Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)

The clause increases the limit for enterprise investment schemes from £400,000 to £500,000. It is one of a series of changes that have been made since the scheme was introduced in 1993. The limit was increased to £150,000 in April 1998, to £200,000 in April 2004, and to £400,000 in April 2006. Can the Minister advise the Committee why the Treasury increased the limit to £500,000, not to any other amount? The scheme is covered by European Union state aid rules and the clause makes it clear that the increase is subject to approval by the EU. When will clearance be given, and has it been applied for to date? What is the reason for the delay between clearance being applied for and its being granted? There is some ambiguity about the meaning of paragraph 10 of the explanatory notes, which states:

“The EIS has been notified to the European Commission as a State aid, but not yet approved.”

Does that mean that the increase to £500,000 has yet to be approved or that the scheme itself has yet to be approved? It is important for the Committee to know that. Have the Government commissioned research on the effectiveness of the relief in stimulating investment in high-risk businesses?

Angela Eagle (Parliamentary Secretary, HM Treasury; Wallasey, Labour)

As for the hon. Gentleman’s point of order, we will certainly see if we can do anything in advance to assist the Committee’s proceedings. I am not sure when we are due to discuss schedule 17, but if we can make the explanatory notes more clear, we will do so.

It may help the Committee if I set out some background to the clause. The Government are committed to encouraging entrepreneurship, innovation and growth among smaller, higher-risk enterprises and to improving the United Kingdom as a place for businesses to start up, invest and expand. Venture capital schemes, including the enterprise investment scheme are important tools. They contribute to the Government’s wider policy of improving access to finance for small companies and tackling the so-called equity gap suffered by smaller companies struggling to obtain the finance that they need to grow into sustainable, profitable enterprises. As the Chancellor of the Exchequer said in his Budget speech, we need to do more to help small and medium-sized enterprises gain access to finance.

With that in mind, as the hon. Member for Fareham rightly pointed out, the clause increases the annual amount of investment on which income tax relief is available under the enterprise investment scheme from £400,000 to £500,000. As he suspected, that increase is subject to state aid approval and will apply only from 2008-09, once it has been brought into effect by Treasury order. To date, the enterprise investment scheme has helped to raise around £6.1 billion, invested in 14,000 small or high-risk companies. The increase in the annual investor limit is intended to stimulate further investment in such companies by offering a greater incentive to business angels and other individuals, particularly in the light of current financial market disruption. I might point out that the increase has been well received by industry. For example, the CBI confirmed that it welcomed

“the uplift in thresholds for the enterprise investment scheme which should encourage more investment in growth companies.”

The hon. Gentleman asked if the scheme has been notified to the European Commission. I can confirm that it has, but it has not yet been approved. The change described here must also be approved before it can come into effect. When that happens, the proposal is to make it effective from 6 April 2008 by means of a Treasury order. The scheme and the increase have both been notified, and approval is awaited for the combined package.