Recommendation 7

HM Government Rejected

HM Treasury agrees that a diverse and inclusive business ecosystem is good for customers, entrepreneurs, businesses, and investors. There are a number of government-led initiatives which aim to promote a more diverse and inclusive investment landscape. For example, the Investing in Women Code, mentioned in the Committee’s report, helps drive the change necessary to improve venture capital markets for female founders, so they can raise the capital they need for their businesses to reach their full potential. Data from Beauhurst on the gender make up of founding teams and key employees shows that in 2022, 27% of all deals went to teams with at least one female founder, the highest proportion ever and an increase of ten percentage points since 2012. HM Treasury agrees with the intention behind the Committee’s recommendation in that understanding the demographic diversity of those venture capital firms that make investment decisions and the recipients of their funding is important. However, HM Treasury does not agree with the Committee’s recommendation to make provision of diversity statistics a requirement for eligibility to receive the EIS, SEIS and VCT tax reliefs as this would be both difficult to implement within the current structure of the schemes and would not deliver the intended outcome. That is because these reliefs are not claimed by those firms making these investment decisions, they are claimed by individual investors through the Self-Assessment system. Requiring them to provide such information about the companies they have invested in would be challenging, as they would not necessarily have access to this information or any particular right to receive it. The companies that do receive the benefit of the SEIS, EIS or VCT funding and are currently required to report certain details about their investment to HMRC are smaller, younger businesses, for whom the disclosure of protected characteristics of their staff as a requirement for eligibility for receiving this funding would introduce legal complexity as well as further administrative burdens. As set out in the 2023 update from the UK Statistics Authority on implementing Inclusive Data recommendations1, HMRC, which operates the schemes, has been reviewing ways to obtain additional demographic data for individual customers which may in future include individuals that claim venture capital tax reliefs. In addition, the Integrated Data Service—a cross-Government initiative that aims to bring together large administrative datasets for Government use—may offer a potential source of information in this area in the future.