Start-up backlash: Treasury looks to soften controversial rule change after fury from investors
The City minister is set to meet top start-up groups to discuss softening its controversial investing rule changes, after a backlash from the industry and pressure from another government department.
So-called angel investors launched a campaign against the Treasury on Wednesday over changes to the definition of ‘high net worth individuals’, which they say could potentially shut off millions of pounds of funding for smaller private companies.
Under the tweaks set to come in next Wednesday, the financial threshold of ‘high net worth individual’ will be lifted from an annual income of £100,000 to above £170,000, meaning that many investors will no longer qualify to invest in certain assets.
Influential think tank The Start-Up Coalition warned on Wednesday that the “startup ecosystem will be hit hard” by the change.
However, the Treasury is now keen to soften the impact of the rules and has been engaging with start-up groups to discuss potential remedies, City A.M. understands. The City minister Bim Afolami is due to host the Start-Up Coalition alongside a number of investors next week to thrash out a potential resolution.
Ministers at the department for business have also written to the Treasury to press them into softening the blow of the changes, lobby group the Start-Up Coalition said today in an .
“HM Treasury have […] acknowledged the strength of the case and want to work out how to ameliorate the situation as best possible given the context,” wrote Start-Up Coalition director Dom Hallas.
“I’ve also been heartened to understand that Business Minister Kevin Hollinrake will also be writing to his Treasury counterparts to reinforce the importance of coming up with a satisfactory solution.”
There is however no mechanism available to the Government to change the rules ahead of their implementation at the end of the month, meaning that the government could be forced to look at introducing new schemes or risk blocking a wave of investment into the sector.
The row’s origins stretch back to 2001 when government passed a law to certify ‘sophisticated investors’ and high net worth individuals and allow them to access certain riskier investment products.
However, the Treasury moved to hike the threshold for the first time in over 20 years to update it “in line with inflation”.
Over 2000 investors and start-up signed a coordinated letter in protest at the move this week.
City A.M. understands the Treasury was first contacted about the impact of the changes before Christmas but did not engage with the industry until this week.
The Treasury has been contacted for comment.