Ever since Labour stormed to victory in the general election, it has been making the case it has inherited a sluggish economy and a set of public finances in tatters.

Now, the latest GDP figures for the UK suggest the former isn’t strictly true, while the latter is arguably being used to lay the groundwork for potentially unpopular tax rises to be announced at the upcoming Budget in October in order to bolster those public finances.

Already Labour has tightened the belt with various allowances either being scrapped or put under consultation. This has led to much speculation about what could be next, with inheritance tax (IHT) being touted as one area ripe for raiding.

Removing this relief could raise £1.1bn in the current tax year, with this rising to £1.6bn by the end of the decade

In particular, some are suggesting business relief on AIM shares should be removed to help raise revenue. Currently, if you hold investments in qualifying AIM companies for at least two years before you pass away, the assets are passed on free of IHT.

The Institute for Fiscal Studies estimates removing this relief could raise £1.1bn in the current tax year, with this rising to £1.6bn by the end of the decade. Not a huge amount and won’t help too much in addressing the chancellor’s £22bn ‘black hole’ but sizeable nonetheless.

That said, in the lead up to the election and soon after, Labour made economic growth a priority. Given AIM’s bias towards UK small- and medium-sized growth companies, removing the IHT benefits would somewhat go against this.

Firstly, any changes would likely be consulted on, giving people time to shift strategies and move assets away from AIM and into other investments or vehicles for mitigating IHT.

Over the past 29 years, more than £135bn has been raised by over 4,000 companies on AIM

This would have the subsequent effect of dragging share prices of these growth companies lower and eroding value in the UK stock market – hardly a positive incentive at a time when UK capital markets are already under intense pressure.

AIM has been a fantastic proving ground for a number of companies and there are a number of success stories, despite recent performance struggles. Over the past 29 years, more than £135bn has been raised by over 4,000 companies on AIM. It may be home to small-caps, but it has been a mighty contributor to UK GDP growth, innovation and employment over the years.

You have companies such as Breedon Group, a construction company based in Leicestershire, which listed on AIM in 2010 before moving to the main market last year. There are household names, such as Jet2 and YouGov, which have flown the flag for AIM over the years. Meanwhile, we are seeing a spate of acquisitions of AIM companies as private equity and corporates recognise their value at what are fairly depressed levels.

Any removal of investor incentives could harm these companies providing popular and vital services but which remain at an early stage in their growth.

Quality companies, regardless of their size, have enduring characteristics

We are also at a juncture in markets where small-cap stocks have a great opportunity to outperform. Rate cuts are beginning to be implemented, inflation is seemingly under control and AIM is coming off a tough couple of years. The companies of the future need to be nurtured, and while not every company in AIM benefits from an IHT premium, the whole market will be hit indiscriminately as a result of any changes.

Given investing is for the long term, and business relief comes in after just two years, it reasons that a number of people are not invested in AIM solely for the purpose of mitigating an IHT bill. It is important the government remembers that when deciding its next steps.

For advisers and investors with exposure to AIM, the best thing to do right now is keep calm and carry on. AIM has its IHT benefits and these will not be taken away overnight, but careful planning will still be needed to mitigate the tax implications for clients.

Let’s hope the government agrees and gets behind its own growth agenda

Most importantly, though, investing in AIM should not be considered solely as an IHT play. It remains an exciting and intriguing investment opportunity, particularly for clients with longer time horizons, giving them access to quality and well known companies that have the potential to grow and perhaps join the main market one day.

Quality companies, regardless of their size, have enduring characteristics. AIM is home to a number of these companies, so it is important growth is not stifled but embraced. Let’s hope the government agrees and gets behind its own growth agenda.

Amisha Chohan is head of small-cap strategy at Quilter Cheviot

Michael Jackson’s estate has initiated legal proceedings against a former associate of the late pop icon, who threatened to raise fresh allegations of inappropriate conduct just as it hopes a big-budget film will banish the child sex abuse claims that shadowed his later years.

The man and four others told the estate in about 2019, a decade after the singer’s death, that they might go public with allegations that he had acted inappropriately with some of them when they were children. 

