The Chancellor should make green infrastructure projects eligible for the Enterprise Investment Scheme (EIS) in the upcoming March Budget, says Growthdeck, a private equity investment firm.
Growthdeck believes that opening up EIS to green infrastructure projects again will help towards meeting the UK’s goal of bringing greenhouse gas emissions to net zero by 2050. Investment into these projects will provide SMEs with a much-needed boost in capital and create more jobs, benefitting the overall UK economy.
In 2015, the Government decided to ban investments into energy generating activities through EIS, including investment into renewable energy infrastructure. This was designed to encourage investments into higher risk trading companies, which were being overlooked by investors.
Growthdeck says, with the Government fast-tracking the ban on sales of new petrol and diesel cars from 2040 to 2030, there are concerns that the switch to electric vehicles is yet to be catered for. The UK will need to increase its supply of electric car charging points, which EIS could help towards funding, if the scheme were opened up again.
There is also scope for EIS to be extended to other sectors that are currently excluded, such as the hotel industry, which has suffered a dramatic fall in profits as a result of lockdown. Reports suggest it could take years until hotels reach pre-Covid levels. By allowing investment into the sector, this could help prevent closures of previously profitable businesses.
Gary Robins, Head of Business Development at Growthdeck, says that the Chancellor should revisit shelved plans to increase the income tax relief on EIS investments from the current 30 per cent to 50 per cent. That plan was halted several years ago due to concerns that the European Commission might object. However, with the UK now outside the EU, this is less of a problem.
Many smaller businesses rely on EIS to attract private investors. The scheme plays an important role in the funding of growing SMEs, attracting GBP1.8bn in investment in the last year alone. Sectors which currently benefit under the scheme include:
• 1,225 companies in the tech sector, raising over GBP540 million in 2018/19
• 615 companies in the scientific/research sector, raising GBP330 million in 2018/19
• 500 companies in the manufacturing sector, raising almost GBP240 million in 2018/19
Growing businesses are able to raise up to GBP5 million per year through EIS, while investors can invest up to GBP1 million each year and claim 30 per cent in income tax relief. Other tax benefits for investors include normally paying zero Capital Gains Tax on profits from EIS investments if shares are held for at least three years, but zero inheritance tax on EIS shares if only held for two years.
Robins says: “In order to meet the Government’s net zero goal, a flow of capital into the UK’s green infrastructure will be key. Broadening the vital EIS funding pipeline to these projects must be part of this.
“EIS investments have been vital in encouraging growth of early-stage tech businesses in the UK and would also stimulate the expansion of green energy projects. Increasing the number of electric car charging points in the UK is crucial but growth is still too slow. If EIS funding were channelled into that area, it could make a significant difference.
“It is also worth considering opening EIS to include sectors which have been hard hit by the current pandemic. Sectors like hotels would benefit from much more investment.”
