Preparing for the storm: our message to the Chancellor

With just 4 weeks to go until the long-awaited Budget, investors and entrepreneurs are looking out at the dark clouds of the fiscal storm that is brewing. There is a deficit to make up this tax year and the folk at HM Treasury are facing tough choices. On one hand they need to stimulate growth and on the other they need to fill the Treasury coffers.

The Chancellor of the Exchequer wrote in her recent article in the Times: ‘My message to business is this: if growth is the challenge, then investment is the solution — and I want to work with you to deliver that. We ran as a pro-business party and we are governing as a pro-business party.’

Common belief is that Capital Gains Tax looks set to rise, among other taxes. Many investors and entrepreneurs are acting now to crystallise gains where they can and lock in the 20% CGT rate. This creates a pool of liquidity that will need to be redeployed into the market and there is a growing pot of ‘dry powder’ capital poised to be invested over the coming months. So, if the Chancellor offers the right incentives, many investors are ready to support the agenda.

The tax advantages of EIS offer an opportunity to deploy capital into early-stage high growth companies while benefiting form a range of tax advantages including income tax relief, CGT deferral, IHT shelters and loss relief, should an investment fall in value.

These companies are the engine of growth. The successful ones will go on to create many high value jobs, valuable exports and in turn create reward investors for taking risk and create new wealth. Over the past 25 years we have seen how success breeds success and investors will typically recycle their gains and invest again, funding new generations of start-ups.

This is the re-enforcing cycle that can strengthen the UK’s successful start up ecosystem. It is today the best in Europe. The UK is the 3^rd largest venture capital market in the world, behind the US and China. It is the envy of our European neighbours. But there is no time to rest on our laurels. Prominent technology clusters exist in Paris, Berlin, Stockholm and other European cities are challenging London, Oxford and Cambridge.

So our message to the Chancellor is that venture capital firms and their investors stand ready to invest and support the UK’s economic growth agenda. But the trust, stability, and incentives need to be in place to encourage risk takers to deploy capital into opportunities that will create the new value of tomorrow that the UK needs.