Pre-budget blog: will tomorrow define 'the Spirit of EIS'?
The Enterprise Investment Scheme was launched in 1993, facilitating c.£15bn in investment since then. This includes £1.6bn in 2015/16
The Enterprise Investment Scheme, and its younger sibling the Seed Enterprise Investment Scheme (launched in 2012 to target finance towards very early stage companies), has undoubtedly created jobs and supported key sectors within the UK economy. Whether that has historically been renewable energy, as Government looked to meet EU targets, and films, as the Government looked to revitalise the UK film sector. However, with hindsight sectors can often be deemed as phases that the EIS has gone through and the next stage could well be to further support and develop the UK’s innovation sectors such a technology and life sciences.
With the Government keen to support UK innovation and provide a competitive advantage for such sectors in a post-Brexit world, it is expected that tomorrow’s budget will look to refocus EIS and SEIS towards technology and life sciences, including med tech, biotech, drug discovery, digital healthcare, etc.
The Chancellor’s drive towards supporting such sectors is equalled by his desire to ensure that the (S)EIS pay its way and is seen to be good value for money for the taxpayer. With mounting pressure on Treasury to reduce tax-loopholes, there are those who believe that EIS propositions which are labelled as ‘asset-backed’ or ‘capital preservation’ do not provide the risk return on investment that the Treasury wants to see from their flagship venture scheme.
It is clear that the UK Government views the advances made in the tech and medical spaces as vitally important to the performance of the overall economy. As an example of this impact, Deepbridge has invested in 19 EIS and 33 SEIS companies (across the tech and life sciences sectors) over the past 18 months and those firms have been responsible for products used in over 195 countries, with commercial sales or trials in over 30 countries.
These companies also employ over 350 staff – at its base level if all of those are on the UK’s national average salary of £27.6k pa, they will each be paying an average of £5.5k per year in income tax, which totals £2m; plus it’s widely believed that we all pay an additional £5k a year in indirect taxes, which would push the tax take up to a total of £4.75m per annum purely generated by that employment. Add in any additional tax revenue in the form of corporate taxes or VAT, and you can see what benefit the economy/Government sees when firms are securing funding, getting off the ground, and beginning to contribute right across the board.
We recently surveyed our investee companies and 100% of respondents confirmed that SEIS/EIS funding had been absolutely crucial to their business and to how they were able to develop and forge a product/service proposition.
It’s also important not to underestimate what these businesses are actually working on and that they are developing, launching and selling products which are changing people’s lives. This is not just about the collection of tax revenue, but it’s also about creating efficiency and cost savings in areas of the economy which have traditionally had difficulty in doing so.
The budget on the 22nd November 2017 could, and perhaps should, be the budget where the Enterprise Investment Scheme and Seed Enterprise Investment Scheme are relieved of the shackles of being associated with manufactured propositions which are not in line with how Government really wants such investments to be targeted. As the EIS sector’s experts in tech and life sciences investments, we have long promoted the ‘spirit of EIS’ and look forward to the Chancellor further defining this in the Autumn budget.
Andrew Aldridge is a Partner and Head of Marketing at Deepbridge Capital.