VCTs were also addressed by a rollback of proposals that were seen by the industry as restrictive. Instead the Budget confirms that the government will seek to introduce as quickly as possibly in the next Parliament legislation that will enable VCTs to use a different definition of smaller company, increasing the employee limit to 100 or 250 employees, with a gross assets limit of £15m before investment or £16m after, and an annual investment limit of £5m for qualifying companies.
Funds in the IMA UK Smaller Company sector might be thought of as beneficiaries, but it is not that clear cut, according to Trustnet Alpha Manager Dan Nickols who runs the Old Mutual UK Select Smaller Companies fund.
While broadly welcoming of any moves to boost the SME sector, he notes that the proposals chiefly seem directed at companies that would be off radar as far as his portfolio goes – because he generally requires a market capitalisation of at least £100m.
Giles Hargreave, another Trustnet Alpha Manager who runs the Marlborough Special Situations fund, says the turnaround on previously announced changes is a good gain for the VCT sector.
"The new rules were a bit ridiculous," he says.
However, he adds it would have been better overall if the government had announced a rise in the tax relief to 50 per cent - in line with the new top rate of income tax of 50 per cent.
"If the tax break had been higher you would have had a lot of money going into VCTs next year. They've done it half cocked."
Trustnet Alpha Managers in UK Smaller Companies sector
Source: Financial Express Analytics
Patrick Reeve, managing partner at VCT provider Albion Ventures, is positive on today's news.
He says that the Budget essentially confirms the government has accepted the need – as lobbied for by the British Venture Capital Association, the Association of Investment Companies (AIC), and others – for the UK to adopt a different definition of small companies for the purposes of VCT and EIS investments.
"It's a big positive," he says.
"What it says is that VCTs and EISs have a proper role in filling the equity gap [identified in the Rowlands Report published by the Department for Business Innovation & Skills in November 2009]," Reeve says.
Nickols adds that other measures announced today may have a bigger impact on particular portfolios of smaller companies funds.
One is the commitment to push state owned RBS and Lloyds to lend more than £90bn additionally to the SME sector – in conjunction with promises to push the FSA to speed up the issuing of licences to new banks entering the UK market.
And the moves on stamp duty on first time buyer properties – with the threshold for the nil rate doubled to £250,000 – would be interesting from the perspective of stocks such as property search engine Rightmove, which Nickols has in his fund.
The subscription business model means there may be no direct flow through from a greater turnover of first time buyer properties among the estate agents using the service, but overall it is a move that could remove the log-jam facing the bottom end of the property market.
Overall it is another move that at the very least does not damage the UK residential property market. Nickols says otherwise he is seeing a steady recovery in estate agents’ businesses.