Here’s how Philip Hammond can reassure small businesses and investors alike
Philip Hammond was quick to rule out a post-Brexit Budget after being installed as the new chancellor. Number 11’s latest resident, who will wait instead until the Autumn Statement, has also stated that he will support the City, and wider business, as the UK exits the EU. The challenge, Hammond has observed, is to send “signals of reassurance” and kick-start investment and spending decisions.
While the integrity of the Square Mile and big business will be among the first on his hit list, he must also step up to the plate to encourage greater investment in early-stage companies and UK entrepreneurialism. He must put into action practical measures that boost investment in these areas. And regardless of what else is in his in-tray, now is the perfect time to do it.
The referendum has caused worrying illiquidity and unease in the market. Moreover, the expectation of an interest rate cut to 0.25 per cent this afternoon – a record low – makes moves towards sensible investing even more important.
To be clear: investing in new companies is not a liquid move, but at least the illiquidity of the investment is up front and transparent. There are no illusions. It also represents returns which are potentially more rewarding, on various levels. The right investment means putting money into an enterprise which will grow, employ more staff, disrupt markets and, in many cases, export abroad. For those who have their own entrepreneurial background, it allows the path into angel investing, something which Britain’s young businesses need more of.
The Treasury could help by increasing the tax break ceilings of both the Enterprise Investment Scheme (EIS), and the Seed Enterprise Investment Scheme (SEIS). Since EIS was launched in 1993-94, over 24,500 individual companies have received investment through the scheme, and over £14bn of funds have been raised. In 2014-15, figures show that 2,185 companies received investment through the SEIS and £168m of funds were raised.
In a similar vein, Hammond should consider extending SEIS from its current ceiling of £100,000 per tax year to £300,000. This would benefit smaller companies that are in their first two years of existence, and could positively bolster the growth of the Northern Powerhouse. It’s worth remembering that, if it were a national economy, the north of England would represent the tenth largest in the EU.
As things currently stand, an investor can put up to £1m to work through EIS, and receive respective tax breaks – 30 per cent on investments up to £1m. Raising that by 25 per cent to £1.25m would be a smart, proactive move from Number 11. It would declare a firmer commitment to growing new businesses in the UK at a time when building from within is much needed. It could also be argued it will attract bigger players, and send a signal to a wider range of investors that UK early-stage, non-listed companies are a huge part of this country’s future.
While most people will choose to capitalise on these tax reliefs via a fund manager, an increasingly popular way to access EIS and SEIS-compliant companies is via equity crowdfunding. According to research from Growthdeck, 66 per cent of all investment opportunities listed on crowdfunding platforms are EIS eligible, while 39 per cent offer investors SEIS – and some are eligible for both. Although some eligible firms are listed on Aim or ISDX, others are harder to access – and crowdfunding provides a way in.
And the sector is evolving, offering investors an increasingly straightforward route to a diversified portfolio. There are growing numbers of platforms that insist on a round having a lead investor, SyndicateRoom has raised the first equity crowdfunding fund, and apps like OFF3R (which QVentures incubates and owns 33 per cent of) enable investors to browse deals across platforms, making it easier to spread risk.