Continued government support for Venture Capital Trusts (VCTs) is one of the best ways to support an enterprise economy, according to research from the Association of Investment Companies (AIC).
The AIC surveyed 15 fund managers employed by 61 VCTs, worth £1.4bn of assets and representing 62% of the VCT sector’s total assets, and found evidence that VCTs support enhanced economic growth and employment in smaller companies.
The research suggested that VCT activity supports job creation, with investee companies experiencing, on average, a 47% increase in employment.
The surveyed fund managers also reported that VCT-backed firms undertake R&D and are successfully developing export markets despite their firms’ small size, with 88 investee companies revealing dedicated R&D spending totalling £55.4m.
Of the 102 investee companies which provided data on the level of their turnover derived from exports, total exports were £303m (from a total of turnover of £920.7m), averaging nearly £3m per company.
The AIC also reported that investment through the VCT system proved cost effective for the taxpayer, with survey data showing that the cost to the public purse is offset and eclipsed by the tax returns generated by investee companies.
Ian Sayers, AIC director general said: “This research demonstrates that VCT investment provides substantial benefits for UK small businesses and the economy.
“Companies across the country with the potential for growth have received capital and management input from VCTs which has boosted their performance and increased 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.”
Sawyers added that the research supported fund managers’ views that VCTs deserved support from the next government. “We urge policymakers to reaffirm their commitment to VCTs which are the best way to support enterprise and future economic growth,” he said.
“New initiatives are unlikely to have the substance or staying power of the well established VCT network.”
© Crimson Business Ltd. 2010