Financing Growth in Innovative Firms: Enterprise Investment Scheme Knowledge-intensive Fund Consultation – Spring Statement 2018
Evidence gathered during a recent consultation suggested that knowledge-intensive firms – which have high growth potential but are R&D- and capital intensive – have the most difficulty obtaining the capital they need to scale up. The Autumn 2017 Budget subsequently announced that the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) schemes would therefore be significantly expanded for knowledge-intensive companies. The government also announced that it would consult on a new EIS fund structure aimed at improving the supply of capital to such companies.
A new consultation (Financing growth in innovative firms: Enterprise Investment Scheme knowledge-intensive fund consultation) aims to build the government’s understanding of the capital gap that knowledge-intensive companies face, and seeks views on the best way of closing that gap. It explores possible options for an EIS fund structure aimed specifically at investment in knowledge-intensive companies, while making clear the limitations within which such a fund model would operate.
The government considers that the definition of a knowledge-intensive company that is currently used in the venture capital schemes effectively captures the types of firm that have the most acute problems gaining investment. It is also conscious of the need for both investors and companies to have as much stability as is possible. It therefore intends to base any new fund structure on this existing definition.
The EIS is a notified state aid and any changes to the scheme will have to take into account constraints on state aid. This consultation may lead to changes before the UK leaves the European Union. As the UK is still subject to state aid rules, the consultation seeks responses consistent with the current state aid regime.
The design of any fund model would need to be proportionate to an identified market failure in the supply of capital to knowledge-intensive firms. For example, the EIS, SEIS, and VCT schemes already have among the most generous rates of income tax relief for schemes of their kind in Europe. The government is not considering raising the rates of income tax relief for the schemes.
The deadline for responses to this consultation is 11 May 2018.