Anyone feeling any different yet? A little more ‘liberated’, perhaps? Thought not: after all, the UK’s exit from the European Union on 31 January has not really changed anything on the ground.

Prime minister Boris Johnson’s Brexit deal means that the UK will remain bound to EU rules for the rest of 2020, so the only real changes caused by the 31 January change is that we no longer have any MEPs and British ministers no longer have the right to attend EU summits.

However, there is some hope that the next 11 months will allow the UK to develop a new position in the world at last – one that was promised in the 2016 referendum. Whether you’re a Brexiteer or Remainer, most would agree that the last three years have not exactly been the triumph that Johnson, Farage, et al had imagined.

Which may be why some are looking at the upcoming trade talks with a sense of optimism, thinking about what the UK could be doing. 

One of those hoping to see some positive outcomes is the Enterprise Investment Scheme Association (EISA), which has set out something of a roadmap for a new, brighter future for the Enterprise Investment Scheme (EIS).

State Aid

In the week after Brexit day, the organisation published four “key calls” for the government to improve the way EIS works. One of those calls was for a negotiation with the EU to “loosen the EU State Aid and Risk Finance Guidelines limits as soon as practically possible”. This, the EISA said, would “allow both for an increase in the levels of investment as well as liberalising the legislation thereby ending restrictions on investment”.

On this issue, the EISA may be pushing at an open door in government, with Prime Minister Brois Johnson and Chancellor Sajid Javid having suggested they would be keen to diverge from EU rules in the years after Brexit.

Unsurprisingly, the EU is not likely to agree, and as the opening salvos in the trade talks are made, the EU’s chief Brexit negotiator Michel Barnier warned that issues such as State Aid could be fundamental to any trade deal. 

Even if the UK does manage to go its own way on State Aid, it’s questionable how much appetite there would be in government to make substantial changes to EIS – after all, a lot of work has gone in over recent years to create VCT and EIS structures that push the focus onto companies with high growth potential.

The EISA is also keen to see improvements in the administrative processes around authorising EIS and SEIS companies and granting tax relief for investors. Certainly, if the government is serious about helping to boost investment into British businesses as a way of mitigating any negative economic impact as a result of Brexit, this could be a fairly simple way to help. Whether ministers will go for such an option, or prefer grander gestures through creating new initiatives instead of tweaking existing ones, remains to be seen. The new government has, of course, inherited a number of changes to the administrative process for EIS, such as digitalisation and a streamlined advance assurance process that has cut out speculative applications. How these changes will impact the speed of the process is not yet entirely clear.

The same may be said for another of the EISA’s recommendations: raising the profile of EIS and SEIS. On the plus side, the Conservative manifesto trumpeted these initiatives as great success stories, so it may be hoped that they will choose to build on this success.

Finally, the EISA argues for increasing – or removing completely – the threshold for EIS and SEIS investment. Again, this is certainly something that could be implemented if the UK is fully free of EU rules once the trade talks are completed.

“As we now look to negotiate what our independent future looks like, we have the opportunity not just to ensure that these schemes continue, but that they are improved to provide even greater support to this vital sector of our economy,” said Mark Brownridge, EISA Director General.

Compromise or collapse?

So can we expect some kind of EIS utopia in the wake of Brexit, where investors will be unconstrained in their ability to put cash into Britain’s growth businesses?

While on the one had such a scenario may be possible, the negotiations with the EU are highly complex, covering an incredibly wide array of issues and sectors. As in all negotiations, compromises will need to be reached and while over the next 11 months there may be plenty of sabre-rattling on both sides, the truth is that a trade agreement with the EU is far more preferential to both sides’ interests than no deal at all.

So while there may be some arrangement over State Aid rules, for example, there is no guarantee this will suddenly lead to a liberation of the EIS rules.

It’s right that the EISA puts forward its ideas now, while negotiating positions are still being developed. “We will look to work closely with the relevant departments to ensure we achieve the best outcome possible,” added Brownridge.

But for now, this is all the industry can do – while remembering that every other industry and lobby group in the UK and EU will be doing the same.

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