A Letter to the Chancellor: Part 2 – the key policy interventions needed

Ahead of the forthcoming budget in March, Jenny Tooth OBE on behalf of the UKBAA, wrote to The Rt Hon Rishi Sunak to share our views over a two-part post, we wanted to update you on our stance over what needs to be done as we move into Economic Recovery. Following Part 1, today we bring your Part 2 below:

A Letter to the Chancellor: Part 2, Taking Action

In Part 2 we take a look at the key policy interventions we would like to see made in order to address the issues highlighted through the data in Part 1.

Increasing Access to EIS/SEIS Tax reliefs to boost further investment 

For over 25 years the Government has supported the EIS scheme to enable individual private investors to invest in early stage and start-up businesses. This scheme was considerably boosted post the 2008 crisis when in 2012, the Government raised the tax relief threshold to 30% from 20% and introduced the new SEIS scheme offering 50% tax relief to back much earlier stage risky start ups. These two schemes have played a vital role in catalysing investment in early stage businesses and have been the most significant sources of investment at this stage.

Over £2bn was invested through the EIS scheme in over 4,000 businesses in the previous tax year. It will be extremely important to build on this scheme to attract many more individual private investors into the market.

EIS and SEIS have considerably boosted the potential of Angel investors to back very early stage innovation, bringing much needed early stage investment to support technological developments in new key areas of opportunity such as AI and IOT.   Notably, Angel investors have made extensive investments into pioneering early stage innovators throughout the Covid-19 crisis, backing innovation in key areas such as healthcare, life sciences, well-being, education, sustainable development and social impact. It will be vital to ensure that we can boost the participation of many more individuals across the UK as Angel investors, by ensuring they can access EIS/SEIS tax reliefs to mitigate their risks and incentivise them to commit their finances into this area.

As identified in the recent BBB Angel market report, 87% of Angels use the EIS/SEIS scheme, but there is a significantly lower level of take up and awareness of EIS/SEIS outside the Golden triangle  and this is mirrored by a very much lower level of angel investment capacity in the regions with only 1-5% of total capacity in most regions except Scotland.

Recommendations to Government on the SEIS/EIS scheme:

Provide funding to support a proactive UK-wide communication and marketing campaign to build greater awareness of EIS/SEIS and notably targeted at the regions outside the Golden triangle to encourage many more individuals across the regions to consider backing small businesses in their local economies.

Consideration of the opportunity to offer targeted increased levels of EIS/SEIS tax breaks to individuals willing to invest in businesses in the UK regions and to invest in businesses led by women founders and those from ethnic minorities.  This could be potentially time limited to end of 2021-22 tax year as part of the booster effect.

Consideration be given to replacing the age restriction currently set out for those receiving Stade Aid with a gross asset test, excluding employment numbers.  In relation to many key sectors this age restriction is not appropriate including biotech, also cultural and creative industries which may have a long developmental model before they are ready for equity investment.

Commitment to address and simplify the administrative processes concerning qualifying EIS/SEIS companies and in the processes for granting and dispersing the tax reliefs to investors will be vital to ensure effective access and efficiency.

Continue the existing benefits of CGT reduction and deferral available under the EIS/SEIS schemes to ensure that the schemes remain attractive and incentivise more individuals to angel invest.

Give assurances to the investment community that every effort will be made by the Government to ensure continuation of the EIS and SEIS schemes, and notably beyond the sunset clause of 2025 which was a condition for State Aid approval and which should now be amended.

Future Fund continuation: Ensure compatibility with EIS/SEIS investments

The Future Fund has provided an important measure of support by Government to enable businesses to access equity funds to address the impact of the pandemic and support their further growth. We recognise that there has been strong take-up by the Venture Capital Funds of the opportunities offered through the Future Fund for Co-investment funds offered through Convertible Loan Notes. However, the Fund model for co-investment, using the provision of a Convertible Loan Notes has directly precluded a huge proportion of the Angel Investment community who currently access the risk mitigation provision offered through the EIS and SEIS scheme, from making use of the Future Fund to support early stage innovating growth focused businesses, due oty the restriction of accessing Convertible Note Loans under the EIS scheme.

We recommend that any further versions of the Future Fund, or any  new co-investment schemes developed during 2021 to address the impact of the pandemic for small businesses, should seek to overcome these restrictions under State Aid of EIS/SEIS investments, or consideration be given to replacing the current ruling concerning EIS/SEIS that prevent the use of Convertible Loans.

