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Rt Hon Rishi Sunak MP

HM Treasury,

1 Horse Guards Road, London, SW1A 2HQ


11th January 2021


Dear Chancellor

Recession as the Mother of Innovation (and buyouts)

As we emerge from the pandemic there will need to be considerable support from the private sector to save jobs and boost the overall UK economy in our collective ambition to Grow Back Better.

This recovery will involve a major re-structuring of many industries and the acceleration of significant structural changes which were already underway. These changes will need substantial growth capital investment of the type provided by Venture Capital Trusts. To this end we are writing to seek your support to expand this capital investment by requesting that the VCT rules are changed so that VCTs can invest in businesses that have been trading for more than seven years and in management buyouts. At this critical point the benefits of saving established and viable SME businesses through buyouts outweigh those that flow from investing in start-ups.

The VCT industry is currently investing almost £500m per year into UK businesses. This rate of investment into our economy might be expected to increase very substantially if the VCT rules were relaxed in this way – and there would be no loss to the Exchequer if the tax relief given by HMG on the new money invested matched the tax collected by HMG on the cash paid out to the retiring entrepreneurs. Further, as there would be no balance sheet loss to the Exchequer there would be no net state aid – whatever new rules may be applied post Brexit.

Such a change to the VCT rules would facilitate the efficient recycling of risk from one generation of entrepreneurs to the next and mobilise the deep management skills available from experienced fund managers in business restructuring.

VCT managers have the experience, expertise and fund firepower to help buyout entrepreneurs navigate their way through the current  challenges. The lifting of the current restrictions which we are proposing would make sense for the recession entrepreneurs, for VCT investors who can fund them, for the Government in terms of the overall tax benefit and finally for the UK economy as a whole.


Yours sincerely


Ernie Richardson and Roger Blears



Donald Stark| Head of Investment Taxation

Enterprise & Property Tax Team| Business and International Tax


Alex Buckley

Venture Capital Schemes | BAI



The recent report by TechNation on innovation in the UK during 2020 makes encouraging reading with the COVID crisis sparking a major surge in innovative start-ups. However, the report misses a critical issue. These COVID start-ups will create some new employment and slowly build new infrastructure in the UK economy. But the scale of economic damage in the SME sector through failed businesses and lost jobs will massively outweigh this surge in start-ups. The real challenge is not just to create new businesses, but to save those viable ones that already exist.

The COVID recession of 2020 – 22 (?) is likely to involve a major re-structuring of many major industries and large companies in areas like hospitality, travel, office building etc. Unlike previous recessions which saw a return to an economy that looked broadly the same, this time COVID has accelerated major structural changes which were already underway (such as home working and web enabled logistics) but which will now be regarded as the norm.

Recession driven entrepreneurialism is particularly active in the small buyout sector; driven either by opportunity or by necessity. But current regulations inhibit investments in such buyouts by investors such as VCTs. A temporary (or longer lasting) relaxation of these constraints could release a major source of private sector money into these job-saving buyouts and in the process deliver a much needed boost to the overall UK economy.

Every recession in the last 30 years has seen an increase in entrepreneurialism with the recessions of 1993-96, 2000-03 and 2008–10 all seeing a dramatic rise in new buyout businesses with almost half of buyouts in these periods coming from corporate disposals or receiverships. Many UK businesses now regarded as major successes emerged as buyouts during periods of recessions. These were buyouts founded on business plans for future growth, not the sweating of assets through leverage; but often of business opportunities  no longer seen as ‘core’ by their larger corporate owners.

Recession generated buyouts were funded by VCTs when regulations allowed and have generally performed extremely well. Data from BVCA demonstrates that the returns (%IRR) to the UK small buyout sector for the recession vintages have matched or exceeded the years immediately preceding or following (1996 – 12.4%, 2002 – 29.5%, 2009 – 13.3%). Further the rates of employment growth and capital investment for these buyouts have exceeded the average of all companies over these periods. The small buyout sector is a major employer. Creating a new start-up business might create say 5 new jobs, whereas saving a small business in a buyout could save 10 or 20 times that number.

Small buyouts funded during recessionary periods have substantially over performed and policies which support these buyouts should be encouraged.

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