Economic growth is the hot topic of 2023. All political parties are talking about it, and all have a plan to accelerate it.
All parties also agree that early-stage companies are the engine of innovation and growth in the UK. They drive job creation and foster technological advancements.
But, despite all the talk, policies with the biggest impact on early-stage startups, who are the lifeblood of the future UK economy, continue to be met with deafening policy silence.
This silence needs breaking this week, in the Autumn Statement.
For almost 30 years, two government schemes have been instrumental in funding UK growth – Venture Capital Trusts (VCT) and the Enterprise Investment Scheme (EIS).During this period, the VCT and EIS schemes have evolved to become Europe’s top growth policies.
Not only have the schemes played a pivotal role in providing our early-stage companies with billions of pounds in capital each year, but our competitor economies want to emulate our success. This year, France has copied the blueprint and previously Ireland has too, while other countries are debating it.
But, at a time when our schemes are internationally revered and economic growth is recognised as critical to our future, these benchmark policies are at risk.
The VCT and EIS schemes were created to encourage private investment into early-stage businesses. They each offer generous tax reliefs for UK taxpayers, to encourage us to fund these companies.
We’ve created a model for early-stage success, and there’s a reason why we’re in front when it comes to early-stage company investment in Europe
VCTs give investors access to a portfolio of early-stage businesses, which are seen as higher risk investments. In doing so, they incentivise investors for taking this greater risk with up to 30% upfront income tax relief, tax free dividends and tax free growth. Similarly, the EIS scheme allows investors to get the same upfront income tax relief as with a VCT and potentially loss relief if the investment fails.
The tax incentives have served as magnets for investors. In the 2022/23 tax year, VCT investment exceeded £1 billion for the second year running, proving that these schemes are a vital resource for young companies and the investors that support them. In the same period, over £2.5bn was invested through the EIS scheme by UK taxpayers.
Over almost 30 years, companies backed with VCT and EIS capital have created thousands of jobs throughout the UK, and several have gone on to become unicorn tech successes. Quite simply, we’ve created a model for early-stage success, and there’s a reason why we’re in front when it comes to early-stage company investment in Europe.
But the schemes come with a catch – known as the ‘sunset clause’. The clause was introduced as a requirement by the EU as the schemes were considered a form of state aid.
The Government has the power to extend or remove the sunset clause by secondary legislation beyond 5 April 2025 and, despite confirming it supports the schemes, it hasn’t yet acted on its words.
As the April 2025 deadline draws closer, the lack of firm action confirming the schemes risks damaging the UK startup ecosystem. Without these schemes, the UK tech will lose billions of pounds in funding overnight.
Many are looking to the Autumn Statement for clarity on this extension. With a general election looming, this is one of the last major fiscal announcements where the Government can restore confidence on the topic.
With all the talk about the UK becoming a ‘science superpower,’ cutting incentives for fast-growth tech companies would be counterproductive at best, and outright harmful at worst. The UK is already home to some of the world's brightest tech talent, but our position as leaders on the global stage is potentially at risk.
It is imperative we seize the opportunity to cement our position as Europe’s incubator of innovation and entrepreneurship, by extending these schemes, or removing the sunset clauses altogether. By doing so, we’ll ensure the UK continues to be a beacon for aspiring entrepreneurs, and remains at the forefront of global innovation, for years to come.
Seb Wallace joined Triple Point in 2017 and works in the Investment team, where he specialises in early stage venture capital investments.