Source · Select Committees · Treasury Committee
Nineteenth Report - Venture Capital
Treasury Committee
HC 134
Published 24 July 2023
Recommendations
3
Accepted
Extend EIS and VCT sunset clauses beyond April 2025, announcing length and timeline
Recommendation
We recommend that HM Treasury extend the EIS and VCT sunset clauses beyond April 2025 at the earliest opportunity. HM Treasury should provide more certainty for founders and investors alike by announcing the length of the extension and a clear …
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Government Response Summary
The government accepts the recommendation, stating the Chancellor has a firm intention to extend the EIS and VCT sunset clauses beyond April 2025, and will provide further details on the schemes at a future fiscal event to offer certainty.
HM Treasury
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4
Accepted in Part
Para 31
Venture capital market diversity statistics remain unacceptable and progress too slow.
Recommendation
The diversity statistics in the venture capital market are unacceptable. Venture capital firms are dominated overwhelmingly by white men, and the recipients of venture capital funding are even more unrepresentative of the wider UK population in terms of gender and …
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Government Response Summary
The government agrees on the importance of a diverse and inclusive investment landscape and highlights existing initiatives like the Investing in Women Code. While acknowledging the importance of understanding demographic diversity, it rejects requiring businesses to disclose protected characteristics due to legal complexity and administrative burden, instead stating HMRC is reviewing data collection methods and the Integrated Data Service may offer future information.
HM Treasury
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7
Rejected
Para 41
Require disclosure of diversity statistics for EIS, SEIS, VCT tax relief eligibility.
Recommendation
HM Treasury should make provision of diversity statistics a requirement for eligibility to receive EIS, SEIS and VCT tax reliefs. Firms should be required to disclose the gender and ethnic breakdown of both recipients of their funding and their own …
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Government Response Summary
The government rejects making the provision of diversity statistics a requirement for eligibility to receive EIS, SEIS, and VCT tax reliefs, citing legal complexity and administrative burdens for small, young businesses. It notes HMRC is reviewing ways to obtain additional demographic data and the Integrated Data Service may offer a future source of information.
HM Treasury
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9
Rejected
Para 50
Require ‘comply or explain’ for Women in Finance Charter and Investing in Women Code eligibility.
Recommendation
All relevant organisations in the venture capital industry ought to become signatories to both the Women in Finance Charter and Investing in Women Code, if they have not done so already. We have not determined that compulsory membership is appropriate …
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Government Response Summary
The government rejects making compliance with the Women in Finance Charter and Investing in Women Code a 'comply or explain' condition for EIS, SEIS, and VCT eligibility. It argues this approach would not achieve desired results and would place an undue burden on early-stage companies, though it notes the British Business Bank already applies such an approach for its own investments.
HM Treasury
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11
Accepted
Consult on creating venture capital funds specifically promoting greater diversity in allocation.
Recommendation
We recommend that the Government and British Business Bank consult on the creation of one or more venture capital funds with the specific purpose of promoting greater diversity in venture capital allocation. (Paragraph 55) Regional inequality in venture capital
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Government Response Summary
The government acknowledges the importance of diversity and highlights existing British Business Bank programs that support diverse founders and fund managers, as well as new DSIT funding for underrepresented entrepreneurs, but does not commit to consulting on creating new dedicated diversity-focused venture capital funds.
HM Treasury
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14
Rejected
Consult on revised 7 and 10-year company age limits for EIS and VCT schemes.
Recommendation
The Government should extend the 7 and 10 year company age limits for support through the EIS and VCT schemes. HM Treasury should consult on revised limits, with the objective of not disadvantaging regional businesses. This revised limit should take …
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Government Response Summary
The government rejects extending the 7 and 10-year company age limits for EIS and VCT schemes, arguing it would risk displacing investment from smaller companies and is not an appropriate way to address regional imbalances, despite agreeing that regional businesses should not be disadvantaged.
HM Treasury
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16
Rejected
Para 77
Consult on higher funding limits for EIS and VCT schemes to support scale-up businesses.
Recommendation
HM Treasury should consult on higher funding limits on the EIS and VCT schemes with the objective of better supporting scale-up businesses. These revised limits should take effect from the renewal of the sunset clauses in April 2025.
Government Response Summary
The government acknowledges the importance of supporting scale-up businesses and highlights existing support through the British Business Bank and British Patient Capital. However, it rejects consulting on higher funding limits for EIS and VCT schemes, arguing that such revisions would risk undermining policy rationale, displacing investment, and reducing value for money.
HM Treasury
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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 …
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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.
HM Treasury
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Conclusions (10)
1
Conclusion
Accepted
Industry and government are aligned in their assessment that venture capital tax reliefs have had a positive impact on UK small businesses. They argue that the EIS, SEIS and VCTs are internationally competitive schemes that attract investors, which in turn has provided billions in financial support to start-ups and growing …
Government Response Summary
The government agrees that EIS and VCT sunset clauses should be extended, and the Chancellor has publicly stated his firm intention to do so beyond April 2025. Further details will be provided at a future fiscal event.