In 2020, the estate quietly struck a previously unreported settlement worth nearly $20mn, under which the man and the other accusers agreed instead to defend Jackson’s reputation.

Now, the people managing Jackson’s music and image rights are accusing the man of fabricating his earlier claims while seeking to extract $213mn more in a new settlement with the estate, according to an arbitration claim. They have reported the matter to the US Attorney’s Office in Los Angeles.

Jackson’s estate is asking an arbitrator to award damages, order the accuser to abide by the terms of the 2020 deal and issue an injunction barring him from releasing details he previously agreed to keep secret.

The episode illustrates how Jackson’s interactions with children, which led to a criminal prosecution and at least one out-of-court settlement, continue to hang over his estate years after his death in 2009 from an overdose of sedatives and anaesthetic. The Jackson estate maintains the singer never engaged in inappropriate conduct with children.

The estate, which was initially $500mn in debt, has since amassed more than $3bn — a figure revealed by its executors in an interview with the Financial Times for the first time.

The change of fortunes has come through the sale of his music catalogue, a Broadway musical and Cirque du Soleil shows. The beneficiaries are Jackson’s three children, his mother and charities.

In an interview, John Branca, a longtime Jackson aide who co-manages the estate, said: “The time has come to stand up, take a stand, tell Michael’s story.”

The man allegedly making the claims against the Jackson estate did not respond to repeated requests for comment. He is not being named by the FT.

Jackson is one of the most successful but controversial figures in pop music history, springing to fame as a five-year-old with a soaring voice on the pop, soul and funk songs performed by his family band, The Jackson 5. He went on to record Thriller, which remains the best-selling album of all time more than 40 years after its release.

But he was also accused on multiple occasions of inappropriate conduct with children, beginning in the 1990s and continuing until his prosecution in 2005. Though the accusers’ accounts were at times contradictory and Jackson was acquitted in the court case, the allegations took a toll.

When he died, Jackson’s will gave Branca and music executive John McClain the responsibility of managing his estate. Branca has spent the past decade and a half working to restore the singer’s troubled finances and his complicated legacy.

The strategy suffered a setback after HBO’s 2019 documentary, Leaving Neverland, which featured the graphic accounts of two men, Wade Robson and James Safechuck, who alleged Jackson abused them as children.

Shortly after, the five unnamed accusers — who were not featured in the Neverland documentary — made their allegations. According to Jackson’s estate, the man had previously denied Jackson ever engaged in inappropriate conduct.

The estate agreed to settle those claims under what it has described as a “business decision”. The settlement deal, signed in January 2020, was styled as a purchase of their life rights and a consulting agreement, with each of the five accusers to receive $3.3mn over six years.

Since then, it is claimed, each of the accusers received $2.8mn. But in January, before the final $500,000 payment was made to each of them, the man notified the estate that he no longer planned to abide by the agreement, and that he was seeking $213mn in new payments.

The claim is that the man’s lawyers demanded a “substantive response” to their overture for more payments, and warned they would “be forced to expand the circle of knowledge” if the ultimatum was not met.

The demands came at the time the estate was finalising terms for the $600mn sale of a 50 per cent stake in Jackson’s music catalogue to Sony, valuing the total package at $1.2bn. The accuser’s lawyer asked the estate if it had disclosed his claim to Sony, raising the spectre of risk for the new owners of Jackson’s music and potentially affecting the deal’s value.

When Jackson died, his estate was saddled with debt after years of unsuccessful business practices and profligate spending.

Progress has been uneven in digging out of the hole; the Broadway show has grossed $216mn, according to Broadway World. But in the aftermath of Leaving Neverland, according to Branca, national commercials with Nike and two banks that each paid $1mn to $2mn a year evaporated and attendance at MGM’s Cirque show dropped for an extended period.

The estate laid low for a few years but is now taking a more assertive approach as it seeks to defend Jackson’s name. The biopic is being directed by Antoine Fuqua, with actor Miles Teller playing Branca.

“We survived Leaving Neverland but I’m not sure we could have with those additional allegations,” Branca said. His lawyers, he said, told him: “You have no choice. If these people come forward and make these allegations, then Michael is over, his legacy is over, the business is done.”

