Capital gains tax hike will cripple investment, Peel Hunt boss warns as budget concerns grip the city

Steven Fine doesn’t mince his words on the budget – especially when it comes to capital gains tax (CGT).

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

That’s hardly what Britain needs if it wants to encourage risk-taking and investment, says Fine, chief executive of city estate agent Peel Hunt.

“These types of tax increases would send the opposite message to entrepreneurs around the world and to investors in our capital markets,” he says.

He urged the Chancellor ‘not to take such a damaging step and stifle investment’.

CGT is levied on the gain 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 increasing the levy would damage the attractiveness of supporting growing British businesses.

“What’s the point of investing,” Fine asks, if the profits made for the risk of doing so are taxed so heavily.

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

“I’ve probably never had so much anticipation or expectation around the budget in my career,” said Fine, 58, who is married to Jacqueline and has three children and four grandchildren.

He suspects that the Chancellor’s dire warnings about the contents of the budget could be a case of expectation management. Then it ‘may be a bit too smart’, he fears.

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

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

But it has been a tough time for the sector – amid a lack of deals and stock market listings that provide them with lucrative commission income in healthier times.

Concerns about what Reeves will pull out of her red box on Oct. 30 only make that worse.

‘It has had a huge impact. You can see the slowdown in activity in anticipation of what will or won’t happen in a budget that has perhaps been the most anticipated for a few generations. I think this has created something of a pause in the markets.”

And it has interrupted the city’s comeback, Fine says. ‘I really believe we are in a new cycle’

he adds. “We’re in the early stages – it’s probably been six or seven months and I think if it wasn’t for this upcoming budget – which at least has a fixed date – you would have a bit more momentum, it’s just a pause taken.’

It is striking that the London junior market Aim lags no less than 15 percent behind the broader London market.

The slump came amid speculation that an inheritance tax discount for Aim shares – designed to encourage investors to fund smaller British companies – could be scrapped.

On the other hand, the pound has strengthened, bond markets have been calm 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 feels like the stars have aligned,” he says, “but it requires forethought, something that has been lacking in recent decades.”

Yet Labour’s insistence that the country is committed to a growth agenda does not match the impression that it wants to ‘raise a lot of taxes and stop growth’.

Hence the heightened anticipation ahead of the budget to see if – and how – the chancellor can deliver.

If so, Fine argues that it could, in a clever way, unblock the ‘constipation’ holding back the UK’s pipeline of initial public offerings (IPOs).

Investors in private equity funds are clamoring for exits by bringing companies to market – but the demand must be there first.

“While there isn’t a substantial pipeline in the near term, the potential is probably as good as I’ve known it to be,” Fine says. ‘Something has to be done.’

Fine says his investment bankers are “as busy as they’ve ever been.” He adds, “I think they work hard on a lot of situations. IPOs are later. That valuation problem must solve itself.’

Much needs to be done, he argues, including pension reform – and stopping the ‘terrible’ outflow of funds from the UK stock markets.

Another aim is to nurture British achievements and foster innovation rather than allowing it to be swept away by foreign owners. That could be helped if pension funds invest more in Britain.

He says: ‘I’m passionate about the fact that there needs to be more pride in what we do here in this country.

We’re very, very good at a lot of things, we talk ourselves down a lot – we’re world class at moaning, it’s probably a function of the weather.’

So much depends on the budget, including what is not included, such as the CGT changes.

“It could be a somber statement, it could be an astonishing revelation of packages that will change the way we look at Britain,” he says.

The temporary dip in market activity ahead of the budget will all be forgotten if the latter turns out to be the case. A three-month delay ahead of what could be a massive rebound would be fine.

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