Parliamentary report highlights woeful funding for start-ups but fails to highlight tax change
Susannah Streeter, chief investment strategist, Wealth Club: ”Britain might be known for the rain, but what we are seeing is a drought of investment across the economy. This report highlights the woeful level of funding available for small and medium sized businesses. Starved of liquidity the risk is that many of the brightest and best entrepreneurs fail to see their innovations take off. The ever-changing tax landscape creates unpredictability and is creating real and present dangers for the scale up ecosystem.
Disappointingly this report failed to shine the spotlight on one of the most damaging changes to the start-up ecosystem – the reduction in tax relief for investment in Venture Capital Trusts. While the government claims it wants to support entrepreneurs and growth, reducing the tax relief available from 30% to 20% has done the opposite.
The effect on the industry has been stark. VCT business through Wealth Club, the largest broker of VCTs is down 46% since April, when the changes came in, compared to the same period last year.
VCTs had been one of the UK’s most successful long-term investment schemes, supporting thousands of growing businesses and contributing meaningfully to employment and economic expansion.
The projected tax revenue gain is relatively small – around £120m per year – yet already damage is being wreaked on this essential ecosystem for start-ups and scale-ups. It will have an insidious knock-on effect on growth and job creation, ultimately reducing the longer-term tax take.
Wealth Club investors had already flagged that this tinkering around would stymie investment. 42% of investors surveyed said they planned to stop investing in VCTs altogether, with a further 44% intending to scale back. Less investment into VCTs means less funding for the high-growth businesses that drive innovation and job creation in the UK. If the government wants to supercharge investment in the UK and growth, it needs to ensure investors are incentivised – not discouraged – from backing early-stage companies.”