride in what we do here in this country.

We are very, very good at many things, we convince ourselves a lot; we’re world class at complaining, it’s probably a function of the weather.’

A lot depends on the Budget – even what is not in it, such as the CGT changes.

“It may be a splash of water, it may be a stunning revelation of packages that will transform the vision of the UK,” he says.

The temporary blip in market activity in anticipation of the Budget will be forgotten if the latter turns out to be the case. A three-month slowdown before what could be a gigantic rally would be nice.

We will look back and think “so what?” But a three-month slowdown because you can’t do what you were elected to do or what you said you would do for whatever reason will result in another long period of inactivity.’