Ahead of the upcoming Autumn Budget, the Chair of the VCTA, Chris Lewis, shares his thoughts on what changes we need to see. He outlines the VCTA’s focus on growth, citing their recent open letter which calls for an increase to VCT and EIS investment limits.
Meanwhile, the VCTA’s Summer Policy Paper suggests a broader set of policy changes which would ensure that VCTs are able to reach their full potential. Chris discusses the VCTA’s proposals for change and speaks positively about the collaboration between the VCTA and several other industry bodies.
Focus on growth
VCTs turned 30 years old earlier this year. There has been a lot of focus on them in recent times, but a specific update to the rules in November’s Budget is long overdue. Since last year, we’ve been working hard with the Treasury and other industry associations to prepare the ground for this year’s budget. This Government has a massive focus on growth, but growth is difficult to force without being organic – and VCTs are key enablers of growth across the UK’s SMEs.
There are several factors to this, but a key area is the VCT and EIS scheme. In a recent policy proposal from VCTA to the Treasury, we proposed four main asks, which are all about the rules.
We can’t change the rules without the Government and Treasury picking up their pen and changing the legislation. All MPs are very supportive when we speak to them individually. The challenge is for HM Treasury to focus on the industry’s proposals for updating and strengthening the scheme.
The VCTA’s proposals for change
Our proposals are fourfold. One is about the amount of money we can invest, as the investment limits haven’t changed since 2016 – so, clearly, they’re in need of an update. Another relates to age limits which need to be increased so we can reach more of the UK’s ambitious SME businesses. The current limits have become restrictive in terms of today’s economy as there often isn’t enough time for businesses to get going, which is detrimental to the whole venture space.
Next, the AIM market needs more liquidity and more enthusiasm, and finally there’s a load of red tape, which is long overdue. For example, there’s one rule in the book that says that VCTs can’t generate too much bank interest. This is forcing the VCTs to move cash from an interest-bearing account into a non-interest-bearing account, simply because there’s a rule that says you can’t earn too much interest. Even the Treasury agrees that this rule is out of date, but it can’t change until there is a wholesale redraft of the rules.
For now, we’ve focused our ‘Growth Beyond Limits’ campaign on the investment limits, because it is the proposal that everyone can get behind without having to delve into the rule book. Very soon, those investment limits are going to be 50% eroded by inflation, which means that the industry’s investment power is half of what it was in 2016 without a penny increase in the amount of money we can invest since then.
Everybody we meet says, “That makes sense, let’s get it changed,” so we are actively working with the Government, the MPs, the House of Lords, HM Treasury and the business founders that are already benefiting from VCT and EIS investment. The VCT and EIS schemes are fantastic. I think inflation has eroded their impact down to just being good, but we now have an opportunity to make them great.
Support from the Government
The Government has the opportunity to show some serious ambition. That’s what our proposal is all about, and it’s spearheaded by a campaign that focuses on investment limits. I think the VCT and EIS schemes are the envy of Europe, but we need an overhaul to allow them to properly flourish.
The funding limits haven’t been reviewed in 10 years, and we’d like to see them maintained far better going forwards. It’s not going to solve everything, but I think it’s an integral part of the growth toolkit that the Government should be bringing to the UK economy.
There is little or no cost to the Treasury for the VCT Association’s policy proposals, and therefore a relatively simple ask. Inevitably, it’s a busy time. I’m sure that the Chancellor and HM Treasury have a very full inboxes, but we hope that this simplicity can make it as compelling as possible at a time where the economy needs levers for growth. There are young, innovative and ambitious companies in the UK which struggle to raise the levels of funding that they require to grow both domestically and internationally, and become more substantial businesses.
The Government has been very supportive of VCTs, so we’re really encouraged at the level of engagement that we’ve seen from Parliament recently. We have a strong working relationship with the Treasury and HMRC, and we are proposing a range of easy to implement improvements which, if adopted, will strengthen and enhance our impact.
The strength of collaboration
I’m really pleased with how the VCTA has worked with other industry associations on this opportunity. We’ve nicknamed it the ‘Alphabet Soup’, because along with us at the VCTA, we work closely with the AIC (Association of Investment Companies), the BVCA (British Venture Capital Association), the EISA (Enterprise Investment Scheme Association, and the QCA (Quoted Companies Alliance).
They’ve all put proposals forward to the Government in the last six months. There’s some nuance with the age limits and investment limits, in terms of how much they should be increased , but they are all pointing the same direction which is really pleasing. We hope that our combined efforts will lead to the outcome that we are all hoping for from this Autumn Budget.
This Budget’s ‘Golden Goal’
In terms of last year’s budget, Rachel Reeves quoted VCTs while announcing the extension of the Sunset Clause. They extended the scheme by another 10 years which is brilliant, but it didn’t really change anything to how they work and the impact that they can have.
There is definitely more optimism this time around. We’ve seen more collaboration and communication, and there’s confidence that this government’s focus on growth is real. We are firm believers that the VCT and the EIS schemes are integral to the UK start-up and scale-up economy, but we need to see that boost in this year’s Budget.
Giving you a football analogy, we’ve effectively had a goalless draw so far. We reached full time and we’re now into extra time, but we need a goal now. It’s not about one team scoring against the other, but we need a result, which is what we’re hoping to get in this budget. The last budget gave us that extra time…and now is the time for the Chancellor to put the ball in the back of the net.
Chris is the chair of the VCTA, having succeeded Will Fraser-Allen in the role as of January 2024.