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Volkswagen faced further pressure over its Xinjiang links as British parliamentarians called on the UK government to investigate the carmaker’s compliance with the country’s slavery laws following a Financial Times investigation into an audit of its factory in the Chinese region.

The FT on Thursday reported that the audit, which VW claimed cleared it of allegations of forced labour in Xinjiang, had in fact failed to meet international standards.

Sarah Champion, Labour MP and chair of the international development select committee, said: “There needs to be an investigation not only into Volkswagen but into supply chains of most major products.”

Champion, who is calling for stronger UK legislation to crackdown on forced labour in international supply chains, added that companies were turning a blind eye to human rights abuses in their supply chains as they prioritised commercial gains.

Liam Byrne, another Labour MP and chair of the House of Commons business and trade committee, said the issues with the audit provided “fresh evidence for why we need to quickly overhaul the UK’s modern slavery laws to deliver far tougher transparency through the supply chains of big firms”.

He urged the UK to introduce legislation similar to the US Uyghur Forced Labor Prevention Act or usher in a facility inspection regime that would give UK customers, suppliers and investors the protections they “want and need against the abuse of forced labour”.

Conservative MP Sir Iain Duncan Smith, co-chair of the hawkish Inter-Parliamentary Alliance on China, said he was planning to table a parliamentary question demanding that ministers examine the German company’s compliance with the UK’s Modern Slavery Act.

“Following the FT’s report, I am calling on the government to carry out a thorough investigation into VW’s supply chains,” Duncan Smith said.

Human rights groups in Xinjiang have documented widespread abuse against the mainly Muslim Uyghur ethnic group, with reports that hundreds of thousands of people were detained in the region from 2017 to 2019. Beijing has denied allegations of human rights abuses.

Under the 2015 slavery act, companies that supply UK customers must annually disclose what action they have taken to ensure no modern slavery exists in the business or its supply chains.

After pressure from human rights groups and investors, VW in December said that it had carried out an audit of its plant in Xinjiang, which is run by a joint venture with state-owned SAIC.

It said that the audit, carried out by Berlin-based consultancy Löning and an unnamed Chinese law firm, had applied the internationally renowned SA8000 standard and found “no indications of any use of forced labour”.

But a leaked document, which was also reviewed by Der Spiegel and ZDF, showed failures to comply with the standard.

The plant in Xinjiang has become a headache for VW amid growing tensions between Beijing and several western governments, including the US. Earlier this year, thousands of Porsche, Bentley and Audi cars were held up in US ports after a discovery of a Chinese subcomponent in the vehicles that breached the country’s anti-forced labour laws.

VW executives have remained reluctant to close the plant, which no longer produces cars and only employs 197 people, as this would risk harming the company’s lucrative relationship with SAIC.

It could also hurt the company in China, where consumers in the past have boycotted brands that acknowledge controversies in Xinjiang that Beijing vehemently denies.

Chinese consumers boycotted brands including H&M and Nike three years ago after they pledged not to buy Xinjiang cotton — a scenario that VW, which has already been losing share in its most profitable market, has been careful to avoid.

VW did not immediately respond to a request for comment on the development in the UK. The carmaker on Thursday said that it “always complies with legal requirements in its communications”, adding that “investors or the public have never been deceived”.

The UK Department for Business and Trade did not immediately respond to a request for comment.

Investors seeking to buy into OpenAI’s latest $6bn-plus funding round are making an unprecedented bet that the ChatGPT-maker will become the world’s dominant artificial intelligence company and be worth trillions of dollars.

The San Francisco-based start-up is finalising a new fundraising valuing the company at $150bn. Thrive Capital, Josh Kushner’s venture capital firm, has already provided at least $1bn to the company in recent weeks, according to people with knowledge of the deal.

OpenAI aims to raise an additional $5bn or more. Apple, Nvidia and Microsoft — the three most valuable technology companies in the world — are in talks to join the funding round. Others seeking to invest are New York-based Tiger Global and United Arab Emirates-backed fund MGX, according to multiple people with knowledge of the discussions. The deal is expected to close imminently.

