On Monday 2 November 2009, the BVCA submitted its Pre Budget Report Submission to HM Treasury. The BVCA asks the Treasury to take up its concerns, including the EU AIFM Directive, Walker Transparency and measures to help venture capital and small business, and to allow the private equity and venture capital industry to play its full part in helping return the economy to growth.
A letter addressed from Simon Walker, CEO to the Chancellor of the Exchequer is below and the full submission can be found at the end.
Dear Chancellor
BVCA Pre-Budget Report Submission 2009
As the Government continues to set the framework for future growth, we believe private equity and venture capital can play an important part in the recovery for the following reasons:
- It has a proven track record over a number of economic cycles of increasing productivity and producing strong returns for investors, many of whom have been pension funds.
- At a time when capital is in extremely short supply, private equity has cash ready to invest when market conditions are right: it is estimated that globally the industry could have over $1 trillion at its disposal.
- It is an active owner of companies, structured in a way that aligns the interests of managers with investors. In contrast to many other areas in financial markets, the model of remuneration is entirely aligned to long-term success, with no rewards for failure.
- It can help in all areas of the economy: it has expertise in supporting new business start-ups and university spin-outs; rescuing companies from administration; in helping mid-sized businesses to grow and expand into new markets; and in helping to re-energise larger businesses and make them more productive.
We believe there are three key areas where Government can act to allow the industry to fulfil its potential here:
1. EU regulation
The Alternative Investment Fund Managers Directive (AIFM) continues to be our industry's main priority. We reiterate our support for appropriate and proportionate regulation on a national and international level, and agree with the objective in the Directive to create a pan-European passport for investment fund managers. However, we do not believe the directive achieves these aims, and that it would in fact have a negative impact.
As drafted, the provisions would mean that European investors lose access to an estimated one third of private equity funds currently available to them. Smaller venture firms would be hit disproportionately by capital requirements which serve no purpose, and would mean less money being invested in to young innovative companies at a time when they most need it.
We very much value the support of the Financial Services Secretary, his officials and the FSA. We look forward to continuing this work with them and our counterparts across Europe to arrive at a directive which creates a workable and harmonised EU regulatory framework.
2. Overall tax levels
In order to ensure the UK preserves and reinforces its position as the centre for European private equity and venture capital, the UK tax system should: (i) be stable; (ii) give certainty to taxpayers; (iii) offer simplicity wherever possible; and (iv) have competitive tax rates compared to its key competitors.
In recent years the UK has not performed well on these measures. Increases in Income Tax and changes to the Capital Gains regime have had a negative impact on the attractiveness of the UK as a place to do business, in respect of competitiveness and stability in particular. Any further increase in the rate of CGT would be deeply damaging, and we are aware of examples of private equity firms who have had difficulty recruiting US employees to the UK as a result of the new top rate of income tax. We feel strongly that this competitive erosion must not go any further.
We were though comforted by reassurances given by the Financial Services Secretary recently that there would be no more changes to the interest deductibility regime under a Labour Government, another key part of the tax framework.
3. The low carbon economy
Finally, we are very supportive of the government's aim to bring about a low carbon economy, and believe private equity and venture capital can be a key partner in meeting this objective.
In recognition of the growing presence of investors from amongst our membership in this area, the BVCA has established an Energy, Environment and Technology Board (EETB). The EETB consists of UK-based fund managers investing in low carbon at all stages, and the group collectively has over £10 billion in funds under management; of which over £700 million has already been invested in UK companies, saving an estimated 4.2 million tonnes of CO2 p.a.
We believe the UK can be a world leader in developing, deploying and financing green technologies. Private equity will play a material part in providing the capital and backing the innovative companies that will realise that goal. In our submission we outline a number of key areas where government can act to set an attractive framework to encourage and quicken the pace of investment in to this vital area.
We ask HM Treasury to take up our concerns and allow the industry to play its full part in aiding the recovery and helping return the economy to growth.
Yours Sincerely
Simon Walker
Chief Executive
BVCA - The British Private Equity and Venture Capital Association
cc Lord Myners, Financial Services Secretary
Download:
BVCA_PBR Submission 2009
