David Prosser: Helping the market to pick winners is not so simple

 

Outlook Still on the theme of robbing Peter to pay Paul, one can't help but notice that the £975m cost of next year's fuel duty concessions is, according to the Treasury's balance sheet, identical to the gains being made from cancelling child tax credit increases. The poorest families are, in other words, subsidising all drivers.

 

All budgets have winners and losers, of course, but this autumn statement, more than most Treasury pronouncements, is an exercise in moving money around – the macro-economic effects will be very limited.

Still, this is an interventionist statement from a Conservative Chancellor who would, in ordinary times, presumably prefer to leave these matters to the free market. A good example of that is the package Mr Osborne unveiled to encourage investment in the smallest businesses: the seed enterprise investment scheme and more incentives for business angels.

The reliefs on the former are certainly generous (so much so they may, even discourage investments in the existing enterprise investment scheme over the next 12 months). However, the Treasury costs that relief at a maximum of £50m a year, which suggests it doesn't expect huge take-up.

The history of this sort of initiative is somewhat chequered, with a tendency to write the rules too loosely, paying investors more than theydeserve for risking their capital, or too tightly, in which case take-up isminuscule. Venture capital trusts, for example, launched in 1995, have been tinkered with ever since (there were more changes to the rules yesterday) in order to strike the right balance.

Offering tax incentives to investors who back start-ups is an attempt to stack the risk versus return equation in favour of entrepreneurs. It is a noble intent, particularly given Britain's all-too-regular failure to reward enterprise. But it is very difficult to get right.