Source · Select Committees · Treasury Committee
Recommendation 18
18
Accepted
Enhance domestic capital access to make UK business ownership more attractive.
Recommendation
Access to UK domestic capital has been a barrier for British businesses wishing to grow their operations beyond early venture capital funding stages. The US has deeper pools of capital for venture capital investment, and this has often led to UK firms looking overseas for funding. It is imperative that the UK makes best use of its pools of capital to make UK ownership an attractive option for the innovative and dynamic businesses which are the future of a successful UK economy. (Paragraph 87) Venture Capital 29
Government Response Summary
The government acknowledges the importance of supporting scale-up businesses and details existing initiatives like the British Business Bank and British Patient Capital. It states that current EIS and VCT schemes are kept under review but argues against revising funding limits to target scale-ups, citing risks to policy rationale and value for money.
Government Response
Accepted
HM Government
Accepted
HM Treasury has carefully considered the Committee’s recommendation. Supporting scale up businesses to grow and prosper is important and the government continues to do this in a number of ways. The British Business Bank continues to support start-ups and scale-up businesses throughout their growth development through a variety of interventions. For example, in 2018, British Patient Capital, a commercial subsidy of the British Business Bank, was launched following the government’s Patient Capital Review. The review found that whilst the UK provides a fertile ground for innovation to thrive, a lack of access to long-term finance, or patient capital, has prevented some UK companies from scaling up and fulfilling their full commercial potential. British Patient Capital was created with an initial £2.5 billion fund to invest over 10 years in venture and venture growth capital. In 2021, two new products were introduced, the £200 million Life Sciences Investment Programme and the £375 million Future Fund: Breakthrough programme for direct investment into R&D intensive companies. At Spring Budget 2023, the government extended British Patient Capital to 2033‒34. At the Mansion House speech in July, the Chancellor announced an ambitious package which reforms the pensions market to boost returns and improve outcomes for pension fund holders whilst increasing funding liquidity for high-growth companies. The Mansion House Compact saw 9 of the UK’s largest defined contribution pension providers commit to the objective of allocating 5% of their default funds to unlisted equities by 2030. Should the ambition to allocate 5% to unlisted equities be replicated across all defined contribution workplace schemes, it could unlock £50 billion of finance by 2030, which could support the UK’s most innovative, high-growth businesses to grow and secure their future in the UK. HM Treasury disagrees with the Committee’s recommendation that the Treasury should consult on higher funding limits within the EIS and VCT schemes with the objective of better supporting scale up businesses. The schemes are popular and world leading in terms of their generosity, with over £3.6 billion funds raised across the three tax-advantaged venture capital schemes (SEIS, EIS and VCT) in 2021‒22. The schemes are designed and targeted to meet an identified market failure. These schemes are kept under review to ensure the limits are appropriate and effectively targeted to meet this specific market failure. This includes reviews as part of HMRC’s published tax relief evaluation plan. Revising the funding limits of the schemes to target them towards scale-up businesses risks undermining the policy rationale and could displace investment away from those they are targeted to support. This would increase deadweight in the schemes, reducing value for money. Extending the schemes in a way that reduced value for money would be inconsistent with HM Treasury’s aim to ensure the reliefs are effective and well targeted.