The Budget offers a golden opportunity for the UK government to reaffirm its commitment to building a world-class technology ecosystem. Successive administrations since the global financial crisis of 2008 have recognised the importance of high-growth companies in reviving the economy. The logic is sound: build an environment where startups can grow into global leaders like the fintech pioneers Monzo, Wise, and Revolut, and Britain will reap the economic benefits.
While there is frequent positive rhetoric about the transformative economic potential of entrepreneurs, the UK’s current policy framework is holding back significant progress. One policy that could be quickly and effectively enhanced is the Enterprise Investment Scheme (EIS), which has long been a cornerstone of funding for early-stage companies, but is now constrained by outdated limits that no longer reflect the needs of fast-growing companies.
The numbers
Launched in 1994 under Prime Minister John Major, EIS was designed to spur growth during a period of high unemployment and macroeconomic turbulence. Sound familiar? Coupling investor tax relief with the capital needed to help innovative firms grow, the scheme remains critical to the UK’s technology ecosystem. But current data shows a worrying slowdown.
In the 2023-2024 tax year, just 3,780 firms raised a total of just over £1.5 billion under the EIS scheme. Funding fell by 20% from 2022 to 2023, when 4,245 companies raised approximately £2 billion. Much of the decline can be explained by a period of high interest rates and a cyclical fall following the post-COVID funding boom in 2021/2022. However, the numbers reveal a deeper structural issue: too few startups are breaking through to the scale-up stage.
Of the 325,811 start-ups registered in 2020, only 47% survived to 2023, and of these, only 2% achieved £1 million in turnover after three years. This highlights a serious bottleneck: we are failing to fund and retain promising businesses that could become the next generation of UK tech giants.
The barriers to growth
The core problem lies in EIS’s restricted funding threshold. The current Company Lifetime Limit is capped at just £12 million, rising to £20 million for ‘knowledge-intensive companies’. For high-growth ‘knowledge-intensive’ technology companies, particularly those in capital-intensive sectors such as biotechnology and deeptech, a lifetime funding limit of £20 million would barely cover the jump between research and development to commercialisation.
This cap forces successful, ready-to-scale ventures into a difficult choice: either sell up prematurely – often to a foreign buyer – or attempt to raise funds from an entirely new group of investors. Often stalling momentum, limiting products and giving up growth in the process.
By maintaining these restrictions, the government is sending a worrying signal to the market that it is unwilling to shift its policies to match the ambition of the UK’s tech sector. The recently announced ‘ Modern Industrial Strategy’, which focuses on eight high-growth sectors such as advanced manufacturing, clean energy industries and life sciences, will require significant capital investment, making the EIS limit counterproductive to achieving growth. Raising the lifetime limit towards the £50 million mark would be far more in line with the funding needs of these capital-intensive industries, giving high-potential companies the runway to scale.
The UK has long prided itself on being a nation that celebrates entrepreneurship, yet for many founders, years of inflation, high interest rates, and an increasingly complex tax and regulatory system have discouraged risk-taking. EIS and VCTs were designed to give fuel to Britain’s entrepreneurs’ ambitions rather than constraining them, and the outdated limits no longer reflect the realities of building a company in today’s economy. The last time EIS limits were adjusted was in April 2012, and since then, costs have increased while global competition for talent and capital has intensified. Maintaining the status quo is a cut to the support available for the UK’s most ambitious firms.
The smarter way to unlock capital
The solution isn’t always just to inject more government cash into the system. Unleashing a further source of private capital – from angel investors – offers more than funding. These individuals are domain experts, mentors and network connectors – all vital components for a startup’s early development.
So the Chancellor should also consider increasing the Investor Limit, currently set at £1m, to encourage the UK’s wealthiest and most experienced angel investors to deploy more capital into high-risk, early-stage ventures.
A commitment to global leadership
The recent extension of EIS to 2035 was a welcome step by the government towards greater market certainty, but without ambition, this will achieve little. Raising the limit is the most immediate, powerful and cost-effective way to signal that the government is serious about encouraging risk and rewarding entrepreneurs who drive innovation.
Making this change would directly address the decline in early-stage funding by channelling capital into the businesses most likely to scale. We’ve seen EIS have an impact before; it’s played a role in the growth of some of the UK’s household names, such as Deliveroo, Gousto, and Bloom & Wild. Now is the right time for the government to make a serious commitment to securing Britain’s place as a global science and technology leader.
By Tim Mills, Managing Partner at ACF Investors.