2
Conclusion
Accepted
Para 23
The Treasury continues to express the importance of the EIS and VCT schemes and a desire to extend their sunset clauses. The Chancellor has told us he does not see a barrier to doing so. However, despite our raising concerns repeatedly, the Treasury has not provided a clear plan and …
Government Response Summary
The government agrees that EIS and VCT sunset clauses should be extended, and the Chancellor has publicly stated his firm intention to do so beyond April 2025. Further details will be provided at a future fiscal event.
5
Conclusion
Acknowledged
It is difficult to understand comprehensively the diversity breakdown of staffing and investment decisions across the venture capital market and its many small organisations. These firms do not have consistent policies on diversity or associated reporting, and a heavy emphasis on personal networks means that the true scale of the …
Government Response Summary
The government acknowledges the importance of improving transparency and consistency of diversity data in the venture capital market. It notes HMRC is reviewing ways to obtain additional demographic data and the Integrated Data Service may offer future information, but does not commit to making it a requirement for EIS, SEIS, and VCT eligibility.
6
Conclusion
Acknowledged
Para 40
Venture capital tax reliefs are uses of public funds. It is only right and proper that their use is open to public scrutiny, including whether such funds are deployed fairly to women and people from ethnic minorities. At the moment, their use is unacceptably opaque.
Government Response Summary
The government acknowledges the importance of public scrutiny of venture capital tax reliefs and the need to understand diversity in funding allocation. It states HMRC is reviewing ways to obtain additional demographic data and the Integrated Data Service may offer a future source of information, but it does not commit to making diversity data a requirement for EIS, SEIS, and VCT eligibility.
8
Conclusion
Acknowledged
Para 49
We support the Women in Finance Charter and the Investing in Women Code. However, we are concerned that as a voluntary initiative with a low rate of take up, progress in improving diversity in venture capital is too slow and restricted to the more enlightened firms.
Government Response Summary
The government agrees the Women in Finance Charter and Investing in Women Code are essential for improving diversity and highlights their positive impact and increasing signatory numbers. It notes a 'comply or explain' approach is already in place for British Business Bank applicants, but does not commit to extending this to EIS, SEIS, and VCT eligibility.
10
Conclusion
Accepted
Para 54
The British Business Bank has active funds designed to target specific market failures in venture capital, such as its regional funds. Representatives from the BBB have suggested that diversity-focused funds could theoretically be used in the same way, if there were provision set aside for them. The woeful diversity record …
Government Response Summary
The government agrees on the importance of promoting diversity in venture capital and highlights ongoing British Business Bank programmes that assess and support diverse fund managers and founders. It also notes DSIT's recent commitment of £12 million for a two-year Digital Growth Grant programme, launched in April 2023, specifically to support underrepresented tech entrepreneurs.
12
Conclusion
Accepted
Para 60
The evidence we have received suggests that venture capital investment is concentrated in London, strongly disproportionately to its share of the UK SME population. This means that throughout most of the UK regions and nations, opportunities for investment in high-growth businesses are more limited than they ought to be. This …
Government Response Summary
The government agrees that regional businesses should not be disadvantaged and acknowledges the concentration of venture capital in London. It highlights several existing British Business Bank programmes, such as the Regional Angels Programme and regional investment funds, specifically designed to address regional imbalances in access to finance. The government also defends the current age limits on EIS and VCT schemes, arguing that extending them would risk displacing investment from smaller, early-stage companies.
13
Conclusion
Acknowledged
Para 67
The 7 and 10 year company age limits on EIS and VCTs serve to disadvantage businesses outside prime investment zones in London and the “Golden Triangle”. Firms from other regions can take longer to become established and therefore may 28 Venture Capital miss out on venture capital support through no …
Government Response Summary
The government agrees that regional businesses should not be disadvantaged and highlights existing British Business Bank programs to address regional imbalances. However, it defends the current EIS and VCT age limits, stating that extending them would displace investment from smaller companies and is not the appropriate policy to address regional imbalances.
15
Conclusion
Acknowledged
Para 76
The funding limits on tax-beneficial venture capital funding through the EIS and VCTs schemes limit their utility in helping companies grow and scale-up in today’s economy. Altering these limits presents an opportunity to support domestic business growth through established policy routes.
Government Response Summary
The government acknowledges the importance of supporting scale-up businesses and highlights existing initiatives like British Patient Capital, but implicitly rejects altering EIS and VCT funding limits to target scale-ups, arguing it risks undermining the schemes' policy rationale and displacing investment from their intended beneficiaries.
17
Conclusion
Not Addressed
Para 86
Our evidence suggests that UK pension funds may be an untapped source for a deeper domestic capital market more inclined to risk investment in high-potential businesses. We welcome the Government’s announcement of work on pension fund consolidation in the autumn. We will scrutinise the details of those proposals closely. Any …
Government Response Summary
The government's response is boilerplate text detailing existing support for scale-up businesses through the British Business Bank, British Patient Capital, and EIS/VCT schemes. It does not address the recommendation regarding pension funds as an untapped source of capital or the government's work on pension fund consolidation and LGPS asset pooling.