MPs have criticised the venture capital industry for failing to invest in firms outside London and the South East or in businesses led by women and ethnic minorities.
In a Treasury committee report, published today (July 24), cross-party MPs criticised “unacceptable diversity statistics” in VCTs.
It said businesses with all-female founders received 2 per cent of all venture capital funding in 2021, while fewer than this went to black and ethnic minority-led businesses.
Chair of the Treasury committee, Harriett Baldwin, called it a “shocking dereliction of duty” given government support for the industry through tax reliefs.
She added: “In the twenty-first century, it shouldn’t come as a surprise to investors that women and those from ethnic minority backgrounds can start successful businesses.
“Given public funds play a key role in the success of the UK’s venture capital sector, more must be done. Firms must be compelled to reveal their diversity data when applying to these tax reliefs in an effort to increase transparency and drive change.”
The report also called for progress on the sunset clause which could see tax relief for venture capital trusts (VCTs) expire in April 2025 unless amended.
The report reads: “The chancellor has told us he does not see a barrier to [extending the clause]. However, despite our raising concerns repeatedly, the Treasury has not provided a clear plan and timeframe for this extension.
“As the April 2025 deadline draws closer, this lack of firm action is damaging given that investment relies on the certainty of such support.”
The call for action was welcomed by the Association of Investment Companies (AIC).
Chief executive of the body, Richard Stone, said: “The report finds that the VCT scheme is crucial to funding small, high-potential businesses in the UK.
"However, it also highlights the potential for the scheme to do more in some respects, for example by spreading investment more evenly across the UK’s regions. It sets out sensible suggestions for achieving this, including revisiting the age limit on eligible VCT investments.”
Stone added that it is clear more needs to be done to make sure recipients of VCT funding are “representative of the UK’s diverse population”.
Nicholas Hyett, investment manager at Wealth Club, called the committee’s report a “ringing endorsement of the UK’s current tax efficient venture capital schemes”.
He added that the investment service would like to see the sunset clause dropped entirely.
Hyett said: “We would have liked the committee to take advantage of the UK’s position outside the EU to recommend it was scrapped altogether. VCTs and EIS have proven their value over nearly thirty years, and the regular uncertainty caused by repeat sunset clauses is unhelpful.”
tara.o'connor@ft.com
