Committee publication · Correspondence · 7 July 2026

Letter from the Association of Investment Companies relating to the Committee's Report on investing in the UK economy, 24 June 2026

Summary

The Association of Investment Companies responds to the Business and Trade Committee's June 2026 report on investing in the UK economy. The AIC welcomes the Committee's recommendations on venture capital and VCT reforms but raises critical concerns that a 2025 Budget decision to cut VCT income tax relief from 30% to 20% undermines those ambitions and will likely reduce fundraising by 30–50%, contradicting the government's growth agenda for UK SMEs.

Key findings

The AIC welcomes the Committee's recommendation for a ten-year ambition to triple UK venture capital assets under management and to update VCT requirements to reflect inflation.
The 2025 Budget cut to VCT upfront income tax relief (30% to 20% from 6 April 2026) was not discussed in the Committee's report but is expected to significantly harm VCT fundraising capacity.
HMRC research (2022) concluded that reducing income tax relief would have significant negative impact on VCT fundraising, yet the policy change proceeded without published justification.
The AIC predicts a possible fall of at least 30–50% in capital raising due to reduced investor and adviser confidence, particularly as VCT investors depend on professional fund managers and financial advisers to support portfolio investment.
VCTs serve a distinct role from Enterprise Investment Schemes (EIS) in supporting SME scale-up through ongoing management support and portfolio diversification; migration to EIS will not compensate for lost VCT investment in UK scale-ups.

Tone

Critical

Topics

venture-capitaltax-policysmall-business-financeinvestment-incentiveseconomic-growth

Key actors

Association of Investment Companies (AIC), Business and Trade Select Committee, HM Treasury, HM Revenue and Customs (HMRC), Guy Rainbird, Janette Sawden

Notable line

“The reduction in upfront tax relief is counterproductive. HMT has increased the capacity of VCTs to provide scale up capital to growing SMEs but at the same time has reduced the sector's capacity to raise funds to make these investments.”

Key Quotes

“The reduction in upfront tax relief is counterproductive. HMT has increased the capacity of VCTs to provide scale up capital to growing SMEs but at the same time has reduced the sector's capacity to raise funds to make these investments.”
— Association of Investment Companies · Critiquing the contradictory nature of the 2025 Budget decision

“The incentives appear to be set at the right levels. If they were to reduce the number of investors that make VCS [Venture Capital Schemes] qualifying investments would likely decrease.”
— HM Revenue and Customs (from 2022 research) · 2022 HMRC evaluation warning against cuts to income tax relief

“With the new reduced rate of relief, investor feedback and precedent indicate a possible fall of at least 30% - 50% in capital raising.”
— Association of Investment Companies · Projecting the impact of the tax relief reduction

“With tax relief of 20%, there is a risk that advisers will no longer think VCTs are suitable for their clients. This means less investment going to UK small and medium-sized enterprises”
— Association of Investment Companies · Explaining how financial advisers' behaviour will shift with lower relief

“Investor and advisor confidence in VCTs has been built over many years. This confidence has relied upon a stable tax environment and clarity in the government's support for the scheme.”
— Association of Investment Companies · Addressing the erosion of confidence caused by the policy change

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Source · parliament.uk record ↗