Autumn Budget 2017: Hammond promises to replace European startup investment with new fund post-Brexit

 
Lucy White
BRITAIN-POLITICS-INDICATOR-ECONOMY-GROWTH
Source: Getty

A new fund from the British Business Bank was announced today by chancellor Philip Hammond, to help UK startup businesses grow in scale.

Hammond promised that the UK would remain on the front line of technology and innovation post-Brexit, and that the government would "stand ready to replace EIF [European Investment Fund] lending if necessary".

He said that the new British Business Bank fund would be seeded with £2.5bn of public money, and would allow pension funds access to long-term investments. The text of the Budget stated that by investing with the private sector, a total of £7.5bn of investment will be unlocked.

Read more: British Business Bank annual report: Lender provides £9.2bn to smaller UK companies

"Those who underestimate Britain do so at their peril," Hammond said, as he lauded the UK's entrepreneurial culture.

Several venture capital funds have complained since the EU referendum that the EIF has withdrawn from committing capital to their funds.

Hammond also promised to double how much individuals can invest through the tax-efficient Enterprise Investment Scheme for "knowledge intensive companies, while ensuring it is not used as a shelter for low risk capital preservation schemes".

The amount which such companies can receive from EIS and Venture Capital Trust investments will also be doubled, which should altogether unlock over £7bn of growth investment.

The chancellor said that the changes were part of an action plan "to unlock over £20bn of new investment in knowledge-intensive scale-up businesses".

“Measures like EIS and VCTs have and will continue to ensure billons of pounds of extra investment flows into listed small and medium-sized businesses [SMEs],” said Xavier Rolet, outgoing boss of the London Stock Exchange.

The chancellor is right to put backing high growth potential SMEs at the heart of building a successful, innovative and job-creating post-Brexit economy.

Hammond further extended the five-year National Productivity Investment Fund, which was announced in last year's budget to invest £23bn in technology, housing, and transport infrastructure.

This will now last for another year, and will invest a total of £31bn.

Addressing concerns

The announcements follow the government's Patient Capital Review, which was completed earlier this year.

It revealed that UK startups were experiencing a lack of scale-up funding after they became ineligible for smaller venture capital investments.

It also raised concerns that Venture Capital Trusts and the Enterprise Investment Scheme, which reward investors with tax breaks, were being used improperly to generate returns from low-risk schemes which were not benefiting the economy.

"Over half of the investments made via EIS funds to date have gone to funds that advertised a low risk profile to their investors. This approach is not in the spirit of the EIS legislation, which was created to channel investment into young companies that create jobs and drive economic growth," explained Bruce Macfarlane, managing partner at MMC Ventures.

He welcomed the chancellor's suggested changes, and said that though EIS investment might shrink in the short term a reform would be beneficial in the future.

"Hammond’s comments on ensuring Enterprise Investment Scheme tax relief is not used to evade tax indicates that further anti-avoidance legislation may be introduced," said Genevieve Moore, from accountancy firm Blick Rothenberg.

"The devil will be in the detail but we do hope any changes will not make an already complex tax incentive even more complicated, as the incentives available through EIS really help growing and startup UK businesses secure finance to fund growth and development."

Read more: Venture capital trusts firms prepare for Hammond to close loopholes in next week's Budget

Related articles