Extending the Role and Capacity of the British Business Bank to support Angel Investing in the Regions

The Future of Growth Capital Report [1] identified a £15bn gap in annual equity funding available to   support growth funding for scaling businesses in the UK. The British Business Bank is a key part of the solution in addressing this equity gap for small business across the UK and has played a vital role during the pandemic. Its role and funding capacity should now be enhanced through the allocation of additional funds to enable it to build an effective pipeline of Patient Capital funding from start-up to scale -up, including replacing the loss of the EIF funds.

Notably, we identify that BBB funding should be increased to support the growth of angel and early stage investment across the UK regions.

The £100m Regional Angels Programme developed and managed by British Business Investments was established in response to the evidence from the BBB Angel market research in 2017-18 which revealed the concentration of angle investment in the Golden triangle and thin pools of angel capital outside the Golden triangle. The RAP has a critical role to play in helping to boost the level of angel investment across the regions.   However, there is a need to significantly boost the size of the RAP fund in order to build critical mass of available co-investment in UK regions and respond to the evidence of much lower levels of angel capital being made available by existing Angel investors due to economic uncertainty going forward.  Additional funding would bring greater firepower to existing angel investment and incentivise angel groups to commit further investment to regional small businesses.

We recommend that Government should allocate an additional £200m to increase levels of investments by angel syndicates in regional scaling businesses and to create a critical mass of funding to support angel investment across the UK regions.

We also recommend that the core requirements for the Operation of this fund should be reviewed to enable many more nascent Angel groups across the UK regions to take advantage of this Co-investment Funding to enable them to boost their investment capacity and attract many more angel investors.

The Need to Fund Angel Investment Capacity Building across the UK Regions

The presence of the EIS Schemes or the Co-investment Fund schemes alone have not been shown to be sufficient to stimulate individuals with relevant financial capacity and business experience to start investing in scaling early stage businesses, especially in the existing underserved regions outside the Golden triangle.

There is therefore an important opportunity for the Government to fund a proactive programme of capacity building to complement these schemes to ensure that there is sufficient Angel capacity to meet the existing equity gap identified for angel investment to support innovation growth focused businesses to support  economic recovery in the UK regions and to support the Government’s Levelling Up Agenda. This should be ideally delivered at regional level with national support to ensure awareness, education, recruitment, mobilisation and integration of new angel investors, including identification of lead angels and building syndicates.

This could build on relevant Angel capacity building models that have already been supported by Government funding such as: The Scottish Enterprise Angel Capacity Building programme; the DCMS Creative Scale-up Investor Pilot Capacity Building Programme, or looking at internationally, at the Canada Angel Support Programme.  (Further detailed information on these schemes is available).


There is an urgent need to address the lack of regional angel capacity and existing disparities in access to angel investment in the regions outside the Golden triangle to ensure innovating growth focused small businesses can access the risk capital they need to achieve their growth ambitions. This will be vital to support economic recovery in these regions and a key aspect of the Government’s Regional Levelling Up Agenda.

We recommend the following considerations by the Chancellor for the forthcoming budget:

Enhance and review the EIS/SEIS Scheme:

Fund the development of a regionally focused awareness campaign to Increase take-up of the EIS/SEIS scheme across the regions outside Golden triangle

Review potential to make a targeted increase in the level of tax relief to incentivise existing investors and attract new investors in the regions and those who are women and from underrepresented groups

Address existing administrative issues in relation to qualifying and accessing the reliefs

Assure the continuation of the EIS/SEIS tax reliefs after 2025

Address the parameters of the Future Fund or other relevant co-investment schemes, to ensure these are compatible with EIS/SEIS scheme and enable Angel-backed businesses to benefit from co-investment.

Build the capacity of the British Business Bank to increase the capacity of Angel investment across the regions, by increasing the Regional Angels Programme Fund by a further £200m providing a critical mass of funding to be deployed in the underserved regions.

Fund the development of a dedicated UK Angel Capacity Building programme focused on the regions to complement these fiscal and co-investment fund measures, to recruit, educate mobilise and integrate many more angel investors across the regions, drawing on good practice from existing models.

[1] Future of Growth Capital Report, SUI and Innovate Finance, August 2020

By UKBAA11 Feb 2021