SCALEUP INITIATIVES AUTUMN MINI BUDGET 2022
In the face of increasing pressures of inflation and wider international uncertainties, we welcome the Government’s Growth Plan which places scaleups at its centre. It reaffirms policies on skills, talent and innovation and announces new investment initiatives which take forward the ScaleUp Institute’s long-standing position on the importance of unlocking long-term patient capital.
We will continue to work closely with the Government on the evolution and development of these policies which are so vital to our scaleup economy.
The most important announcements for scaleups relate to measures designed to stimulate the investment landscape. These include : the establishment of the Long-term Investment for Technology & Science (LIFTS) initiative which will provide up to £500 million to crowd in wider private sector investment, expected to go live next year and led by the British Business Bank; bringing forward draft regulations to adjust the regulatory charge gap for UK pension funds to encourage them to invest in the UK’s most innovative businesses and the intent to address Solvency II rules in the near future. The ScaleUp Institute has been at the heart of discussions across these matters since inception and in detailed working groups encompassing the Council of Science and Technology; the Fintech Strategy; the Life Science Taskforce, work with the Bank of England and of course the 2017 Patient Capital Review. These initiatives also pick up on key points made in our Annual Review 2021 and the Future of Growth Capital Report with Deloitte and Innovate Finance in 2020.
Importantly, for earlier stage investment, the Government will also increase limits for SEIS and the Company Share Option Scheme, as well as remaining supportive of the EIS and VCTs, “seeing the value of extending them in the future.” This picks up SUI evidence provided in consecutive years in multi forums on the criticality of these schemes to our scaling economy: Angel investors and VC/VCT are essential to scaling businesses, with 49% of scaleups receiving Angel investment, and 54% utilising VC investment.
The Government will also be making permanent the current £1 million level of the Annual Investment Allowance for companies investing in plant and machinery and reaffirmed R&D pans, with scaling businesses heavy investors into innovation and expansion this is also crucial
In relation to Levelling Up, the Chancellor intends to create investment zones across the UK where specific tax incentives and rates for businesses will be in effect, as well as streamlined planning rules. We know the Drivers of local growth include the fostering of clusters and access locally to growth capital and skilled talent so will closely monitor the development of these as they emerge.
The majority of wider announcements made were related to taxation measures and reliefs to tackle both the cost of living crisis and inflationary pressure from energy bills for both consumers and businesses which have been well trailed.
Key measures, outside of these, relevant to scaleups are set out thematically below:
People, Leadership, Talent
- The Scaleup visa – launched over the summer – is further affirmed by HM Treasury noting the importance of the introduction of Global Talent, High Potential Individual, Scale-up Worker and Global Business Mobility visa routes as key to ensuring businesses have access to the right talent.
- Alongside this the government notes it will set out a plan in the coming weeks to ensure the immigration system supports growth whilst maintaining control.
Support for R&D and Innovation
- The Budget reaffirms support for the reforms to R&D tax reliefs announced in 2021 following their review: including bringing pure mathematics research within scope of the reliefs, including data and cloud computing as new qualifying costs and refocusing the reliefs towards innovation in the UK. The Government will continue the review, with any further reforms announced as usual at a fiscal event.
- The Fiscal Statement highlights the role that net zero emissions can play in supporting growth and announces an independent review Chaired by Rt Hon. Chris Skidmore MP into how to deliver our net zero commitment while maximising economic growth and investment, supporting energy security, and minimising the costs borne by businesses and consumers. The Chair will report by the end of 2022.
- Cancelling the Corporation Tax rate increase – The previously announced planned increase in the UK Corporation Tax rate from 19% to 25% that was due to take effect in April 2023 will not go ahead. Companies will continue to pay 19% on their taxable profits.
Private sector investment: SEIS, CSOP and VCTs
- Seed Enterprise Investment Scheme (SEIS) – From April 2023, companies will be able to raise up to £250,000 of SEIS investment, a two-thirds increase. To enable more companies to use SEIS, the gross asset limit will be increased to £350,000 and the age limit from 2 to 3 years. To support these increases, the annual investor limit will be doubled to £200,000. These changes will help over 2,000 companies a year that use the scheme to grow.
- Company Share Option Plan (CSOP) – From April 2023, qualifying companies will be able to issue up to £60,000 of CSOP options to employees, double the current £30,000 limit. The ‘worth having’ restriction on share classes within CSOP will be eased, better aligning the scheme rules with the rules in the Enterprise Management Incentive scheme and widening access to CSOP for growth companies.
- The government highlighted support for VCTs and the value of extending them in future;
- Annual Investment Allowance – The government will support UK businesses by making the temporary £1 million level of the Annual Investment Allowance permanent, instead of letting it fall to £200,000 after 31 March 2023. This will support business investment, provide businesses with more stability, and make tax simpler for any business investing between £200,000 and £1 million in plant and machinery.
- Streamlining Local Growth Funds – Alongside wider points to stimulate investment, the Government does note that it intends to streamline the number of competitions, grants and funds at a local level over the next two years, which it states has become onerous for some councils to navigate and deliver.
- Delivering reform of the pensions regulatory charge cap – The government will bring forward draft regulations to remove well-designed performance fees from the occupational defined contribution pension charge cap, ensuring that savers benefit from higher potential investment returns while providing clarity for institutional investors to help unlock investment into of the UK’s most innovative businesses and productive assets.
- Unlocking institutional investment into innovative UK Scale Ups – The government will launch the Long-term Investment for Technology & Science (LIFTS) competition, providing up to £500 million to support new funds designed by institutional investors and world-class fund managers, aiming to crowd billions of pounds of private investment into UK science and technology businesses. Following a short period of industry engagement led by the British Business Bank, the government will launch a call for proposals by the end of the year to identify promising fund structures and vehicles, with the intention that funds go live as soon as possible next year.
Infrastructure and Levelling Up
Investment Zones – The government will work with the devolved administrations and local partners to introduce Investment Zones across the UK. Investment Zones aim to drive growth and unlock housing. Areas with Investment Zones will benefit from tax incentives, planning liberalisation, and wider support for the local economy.
Areas hosting Investment Zones will benefit from:
- Lower taxes – businesses in designated sites will receive time-limited tax benefits. Businesses in designated areas in investment zones will benefit from 100% business rates relief on newly occupied and expanded premises. Local authorities hosting Investment Zones will receive 100% of the business rates growth above an agreed baseline in designated sites for 25 years.
- Full stamp duty land tax relief on land bought for commercial or residential development and a zero rate for Employer National Insurance contributions on new employee earnings up to £50,270 per year.
- To incentivise investment there will be a 100% first year enhanced capital allowance relief for plant and machinery used within designated sites and accelerated Enhanced Structures and Buildings Allowance relief of 20% per year.
- Accelerated development – there will be designated development sites to both release more land for housing and commercial development, and to support accelerated development. The need for planning applications will be minimised and where planning applications remain necessary, they will be radically streamlined. Development sites may be co-located with, or separate to, tax sites, depending on what makes most sense for the local economy.
Wider support for local growth – subject to demonstrating readiness, Mayoral Combined Authorities hosting Investment Zones will receive a single local growth settlement in the next Spending Review period.