Tomorrow is the anniversary of Kwasi Kwarteng’s controversial (mini) budget, delivered during his ill-fated spell as chancellor. While many of the policies were quickly peddled back due to the market turmoil that ensued, some ideas quite rightly remained.
The Seed Enterprise Investment Scheme (SEIS) was created in 2012 to help UK businesses raise money at the very early stage, and begin their growth journey. Of the changes to SEIS announced in his budget, the most important was increasing the amount a company can raise from £150,000 to £250,000. Thankfully, this, and the other proposed changes gained Royal Assent and became an act of parliament over the summer. Now the changes to SEIS have been implemented, many more UK businesses will benefit.
But during the 10 month period in which the Finance Bill inched its way through parliament many startups were struggling to stay afloat, simply because they had to wait for these changes to become law, a frustration also for the fund managers who back these businesses. The problem lies in the lack of understanding that fast growth tech needs fast-paced policies.
These policy changes should not therefore have been lumped in with the far wider remit of the Finance Bill, which covers a broad number of policy changes. It should instead have been extracted and put on a fast track to assent. We’ve seen how quickly the government can make policy changes in a time of crisis (think Bounce Back Loans and the Future Fund during Covid), so why not have a separate bill in future, for time sensitive policies impacting the earlier stage ecosystem? For those who ask why it should be a special case, consider the government’s growth agenda. If the pipeline of innovation slows or begins to run dry, the future economic impact of the startups that emerge to become highly funded scaleups is lost.
When we talk about being hindered by bigger policies, a glaringly obvious one would be the Multinational top-up tax, a new tax on multinational enterprise groups with annual revenue of €750m or more. To put this into perspective, the changes proposed for SEIS were for companies that are not yet revenue generating. Debate on all new policies, within Parliament and The House of Lords is important, but a priority lane should be created for those that are time sensitive and will have an immediate effect on the innovation economy. Given that no amendments were made to the proposed changes to SEIS between the announcement in September 2022 and gaining Royal Assent in Summer of this year, it goes to show that we need a swifter mechanism for dealing with non-controversial policies of this nature.
When the pandemic hit, the Future Fund, designed to support the UK’s innovative businesses affected by Covid-19, was set up in a matter of weeks. This was, of course, a time of crisis, but I would argue that the UK’s early stage funding landscape is currently seeing challenging times. During those 10 months, many startups were living hand to mouth, waiting for changes to a policy that was 10 years old and ripe for reform.
There are current calls from the early stage investment community for the government to announce what’s next for Venture Capital Trusts and the Enterprise Investment Scheme, which have a sunset clause of April 2025. To date, there have been signals that this will be extended, but why not accelerate this and put minds at ease for investors, with something more concrete?
We have the right levers in Westminster, with a Prime Minister who genuinely cares about our startup and innovation pipeline, so let’s implement some fast-paced policies for fast growth tech.