With the 31 January deadline for leaving the EU now fast approaching, it is no surprise that Brexit has reared its head during our latest round of VCT Showcase events.
Both managers and advisers agree that in many ways Brexit has become a background issue that has long been priced into the risk of any investment – whether in the tax-advantaged space or not.
However, scratch the surface and it becomes clear that there are issues that are playing on the minds of all concerned.
The issue has emerged during the Q&A sessions – hosted by Nick Britton from the Association of Investment Companies (AIC), which is partnering with Intelligent Partnership on these events.
Top of the list for most managers, it seems, is the question of skills. “Where we have seen Brexit cause concerns is on the talent side in investee businesses,” explained Jason Warren, from the Northern VCTs, during our event in Exeter. It was a concern reiterated at the London Showcase, where managers agreed that being able to attract and retain top talent – particularly in some of the specialist areas where VCTs can be most successful – is something that could be harmed by the UK’s exit from the EU.
How this plays out will not be decided by the end of this month, of course. Instead, this is an issue that will be settled later, as part of the trade deal that the UK hopes to agree with the EU by the end of this year.
The managers are hopeful that this will not only allow top talent to be attracted to the right business, but also give companies routes to overseas markets. “Half of the companies we invest in are already moving to global markets,” said Blackfinch’s Reuben Wilcock. “If people are not looking to the global market, we would be worried.”
Another question on the minds of managers is whether Brexit will result in a changing of the rules around VCTs. As Matt Johnson of Octopus pointed out in Exeter, EU State Aid rules have long constrained the level of tax relief that can be offered, so Brexit could be a chance to change that.
However, a speech by European Commission President Ursula von der Leyen at the London School of Economics in early January suggested any agreement with the EU would need the UK to stay close to current EU standards. “Without a level playing field on environment, labour, taxation and State Aid, you cannot have the highest quality access to the world’s largest single market,” she warned.
That suggests there are unlikely to be significant changes to the way in which VCTs operate – assuming, that is, the UK government does not want to rock the EU’s State Aid boat.
The likelihood of a stable regulatory environment was highlighted by Francesca Reynaud, of Calculus Capital. Speaking at the London Showcase, she said: “We have a lot of discussions with the government, so we would like to think we would be aware of any rule changes coming. The election outcome hopefully means the tax reliefs will be staying.”
Overall, the managers remain optimistic on the future of VCTs, regardless of what may happen after 31 January. Alluding to the fact that 2020 marks the 25th anniversary of VCTs, John Davies of Seneca said: “VCTs have been the bedrock of small business growth since their inception.”
Puma’s Charlie Stoop reiterated this point in a later interview with Intelligent Partnership, underlining the continued strong pool of investee companies looking to benefit from VCT investment.