However, other leading tech investors, including Andreessen Horowitz and Sequoia Capital — Silicon Valley’s top venture capitalists and existing OpenAI backers — are sitting out of the round, according to people with knowledge of the matter.

Investors in the deal said it was highly unusual in its scale and structure. Venture investors such as Thrive and Tiger typically write far smaller cheques for less established start-ups, hoping for 10 to 100 times their money back.

To achieve such a return with OpenAI, the company would need to grow in the coming years to become worth at least $1.5tn; larger than Facebook parent Meta and Warren Buffett’s Berkshire Hathaway.

Many are persuaded it will. “We’re talking about the path to building a trillion-dollar company,” said a partner at an investment firm that has backed OpenAI. “I don’t think this is unreasonable.”

The advent of generative AI represented “the biggest platform prize since cloud or the internet”, worth multiple trillions of dollars of economic value, they said.

Despite the huge scale of the fundraising, OpenAI has not struggled to attract demand, according to people with knowledge of the deal. As well as writing its own cheque to OpenAI, Thrive is also launching a special purpose vehicle through which other institutions can take a stake in OpenAI, they added.

The lofty hopes for OpenAI are remarkable even for Silicon Valley, where only a handful of Big Tech groups have grown to become trillion-dollar giants. Other big investors are sceptical that the OpenAI deal makes financial sense.

“How would you ever get to a venture-style return on an investment of this sort?” asked the chief investment officer of a US foundation. “I’m not sure what the maths is there, or if there is any maths.”

OpenAI, Thrive, Tiger and Sequoia declined to comment on the deal. Andreessen did not respond to a request for comment. MGX said it had “been continuously engaged in discussions with partners around the world regarding investments in the technology space”.

To achieve the desired returns on investment, OpenAI will need to overcome fierce competition from the wealthiest tech companies in the world such as Google and Meta. It must find the resources to train ever-more expensive models and manage the transition from a fast-growing, chaotic start-up to a corporate behemoth.

OpenAI’s revenues have shot up to about $3.6bn on an annualised basis since the launch of ChatGPT almost two years ago, according to people with knowledge of the group’s finances. But it is still burning through well over $5bn a year and is “not close to breaking even”, as it invests in new models and products in a bid to stay ahead of competitors.

While the cost of training cutting-edge models has winnowed competition, it also obliges start-ups to perpetually seek new investment. Billions more in capital would give OpenAI an edge over Anthropic and Elon Musk’s AI start-up xAI, both of which have raised multibillion-dollar rounds in recent months.

“I don’t think there are going to be 20 foundation model companies, certainly not unless costs come down,” said another investor in OpenAI. “You either win or you fade into obscurity and become MySpace.”

More important still could be closer ties to strategic investors. “[OpenAI] have Microsoft, the biggest enterprise company on the planet. If I could pick another partner it would be Apple, the biggest consumer company on the planet,” said one investor in the company.

“I’m walking into a gunfight with Google and Facebook and I have Microsoft and Apple behind me. It’s not such a bad thing from a distribution and branding perspective,” they added.

Others are deterred by the eye-watering scale of investment and fearful of being overly exposed to a single company. Both Sequoia and Andreessen have also invested in xAI rather than going all-in on OpenAI.

In addition, there are concerns about whether OpenAI can sustain its aggressive growth. The company was rocked by a boardroom crisis last November, in which chief executive Sam Altman was first ousted and then reinstated over a five-day period.

Plans to simplify OpenAI’s unique corporate structure, which came under scrutiny during that crisis, are being discussed. The current fundraising is not contingent on a restructure, according to multiple people with knowledge of the situation.

OpenAI has shed several senior researchers this year, including three of the group’s 11 co-founders. It has also been drawn into a string of legal battles — including high-profile cases against Musk, another co-founder who left in 2018, and the New York Times.

There are also signs of strain in the group’s relationship with Microsoft, which has committed $13bn to OpenAI and hitched its AI strategy to the start-up’s success. The companies are increasingly competing for customers, while Microsoft is building its own consumer AI team under Inflection founder Mustafa Suleyman and has designated OpenAI as a “competitor” in its annual report.

OpenAI’s backers say the company’s growing pains are typical for a hot start-up, drawing parallels to the early tumult at Google and Apple.

