The Business Secretary backed yesterday’s publication by CentreForum, which said small and medium-sized firms are facing a £59bn funding gap over the next four years. The think tank said fast-growing companies are being held back because Britain’s tax rules treat debt finance more favourably than equity.
It called for a range of measures, including the abolition of stamp duty on all share transactions or, if the Government regarded this as too radical, just those on so-called “growth markets” like Aim.
CentreForum also said the rate of Capital Gains Tax on shares should be reduced to account for corporation tax paid, which is already done for dividend income, reports The Telegraph.
Mr Cable said the report contains some “interesting ideas”. It was also backed Xavier Rolet, chief executive of the London Stock Exchange – who has long called for the same stamp duty move – and John Cridland, director general of the CBI.
Mr Rolet said: “Improving access to equity finance for small and growing businesses should be an absolute priority for both policymakers and market participants. Job creation and growth rely on the ability of our entrepreneurs to adequately finance their ambitions, while avoiding over-reliance on debt.”
CentreForum also called for retail savers’ stocks and shares Individual Saving Accounts to include shares traded on SME markets such as Aim. George Osborne, the Chancellor, has already signalled that he is considering the merits of this move.
Separately, it has emerged that funds which provide more than £700m of equity capital to small businesses may be excluded from controversial rules that will curb sales of certain investment vehicles. The indication from the Financial Services Authority follows warnings from investors and small business advisers that a plan to limit the marketing of tax-efficient investment schemes could “severely restrict” a key source of funds for entrepreneurs.
The FSA had planned to include Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) backed funds in guidance on investment vehicles that can be sold only to “sophisticated investors”.
However, following complaints that the plan would choke off vital funds at a time when other sources of capital remain subdued, this week the regulator said it was “considering amending” the proposals. VCTs and real estate investment trusts are among the funds that could be excluded from the rules.
The regulator also said that it is “aware of concerns” in relation to EIS and so- called “seed” EIS schemes (SEIS) and was “considering these issues further”.
“It is important to find the right balance between consumer protection and choice,” said David Geale, the FSA’s head of investments policy.
VCTs are investment trusts that invest in unquoted shares, usually in private companies although they can include some Aim and Plus market shares. EIS and SEIS provide generous tax breaks, including capital gains tax relief, for equity investors in start-ups.
When the FSA announced its plans in October, Tim Smith, an accountant at Baker Tilly, warned that if EIS and VCTs were not excluded it would “significantly reduce this vital source of funding for SME companies, at a time when obtaining external funding, including bank finance, is still extremely challenging”.
There were also complaints that generous tax breaks were being “restricted to the rich”.
The proposals do not seek to ban retail sales but “only limit the extent to which firms may promote these products”.
The FSA said it will publish a statement on the issue in April, with new rules likely to be implemented next year.