Diamonds amid the coal-dust

There are diamonds amid the coal-dust of the Autumn Statement, says Richard Hoskins, with much to interest the EIS and VCT industries – but also one unwelcome detail…

There is much for venture capital trusts (VCTs) and Enterprise Investment Schemes (EISs) to applaud among the sentiments expressed for the sector by Philip Hammond in his Autumn Statement – but there is also one nasty little bit of detail that may not receive quite such a hurrah.

The Chancellor talked much of growth and innovation potential and announced £400m into venture capital to support start-up companies and prevent them from being snapped up before they reach anything like a decent level of maturity.

This will go into the British Business Bank to unlock £1bn of new funding – yet how far will this benefit investors? The UK has always been great at innovating, with just 1% of the world’s population producing 13% of scientific research worldwide – the snag being that this makes our smaller tech businesses very attractive to foreign buyers.

The government has, however, identified that, by improving access to patient capital in the UK, there is a better chance not only of innovating but also of growing success in commercialisation this side of the channel. The resulting boost to employment would obviously be another positive.

The Autumn Statement also saw the announcement of £7.2bn to unlock development land and build 100,000 new affordable homes in areas that most need them and the creation of a £2.3bn Housing Infrastructure Fund. Again, this is good news – especially for investors in property and planning-related tax-efficient vehicles.

The Chancellor’s statement that he is to support the Oxford and Cambridge growth corridor is all very well but will only assist in enhancing the attractiveness of investments in those tech clusters. That said, EISs and other investments with a focus on the ideas emanating from the UK’s two best-known universities will be keen to comb the small print further.

Lifeblood of innovation

Hammond’s help for businesses installing new fibre technology and his commitment to so-called ‘5G’ technology are laudable as digital is the very lifeblood of business innovation and growth.

And he has also increased the limits from £300,000 or thereabouts to £1.5m for social investment tax relief, which is great news and will enable social enterprises to scale more quickly.

But – and it is a big ‘but’ – the Chancellor has imposed the ‘seven-year rule’, which matches the restrictions on EISs. The issue here is that EISs can now only invest in companies that are less than seven years old, which prevents investors from accessing more mature companies, thereby increasing their risk.

As there are many social enterprises that are older than this that need access to capital to replace money lost elsewhere – and from cash-strapped local authorities in particular – this move is unwelcome.