AIC attacks Osborne over VCT ‘question mark’

The lobbying body for investment fund managers has defended the value of venture capital trusts (VCT) after Chancellor George Osborne suggested there is a ‘question mark’ over the scheme’s merits.

Association of Investment Companies director general Ian Sayers warns the government against scrapping the trusts, which have big tax reliefs for investors, saying the investment vehicles make a ‘significant contribution to UK growth and prosperity’.

Sayers says, ‘Any suggestion that the scheme should be scrapped is inappropriate in today’s challenging economic environment and risks throwing the baby out with the bathwater.’

Osborne has been quoted as telling an event in Cheshire last week that the government is re-examining the income and capital gains tax incentives granted to VCTs ahead of the Budget later this month.

He says one issue he wants to address is the ‘lack of equity finance’ for high-growth companies. He says that while the Entrepreneurship Investment Scheme is ‘working’, he has concerns about VCTs.

Osborne has been reported as saying, ‘With the VCT scheme, there's a question mark over whether it's real venture capital, and risky in a good sense of investing in growth businesses.’

The Chancellor comments are another blow for VCT managers who are still reeling from the government’s policy change last month to review feed-in tariffs a year earlier than planned. A raft of VCT managers has suspended products that focus on the solar industry in light of the decision.

Sayers says in the past 10 years VCTs have invested in more than 750 companies, which ‘would otherwise have struggled to raise capital’.

He adds, ‘We are very concerned that the Chancellor is questioning the merits of the scheme.  It is doubly surprising that VCTs are being compared unfavourably with the Enterprise Investment Scheme as they have similar investment rules and play a complementary role.’

‘There is value in ensuring the scheme is properly maintained to ensure that there is no scope for loopholes.  We would be pleased to work with the government to address any concerns it may have in this area but it should not take precipitate action which will undermine its own ambition to stimulate the UK’s enterprise economy.’