They point to a string of new hires, including Sarah Friar, OpenAI’s first chief financial officer, and a revamped board packed with corporate experience as a sign of a more sober approach.

“The stakes are high,” said one investor. “But there has never been a company that has both a dominant enterprise position and a dominant consumer position early on . . . this type of business tends to be ‘winner takes most’: you’re not going to have two ChatGPTs on your phone.”

Additional reporting by Stephen Morris in San Francisco

How will the U.S. Interest rates cut affect you?

The recent announcement from the US Federal Reserve as they made a significant cut to interest rates of 0.50% points marks the largest reduction in interest rates since 2020. Typically, the Federal Reserve adjusts rates by just 0.25 percentage points at a time, so this half-point cut is a substantial move designed to have a noticeable impact on the economy.

The cut brings the federal funds rate to a range between 4.5% and 4.75%, the lowest it has been in two years.

Their goal with this cut is to stimulate the US economy, encourage businesses to and consumers to borrow more money at lower rates. This should lead to more spending and in turn economic growth.

Why have interest rates been so high?

Interest rates in the US and globally have been at a record high over recent years due to a combination of pressures. COVID-19 caused economic disruptions and the supply chain issues that followed caused a surge in inflation in the US and globally. Consumer prices have been rising for goods like groceries, fuel and housing which has prompted the Federal Reserve to act.

They raised interest rates in several increments, hoping to cool down spending and borrowing, which in turn could help bring inflation under control. When borrowing costs increase, both consumers and businesses tend to spend less, slowing economic growth and reducing inflationary pressures. Over the past year, the federal funds rate had been raised to around 5%, one of the highest levels in decades.

This has had a substantial effect on the economy, the housing market has begun to cool due to higher mortgage rates and businesses pulling back on investments. Inflation has began to moderate as the Federal Reserve begins their balancing act to ensure inflation doesn’t reignite whilst avoiding a recession.

Why have they cut interest rates now?

While inflation has eased in recent months, there are concerns that the high interest rates were beginning to stifle growth too much. By making borrowing cheaper through this significant 0.50 percentage point cut, the Fed aims to boost both consumer spending and business investment. This recent cut should support economic growth in the US for 2025.

Lower interest rates can make it cheaper for businesses to expand, hire more employees, and invest in new technologies. For consumers, this can mean more affordable loans for things like homes, cars, and education. As borrowing costs decrease, individuals are more likely to take out loans, which in turn can drive up demand for goods and services, helping to boost the economy.

With reduced interest rates, consumers might feel more confident about making big-ticket purchases, such as homes or cars, knowing their monthly payments will be lower. In turn, this renewed confidence and spending can have a ripple effect, encouraging businesses to expand and invest more heavily, further stimulating the economy.

How the rate cuts affect the typical US family

This rate cut has several implications for US families, particularly when it comes to managing everyday expenses. One of the most immediate effects will be felt in mortgage rates. Families looking to buy a home or refinance their current mortgage may see lower interest rates, which can significantly reduce monthly payments. A 0.50% reduction in interest rates can translate to thousands of dollars saved over the life of a mortgage, making homeownership more affordable.

Those with credit card debt or personal loans may notice lower interest rates on their outstanding balances making it easier to manage repayments. Financing a new car or making large purchases will become more affordable as loans will be more accessible. This will allow families to have an increase in spending money which will be poured into the economy through purchases and days out.

How global markets are affected

Changes in U.S. monetary policy often ripple through global markets, and countries like the UK could be affected. For instance, the UK’s financial markets often move in tandem with the U.S., particularly in terms of bond yields and currency exchange rates. If U.S. interest rates decline, it can weaken the dollar, making other currencies like the British pound stronger in comparison. This can affect UK exports, making British goods more expensive for U.S. consumers.

US rates can also promote central banks such as, the Bank of England to consider their own policy adjustments.

The next announcement

the next major Federal Reserve decision is set for November 7th, just after the U.S. elections. The timing of this announcement has sparked debates about how political and economic factors will intersect. Many are questioning whether future rate cuts will continue or if the Fed will pause to reassess the state of inflation and economic growth post-election.