VCTs to drive the UK economy: Octopus

Investors using venture capital trusts play a crucial part in helping the UK’s small businesses boost the British economy, research from Octopus Investments has found.

Together with the Centre for Economics and Business Research, the VCT provider released a 28-page report, High Growth Small Business 2014, which showed that, on average, Britain’s high-growth small businesses created 5,000 jobs a week from 2012 to 2013.

These firms make up just one per cent of British businesses, but the research shows they generated 36 per cent of UK economic growth.

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Simon Rogerson, chief executive of Octopus Investments, said: “We need to do everything we can to ensure that smaller businesses can continue to thrive and get the funding they need.

“Government initiatives such as VCTs and enterprise investment schemes are a crucial channel for funding for these types of business.

“Not only are they established planning tools for advisers and their clients, but they give investors access to a really important and relatively unsupported asset class that should be considered as part of their investment portfolio for the diversification and growth potential they offer.”

He pointed to figures from HM Revenue & Customs, which suggested there has been an eight-year high for VCT fundraising, with more than £400m raised in the tax year 2013 to 2014, compared with just over £200m raised in the 2006-07 tax year.

Mr Rogerson said this figure should rise further in the face of pension legislation changes.

Background Box

Earlier this year, in the Britain Open for Business report, the government announced plans for tax relief to venture capital trusts and enterprise investment schemes.

John Allan, national chairman of the Federation of Small Businesses, said: “The report shows that some small firms play a disproportionately large role in creating growth, innovation and new jobs.

“It highlights how important it is for policymakers to give their backing to small businesses and endeavour to create a business support environment that allows these businesses to grow and prosper.

“A key element to this will be making sure businesses, wherever they are located, have access to a range of finance options to support their ambitions to grow.”

Adviser view

Kevin Croker, of Derbyshire-based Crokers Financial Planning, said: “Certainly VCTs and EISs are driving the economy because without that seed capital you wouldn’t get the type of money that would be required to set up the business.

“The banks won’t touch any new ventures unless they are already successful.

“The clients I would suggest go into them will be quite limited because they have to accept higher-risk portfolios and they also need to not put all their capital there.”