Clause 11 - Extension of EIS relief and VCT relief to shares issued before 6 April 2035

Finance Bill – in a Public Bill Committee at 10:00 am on 16 January 2024.

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Question proposed, That the clause stand part of the Bill.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Clause 11 extends the sunset clause for the enterprise investment scheme and the venture capital trust scheme to April 2035. The schemes will continue to support thousands of early-stage, innovative companies each year and ensure that they have access to the investment they need to develop and grow.

The enterprise investment scheme and venture capital trust scheme provide a range of generous tax reliefs to investors to encourage investment into higher risk, early-stage companies, which face the biggest challenges in accessing finance. This will encourage entrepreneurship in the future. The schemes are world-leading in terms of their generosity, with more than £3.4 billion of funds raised across the two schemes in the tax year 2021-22 alone. This extension will ensure that the schemes continue to support the growth of early-stage companies.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

It is a pleasure to serve under you, Mr. Paisley. As the Minister has set out, clause 11 extends the availability of the enterprise investment and venture capital trust tax reliefs to shares issued by eligible companies and VCTs by 10 years to 2035. The Opposition welcome the Government’s long overdue decision to take action and extend the schemes, given that the original sunset clause of April 2025 was fast approaching.

Both the EIS and VCT schemes remain crucial funding lifelines for the UK’s start-up community and the uncertainty created by the previous sunset clause deadline has risked hampering investor confidence in backing our high-growth firms. We also know from the latest HMRC data that between 2021 and 2022, nearly 4,500 businesses accessed more than £2.3 billion of funds through the EIS scheme—the highest number since it was introduced. As the Minister will probably know, the ScaleUp Institute has described the relief as pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies.

It is worth noting that the 2025 sunset clause, at which point the schemes were due to be revived, was due to a request from the European Commission to ensure compliance with European Union state aid rules. Given the importance of ensuring that investors are able to plan years in advance when developing a forward pipeline of investments, the Government should have listened to business and tackled the investment uncertainty caused by this potential expiry date far sooner following our departure from the EU. Although people were concerned about the prospect of the schemes expiring, there are those in the VC community who saw the review triggered by the sunset clause as an opportunity to improve the operation of the EIS and VCT schemes, which remain extremely complex. It is crucial that, beyond simply pushing the sunset clause back 10 years, the Government take an active interest in improving these vital schemes, including by delivering the simplification measures that many are calling for to ensure that more companies and more investors can benefit from the tax reliefs available to them.

I can confirm that the Labour party supports clause 11, which is a necessary intervention to ensure that investors can continue to invest with confidence in UK start-ups, but does the Minister acknowledge that we have an urgent need for a Government who listen to business early on, and who create the stable investment climate that we need to deliver growth in our economy, and who do not leave that until the last minute?

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I am afraid that I respectfully disagree with the hon. Lady. We see clearly from feedback from the industry that it very much welcomes the changes. Actually, it is quite transparent throughout the Bill that we are backing business right across the UK. Richard Stone, chief executive of the Association of Investment Companies, has said:

“It’s excellent news that the Chancellor has committed to extending VCTs’ sunset clause…The extension…will help provide certainty to investors and businesses and enable VCTs to continue supporting UK growth companies.”

The British Private Equity & Venture Capital Association has said:

“It is hugely positive that the Chancellor has EXTENDED THE EIS AND VCT SCHEMES until 2035.”

The changes were not subject to a formal consultation, but were part of engagement with industry that Treasury officials and Ministers conduct on an ongoing basis. We are listening to business all the time; we make appropriate changes all the time, and the measures in clause 11 prove exactly that point. The hon. Lady is trying to score political points, but in highlighting some of the scare tactics, she is proving exactly why business can be confident in this Government, and should be somewhat fearful of the Opposition.

The clause will ensure that the EIS and VCT schemes continue to support thousands of early-stage companies each year in raising the funding that they need to succeed. I therefore urge that the clause stand part of the Bill.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.