Ahead of the March 2012 Budget, the BVCA has called on the UK Government to take immediate action to boost the financing of SMEs and start-ups and in the medium term, improve the competitiveness of the UK's tax and regulatory regime.
Financing SMEs: We urgently need policy to encourage institutional investors to invest in the asset class. We have proposed EIS Funds where institutional investors could combine with retail investors to help raise larger funds as well as similar proposals for VCTs. In addition, we have also proposed a form of credit easing for VC funds to assist them with new punitive capital standards. By allowing tax relief for both classes of investors, this would be a significant fillip for the financing of growth companies.
Supporting entrepreneurs: People who start a new business, work for one, finance one or even simply provide mentoring and support, deserve recognition. That is why we have proposed reform to Entrepreneurs Relief (ER) by removing the 5% holding test to allow smaller employee shareholders to qualify, and removing the employment requirement so that ER is deployed as an incentive to High Net Worth Individuals (HNWs). We would also encourage broader participation in company share schemes to help foster a savings culture.
Competitiveness - Tax: We continue to support the downward trend in corporate taxation and the commitment to creating a culture of certainty and stability is the right approach. Capital Gains Tax remains high by international standards but again we welcome the commitment to retain the current regime for the life of this parliament.
Competitiveness - Regulation: Our principle concern remains regulation from the EU notably the Institutions for Occupational Requirement Provisions Directive (IORP). This would apply Solvency II standards to pension funds which has the potential to massively impair their ability to invest in real economy assets like venture capital and private equity. We have also suggested reforms to the Tier 1 Entrepreneurs Visa, which is not working as it should. Domestically, we welcome the Government's focus on needless regulations and look forward to the conclusion of the "Red Tape Challenge".
Mark Florman, Chief Executive of the BVCA, said: "While we continue to support the Government's position on deficit reduction, there are several affordable ways to further support and incentivise investment in entrepreneurs, start-ups and SMEs. In particular we would like to see measures introduced to encourage wider participation by institutional investors in venture capital.
More broadly, we have also urged the need for certainty in the tax and regulatory regime. BVCA members have around £72bn of dry powder to commit, much of it in the UK. While the investment climate may be hindered by uncertainty, London can remain competitive if economic, tax and regulatory stability is maintained."
The full BVCA Budget Submission 2012 can be downloaded here.
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Notes to editors
The British Private Equity and Venture Capital Association (BVCA) is the industry body for the UK private equity and venture capital industry. The BVCA has over 450 member firms, representing the overwhelming number of UK-based private equity and venture capital firms and their advisers.