Supporting Investors and Growth Firms: a Bottom-Up Approach to a Capital Markets Union

We were delighted to contribute in a small way to this publication by Policy Network, an international think tank and research institute (www.policy-network.net) and the authors were kind enough to send us a copy now that it has been published.

It’s a very interesting read – the publication examines the challenges small, high growth firms face in securing financing across Europe, and makes some recommendations to address these challenges. Its thorough and thoughtful research designed to influence policy makers – its a pleasure to read something that isn’t marketing literature for once!

We were asked to contribute to a case study of the EIS and SEIS schemes that was included, so obviously I was interested to see what they had to say about the UK’s tax advantaged venture capital schemes. I was pleased that the authors concluded that the number one priority was to improve the environment for investors in growth and innovative firms, and that the first suggestion that they had was to provide tax incentives for investors.

However, they go on to state that many of the people they spoke to about this in the course of their research raised political objections: the argument was the tax incentives for investment would lead to a shortfall in revenue that would have to be clawed back from higher taxes elsewhere.

I think there is a counter argument to this – these schemes can be a net benefit to the Treasury if they are well ran. The revenue collected from the investee firms in increased corporation tax, national insurance contributions and employees’ income tax is estimated to outweigh the initial tax expenditure.

I hope one day somebody will produce the empirical evidence that supports this logical (but anecdotal) point: it would make the case for increasing the scope of these tax advantaged venture capital schemes across Europe.

Dan