Last month The Times organised a two day event 'Ambitious for Britain: The Times CEO Summit', culminating in a constructive one page letter to George Osborne outlining key areas where the Government could help the wealth creation process in the UK function better.
A quote from the Summit which particularly struck a chord with me was from Dr Mike Lynch, CEO and founder of software company Autonomy (LON:AU.), namely:
If creative, innovative brain power was a natural resource, the UK would be sitting on vast, mineable reserves. But, like an undeveloped country, we have not been able to convert this bountiful gift into sustainable prosperity."
Last week the Treasury issued 'Tax-advantaged venture capital schemes: a consultation', which can be accessed by clicking on the HMRC website.
This centres around the laudable objective of encouraging seed capital investment aimed at companies suggested as being 'in a pre-trading stage which intended using the funds raised to develop business concepts, perhaps involving the production of a business plan or the production of prototypes which require additional research, but prior to bringing a product to market and prior to commencing large scale commercial manufacturing.'
My reactions to the paper are as follows:
(i) it frequently takes many years to develop a seed activity into an established business requiring a meaningful number of employees.
(ii) what the UK needs to focus on is creating more jobs as soon as possible - not in ten or more years time. The UK has an adequate stock of companies which have reached the stage of having developed merchantable products but need capital to finance the marketing of those products worldwide. I think that the EIS and VCT provisions announced in this year's budget are likely to make a very positive impact on the availability of capital for these types of company. As mentioned previously, there are two additional steps which would significantly increase the pool of capital available and which would increase the Government's tax take rather than being a cost, namely:
• reward long term investors by making profits on securities held for more than eight years free of Capital Gains Tax.
• allow any AIM stocks to be held within ISAs.
(iii) as investors start to generate returns from companies of the type referred to in (ii) above, some of them are likely to have an appetite for seed capital investment, particularly if the opportunity comes through a trusted source. There is also a greater likelihood that seed capital investors sourced in this manner will bring experience which can benefit the project.
(iv) if the Government focuses on providing tax breaks to encourage seed capital investing in isolation rather than encouraging long term investment generally, it has to come with strings attached (eg defining a seed capital business), which will discourage many investors from participating. It will in my opinion be much more productive to encourage long term investment generally based on, inter alia, the two additional steps outlined in (ii) above and let the market take its course as outlined in (iii) above. This approach would also save a lot of the resource which will otherwise need to be employed by both investors and the Government in ensuring compliance with the legislation, which would be in line with the Government's stated target of simplified tax legislation!
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