What are the biggest challenges facing VCTs in 2023?
After a period of economic uncertainty, there are now encouraging signs for the UK economy with the Office for Budget Responsibility forecasting that CPI inflation will fall to 2.9% by the end of 2023. Economic growth remained steady in the final quarter of 2022 with business investment growing by nearly 5% and the UK is now expected to avoid a recession this year.
However, wage inflation remains persistently high with average pay growing to an annual rate of 6.7 per cent in the final three months of 2022 and high levels of vacancies in the skilled labour market coupled with a relatively low redundancy rate remains a key issue for SMEs looking to attract new talent as part of their growth plans.
Despite these challenges, The Venture Capital sector continues to play its part in supporting economic growth and some interesting statistics have recently been published which show the valuable contribution made by our industry to the economic success of the nation. In a report commissioned by the Venture Capital Trust Association in conjunction with the All Party Group for Entrepreneurship, the analysis revealed a 17-fold increase, to £27.7bn, in the amount invested in emerging UK companies between 2010 and 2021, supporting more than 7,600 companies. Globally, the UK is third only to the US and China in terms of investment despite having a much smaller economy than countries such as Germany and Japan.
Do you think tax rises for investors will push VCTs into the mainstream this year?
Our experience at Maven in recent years is that both investors and financial advisers already see VCTs as a much more mainstream financial planning tool. Indeed, from April 2022 to February 2023, VCTs attracted over £660 million worth of investment, indicating that VCTs are a long way from being a fringe solution.
We anticipate that VCTs will continue to go from strength to strength as a growing number of investors look to benefit from the impressive long-term record of returns achieved by leading VCT managers such as Maven Capital Partners, allied to investors looking for alternative tax fee investment options and sorces of income.
Clearly, many investors this year will be drawn to VCTs by the initial tax relief and the ability to generate a tax-free income. However, our experience at Maven is that investors are increasingly attracted by the ability of VCTs to provide exposure to highly diversified portfolios of carefully selected ambitious smaller companies, allowing them to back the most innovative and dynamic of British business. VCT investments also support innovation and job creation throughout the UK, enabling investors to support companies which will play a crucial role in the UK's economy for decades to come.
Do you believe it will be another record-breaking year for VCT fundraising? If so, why?
While we see a continued strong appetite for investment in VCTs, as they continue to play an important role in portfolio diversification and supporting the SME sector, we don't anticipate that VCT fundraising levels during the current season will match last year's. While fund raising will undoubtedly remain strong, there is inevitably a degree of caution amongst both investors and advisers regarding the current macroeconomic and inflationary environment.
Do you believe the current government will continue to support the extension of the VCT sunset clause?
The government's decision to extend the VCT sunset clause beyond 2025 was welcome and we think is unlikely to change, regardless of which administration is in office. We believe that there is widespread recognition within both the current government and the labour party that VCTs bring significant wider benefits to the UK economy and should receive ongoing government support. As a crucial part of the SME funding eco-system, VCTs have supported the creation of rich intellectual property and highly skilled employment across the UK regions.
The decision to extend the clause confirms the Government's acknowledgment that tax incentives encourage private investors to support smaller, high growth businesses. VCTs are at the heart of this initiative, providing emerging companies with capital to help them develop new products, enter new markets, enhance their management teams and refine their business strategies.
Maven's senior team works closely alongside our peers and with the relevant industry bodies (such as the VCTA and AIC) to maintain a constructive dialogue with HM Treasury to ensure that the industry has meaningful engagement with legislators in demonstrating the positive role played by VCTs in supporting the UK's renowned SME sector.
