THE government has pledged £100million of new investment for Britain’s innovators – but its strategy for business is “in a muddle”, experts warn.
Entrepreneurs, start-ups and scale-ups are to receive a boost as a package to unlock private investment and double tax reliefs is brought into force, the government has announced.
The changes implemented today at the start of the new tax year include expanding the number of companies eligible for the Enterprise Management Incentives (EMI) scheme.
It also doubles the amount a company can raise through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) to boost investment through additional tax relief through these schemes.
The EMI is a tax advantaged share scheme which allows eligible companies to offer their employees options to acquire tax-advantaged shares.
EIS and VCT provide a range of tax reliefs for investors to encourage investment in higher-risk, early-stage companies that face the biggest challenges in accessing growth capital.
Chancellor of the Exchequer, Rachel Reeves, said: “I am backing business with a more active state that’s making big commitments to industry. I have taken steps to unlock £100million a year for new investment in the businesses founded by our wealth creators so they can access the finance critical to their success.”
The arithmetic does not flatter the policy
But business leaders criticised the move and said established small businesses are losing out.
Katrina Young, Digital Transformation Strategist at KYC Digital, said the government has raised £25billion from hiking National Insurance – so £100million for business is not a large amount.
She added: “The government raised £25billion a year from employers through higher National Insurance (NI). Today’s announcement returns £100million – targeted at companies already structured for equity investment. The arithmetic does not flatter the policy.
“EIS, VCT and EMI expansions benefit firms with gross assets up to £120m and up to 500 employees. A dental practice, a family-run logistics firm, a twelve-staff bakery chain — none are raising venture capital. All are paying £900 more per employee per year since the NI threshold dropped from £9,100 to £5,000. British Chambers of Commerce data shows 82% of firms expect the NI rise to affect their business. 58% anticipate reduced recruitment.
“Those are decisions already being made. The businesses benefiting today employ a fraction of the UK workforce. The businesses carrying the NI cost employ the majority. Cutting employment costs moves hiring. Tax reliefs for investors do not.”
Jess Magill, Co-founder at Woodbury Salterton-based Powderkeg Brewery, said established businesses need help, rather than new start-ups.
She added: “Although investment into business in the UK should be a great thing in theory, this seems misplaced. There’s no point throwing money into getting new companies off the ground if they are taxed out of existence soon after.
“What we need is help for established businesses to survive. In the hospitality and catering industry, popular places are closing every week because the numbers don’t add up, which has a knock-on effect on all their suppliers. The domino effect is only getting worse.”
The government’s strategy for business is in a muddle
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said National Insurance rises have crippled businesses.
She added: “The government took £25billion a year out of employers’ pockets with NIC rises and is now handing back a miserly £100million to companies most small businesses in need of help will never be. The EMI expansion targets roughly 1,800 scale-up companies over five years.
“But they are firms with gross assets up to £120million and up to 500 employees. That’s not your local accountancy firm, the physiotherapy practice, or the three-person marketing agency struggling to absorb an extra £900 per employee per year since the NI threshold dropped from £9,100 to £5,000.
“The government is subsidising equity incentives for companies already attractive to investors, while the businesses that actually employ most people are cutting hours, freezing wages, and reconsidering whether to hire at all. 82% of firms told the British Chambers of Commerce the NI rise would impact their business, with 58% expecting it to affect recruitment. A hundred million in tax relief for scale-ups doesn’t fix that.”
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said: “The government’s strategy for business is in a muddle. Increasing the amount that a company can raise, while at the same time slashing the benefits for investors in these companies, sends mixed signals at a time the UK needs to be incentivising these companies to both start and stay on British soil.”
