New research from the Association of Investment Companies has found that a continued commitment to Venture Capital Trusts (VCTs) is the ‘best way to support the UK’s enterprise economy’.

Companies which have had VCT investment have typically experienced a 47 per cent increase in employment, according to the figures in Supporting enterprise and growth: the role of Venture Capital Trusts, showing that it encourages job creation.

Based on the report’s finding, the AIC has claimed that support for VCTs should be incorporated into the plans of any future Government, in order to support innovation and growth in the UK’s small business community.

VCTs support enhanced economic growth and employment in smaller companies, it says, as £973million was invested in 384 unquoted UK companies between April 2004 and April 2009.

The average amount invested in any one company by VCTs was £2.5million, but this could rise, as recent market developments are expected to increase the VCT sector’s focus on using this type of investment as a substitute for lending where small businesses are struggling to find funding from banks which have withdrawn from the sector.

The areas attracting the most VCT investment are the leisure and hospitality industries, accounting for a little under 20 per cent of the capital invested, followed by business services (13 per cent), industrial businesses including manufacturing, engineering and electronics companies (12 per cent), the environmental sector (six per cent), and healthcare (almost nine per cent.)

Furthermore, VCT investment in cost-effective, says the AIC, because the cost to the public of the tax cuts available to VCT investors is offset and eclipsed by the tax returns generated by the companies supported by VCT funds.

Ian Sayers, director general of the AIC said: “This research demonstrates that VCT investment provides substantial benefits for UK small businesses and the economy. We urge policymakers to reaffirm their commitment to VCTs which are the best way to support enterprise and future economic growth.”

VCTs have provided important funding, and management input, for companies across the UK, Mr Sayers continued, which has boosted their performance and in turn helped increase employment. 

“They operate in a way which, in the short to medium term, pays for itself and over a longer period creates capacity for higher tax revenues,” he added. “New initiatives are unlikely to have the substance or staying power of the well established VCT network.”

© Fair Investment Company Ltd

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