Mini budget: stroke of genius or gamble that will backfire?

23 September 2022 - New Chancellor Kwasi Kwarteng gave a not-so-mini mini budget on Friday. In what he described as a “new approach for a new era” he pledged to “turn a vicious cycle of stagnation into a virtuous cycle of growth.”

The government, he said, has three central priorities: reforming the supply side of economy; maintaining responsible public finances; and cutting taxes to boost growth.

Small businesses were the big winner, with tax cuts and incentives for investors – including added commitment to SEIS, EIS and VCTs

See current VCT offers here 

By accelerating infrastructure projects, and further announcements expected in the coming weeks on the planning system, business regulations, agricultural productivity and digital infrastructure, among other things, there will also be other opportunities for investors.

And of course, for individuals, there were tax cuts too – to stamp duty, national insurance, basic rate income tax and abolishing the additional higher rate of 45%.

The Chancellor said that “tax is not just about raising revenue for the public sector but is also central to solving the riddle of growth.”

Darius McDermott, managing director of Chelsea Financial Services, said:

“The mini budget was basically a huge piece of fiscal stimulus. It will be welcomed by most parts of the population as everyone is struggling with the cost-of-living crisis, and it is good for small businesses, but it has added considerably to the nation’s debt.

“The tax changes will put more money back into people’s pockets, but it won’t help bring inflation down,” continued Darius. “So, interest rates will need to rise further.

“If interest rates go up further, gilt yields will follow. So, I don’t think it’s time to get back into bonds yet. Why would anyone invest in a gilt today when you can get a higher yield tomorrow without the capital losses? We’ll need interest rates to plateau before fixed income becomes a buy again.

“Accelerating infrastructure projects could result in opportunities and the measures announced for small businesses, combined with the added commitment to SEIS, EIS and VCTs, means there is an excellent incentive for high-net-worth individuals to invest in small business today.”

Four funds to consider:

VT Gravis UK Infrastructure Income 

VT Gravis UK Infrastructure Income invests mainly in investment trusts exposed to different types of UK infrastructure - from railways and roads to GP surgeries and solar power. It has an income target of 5% per annum, which is distributed quarterly, and offers exposure a less volatile and higher-yielding area of the UK economy.

Schroder Digital Infrastructure 

It’s hard to argue against the logic of this fund. It seeks to take advantage of the ever-increasing demand for digital infrastructure and the sustainable transition to a digital economy. It holds around 40 stocks invested around the world in a mixture of emerging and developed markets. 

Cohen & Steers Diversified Real Assets 

While this fund is a relative newcomer to the UK market, it has the backing of Cohen & Steers’ depth and breadth of expertise. It offers investors a single destination for a range of inflation protecting assets, built with an eye on diversification, as well as returns. It should also offer investors a return profile very different to other funds out there. We believe this makes it a compelling choice, especially in tough inflationary environments.

Liontrust UK Micro Cap 

This fund applies the team's proven ‘economic advantage’ investment process to micro-caps - a part of the market that tends to be under-researched. Investing in Britain's smallest businesses, the alignment with management, focus on capital-light firms which can scale quickly, and emphasis on company meetings are all very sensible. The team's track record with other funds that use this process is outstanding.

Published on 23/09/2022