With a new Chancellor in place, all bets are off when it comes to next month’s Budget. So what can business leaders hope for from the Treasury?
As a Yorkshire MP, Rishi Sunak will no doubt be fully behind the Prime Minister’s ‘levelling up’ agenda, which has so far been dominated by plans for a splurge of Government spending on infrastructure. As a former financier, he will know that spurring private business investment is an equally important part of the puzzle.
The Prime Minister’s new right-hand man can combine these two facets by backing the start-ups and scale-ups that drive job creation, innovation, and investment in each corner of the country.
While entrepreneurs have tended to favour the confines of the M25, sky-high living costs and business rates in the capital are already encouraging them to look elsewhere. The economies of Bristol, Edinburgh, Manchester and others have seen a surge in enterprise of late, across sectors like creative and digital.
But hoping London’s prohibitive rental rates alone entice founders to look elsewhere won’t be enough – access to finance will need to improve across the country first. Right now, a firm outside the capital is up to 50% less likely to get equity funding, according to recent research.
To tackle this deficit, the new Chancellor can boost the incentives for investors to back growing firms. The enterprise investment scheme (EIS), which gives investors income tax relief on their investments into growing firms, has been particularly successful in achieving this. Since its introduction in the mid-1990s the EIS has unlocked over £20 billion in funding for around 30,000 SMEs, while seed EIS (SEIS) for investing in start-ups has raised £1bn since launching in 2012.
It is now time we loosened the restrictions on these schemes to supercharge post-Brexit economic growth. For example, the maximum amount that can be invested in a company under SEIS should be at least doubled from £150,000 to £300,000 to raise even more funding for new business ideas, while the company age restrictions should be untied. Many businesses don’t follow a textbook model from start-up to growth, and we shouldn’t handicap ‘late bloomers’.
The Treasury, under new management, can also seek to sweeten the deal outside London and the south-east, where around two-thirds of EIS and SEIS deals currently take place. Just as it considers rewriting the rulebook to balance infrastructure spending, the Government could pilot a scheme offering higher reliefs in the North. A discussion on region-specific investment incentives, to stimulate left behind areas, is long overdue. The extra attention a higher rate would receive would not only drive up investment in the regions it’s piloted in, but could also raise awareness of the scheme more widely, boosting investment across the UK.
There’s another source of regional dynamism that needs tapping into. The UK is fortunate to boast world-class universities across each of our regions. But while our academics excel in new citations, we’re weaker at commercialising our knowledge. Simply put, when it comes to Research and Development, we’re far better at the ‘R’ than the ‘D’.
To change this, universities should be encouraged to invest in the ventures of their students, and collaborate even more with local start-ups by further expanding Knowledge Transfer Partnerships. There’s no reason why the UK shouldn’t aspire to the level of crossover that exists between academia and innovation in the US, which has catalysed the growth of the Silicon Valley.
High-growth, small businesses should feel as confident in taking root in Sheffield just as much as Shoreditch. The new Government shouldn’t be content to just level up the regions. By backing entrepreneurial activity, it can give them an edge.
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