Rishi Sunak – 2017 Speech on the Finance Bill
The speech made by Rishi Sunak, the Conservative MP for Richmond, in the House of Commons on 18 April 2017.
From the discovery of Australia to the invention of the cat’s eye, the history of Yorkshire’s people is nothing if not entrepreneurial. That spirit is alive and well in my constituency in particular. From Heck sausages to Tennants auction house and the Wensleydale Creamery, ambitious SMEs are at the heart of our community and economy. Before I arrived in this place, I spent my career investing, backing businesses like those with the capital they needed to grow. I am delighted that this Finance Bill recognises what my years in the investment industry taught me—that ready access to finance is the fuel of success for ambitious SMEs, just as successful SMEs are the fuel of a prosperous economy. Yet, as I have said in the House before, the UK funding landscape for growth businesses presents challenges.
Just 3% of British companies manage to expand beyond 10 employees—half the success rate of businesses in America. The UK has a relatively shallow bond market for early stage businesses, and a venture capital sector that is just a seventh the size of America’s. British entrepreneurs often face an uphill struggle to attract equity risk capital. That is why the Government have enhanced the enterprise investment scheme and created the seed enterprise investment scheme. Since their inception, these programmes have together helped more than 3,000 companies to raise more than £15 billion in early stage finance. The Finance Bill builds on that success to ensure that these schemes help even more small businesses to access investment, grow and create jobs.
Under the current regulations, shares with a right to future conversion are unfortunately regarded as a pre-arranged exit, making them ineligible for EIS and SEIS. But that goes against the reality of conversion arrangements. Far from opening the door to tax avoiders, conversions are often a crucial mechanism for facilitating an initial public offering. If an SME has the ambition to accelerate its growth through accessing the public markets, the Government should not stand in the way. I am pleased to say that the Bill addresses that anomaly. However, there is more we can do.
Many lawyers, accountants, investors and entrepreneurs say that the EIS process is often too complicated and takes too long. The Government’s recent consultation on the advance assurance service, which lets HMRC assess a firm’s EIS eligibility before it seeks funding was welcome, and provoked ideas about what we can do to speed things up. First, I can see the logic for introducing some form of fee for advance assurance. This would help to raise the resources necessary for HMRC to provide a smoother service with greater transparency around processing times and specific dates for document review. Secondly, we could look at the use of standardised documentation, which would save time and money for all participants, enabling HMRC to speed up its approvals.
Thirdly, we must look at how to simplify the EIS rules and their interpretation. Of course, provisions must be made to stop tax avoidance, but the widespread view of practitioners is that the pendulum has swung too far the other way. In the words of one leading venture capital lawyer, there are now “too many gotchas” in the current set of rules. In general, it is the view of the EIS Association, admirably chaired by Lord Flight, that a large part of the reason for this complexity is the need for our laws to comply with EU state aid rules. I hope that when we leave the European Union, the Government will have the opportunity to look at simplifying the EIS rules and ensure that our SMEs get the capital they need to flourish.
I will briefly touch on two other points in the Bill: tax reliefs for sports clubs and companies donating to them; and museums and touring exhibitions. The internet enables us to be so much closer, but we cannot replicate the presence of being close to a Barbara Hepworth sculpture or looking at Shakespeare’s first folio. The Government’s incentives to take exhibitions around the country will enable us all to share in our cultural history and heritage.
When it comes to backing small businesses, this Finance Bill—like the others that came before it—shows wholeheartedly why this Government’s record is unmatched. As the British voters decide in the next few weeks who can best steward Britain’s economy, I commend this Bill to the House.
