The initial report was published by the House of Commons Treasury Committee on 18 July 2023. Its key recommendations were:
- extending the ‘expiry date’ (sunset clauses) of the EIS and VCT schemes beyond 2025;
- requiring provision of diversity statistics for individuals to be eligible to receive EIS, SEIS and VCT tax reliefs;
- all relevant organisations in the VC industry becoming signatories to the Women in Finance Charter and Investing in Women Code;
- creating VC funds with the specific purpose of promoting greater diversity in VC allocation;
- extending the 7 and 10 year company age limits for EIS and VCT; and
- consulting on higher funding limits on both schemes to better support scale-up businesses.
The government response confirms HM Treasury’s recognition of the need to provide certainty to founders and investors. It states that it will provide further details on the schemes beyond 2025 at a future fiscal event.
The response points to the Integrated Data Service, which is a cross-government initiative that aims to bring together large administrative datasets for government use. It considers that this may offer a potential source of information in this area in the future.
HM Treasury does not agree with the Committee’s recommendation to make provision of diversity statistics a requirement for eligibility to receive the EIS, SEIS and VCT tax reliefs as it believes this would be difficult to implement within the current structure of the schemes. The reliefs are claimed by individual investors through the self-assessment system and those individuals may not have access to this information, or any particular right to receive it.
Signatories to the Women in Finance Charter and Investing in Women Code
The response highlights the impact that the Investing in Women Code has already had and points to the increase in the proportion of UK venture capital deals involving signatories to the Code between 2020 and 2022. It also points out that the British Business Bank already asks fund managers whether they are signatories of the Code. However, the government remains to be convinced that a ‘comply or explain’ approach to venture capital investment is necessary for the practical reasons set out above.
Creating venture capital funds with a specific diversity purpose
The government makes no specific response to this recommendation, other than to agree with the importance of promoting greater diversity in UK venture capital allocation and pointing to the work that the British Business Bank is carrying out in this area.
Extension of the 7 and 10 year company age limits and funding limits
The government acknowledges that more needs to be done to encourage investment in growing businesses outside London and the South East, but does not agree that extending the company age limits of the schemes is the best way to support regional funding. It believes that extending these age limits would allow larger, more mature companies to access the schemes which would risk displacing investment away from the smaller companies the schemes are designed to target.
Similarly, the government considers that increasing the amount of funding companies can receive through these schemes could displace investment away from those companies at the very earliest of their life cycle.
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