This week’s Windsor Framework agreement on the Northern Ireland border dispute between the UK and European Union was as much of an economic breakthrough as a political one, according to public affairs director at the Association of Investment Companies (AIC) Guy Rainbird.
Under the principally agreed framework, UK’s subsidy regime, which includes the enterprise investment scheme (EIS) and tax-beneficial venture capital trusts (VCTs) will be allowed to continue without concerns of EU interference.
Both schemes, introduced by the government in the 1990s, are important conduits of seed investment for growth companies and start-ups, offering investors tax advantages when taking on investment risk.
For more than a decade, EIS and VCT income tax reliefs have been considered to be a form of state aid by the European Commission thus were subject to approval from Brussels.
A ‘sunset clause’ previously imposed by the EU could have put the schemes at risk when they came up for renewal in 2025.
Given the uncertainty over the Northern Ireland protocol, there was some ambiguity as to the legitimacy of the sunset clause, but the Windsor Agreement has gone a long way to put that to rest.
Under the original protocol, EU state aid rules were applied in cases where there is any aid provided to companies that could “affect trade” in goods and electricity between Northern Ireland and the EU.
Under the latest agreement, that risk has been removed, although there may be exceptions for what the Windsor Agreement calls “the largest subsidies and those where firms have no material presence in the Northern Ireland market”.
Rainbird called the economic dimension of the Windsor Agreement “a significant step forward” in putting venture capital trusts (VCTs) on a firmer footing, noting that “the future of the UK subsidy regime has been an important question which has now been settled in a way that puts the UK in control”.
Chancellor Jeremy Hunt has signalled his support for continuing the EIS and VTC schemes beyond 2025.
“We hope that the Chancellor will take the opportunity to confirm this in his forthcoming Budget Statement and introduce the relevant legislation in the Finance Bill,” said Rainbird.