Could Brexit lead to increased investment for our start-ups?

In March we released research into how the Government could improve access to funding for entrepreneurs in Unlocking Growth: How to Expand Access to Capital, a joint report from The Entrepreneurs Network and The Enterprise Trust. 

It pointed to the fact that astonishingly, despite all sophisticated forms of investment, credit cards and overdrafts are still the most popular routes to finance for UK firms. And while the bank is still the first port-of-call for most businesses, it’s often only the process of rejection itself that triggers further research into alternative forms of finance. 

We found there was a need to dramatically increase awareness about alternative funding options and suggested reforms to reduce wait-times for early-stage investment tax reliefs and allow pension funds to invest more in venture capital, for example could be transformational. 

But the Internal Markets Bill has mooted rejecting anachronistic EU State Aid rules could help provide the Government with an opportunity to itself invest in tech start-ups. A new source of support not really on the radar when we wrote our report. 

While no tech firm appears to have historically campaigned for the removal of the ‘outdated way the EU state aid rules are drafted’, former No 10 adviser Rohan Silva has suggested scrapping them could lead to future fiscal advantages for tech companies via increased strategic, investment intervention with tax payers’ money. 

Speaking on the BBC, he said plans drawn up to increase support for start-ups during David Cameron’s term in office during the last recession, had been constrained by the rules, which were written in the 1950s. 

He said: “In 2010, the Conservative government was keen to foster investment in the companies of the future by offering generous government incentives, but found itself constrained by EU state aid rules. 

"We couldn't support companies as they grew as much as we wanted for as long as we wanted. If you are going to leave the EU, you should make the most of it.” 

There are some forms of state aid that are illegal within the European Union, due, according to the EU to it “distorting competition” in ways that are harmful to both EU companies and citizens. 

In 2018, Rohan Silva wrote in the Sunday Times: “These are among the most powerful and arcane EU laws of all, designed to stop countries unfairly subsidising their own industries and so impeding fair competition across the single market. 

“For better or worse, these complex regulations have constrained British governments for decades. But if they no longer apply after we leave the EU, all manner of new options open up... 

“...Once we take back control from the EU next year (sic), British governments will be free to help start-ups obtain the capital they need to grow and create jobs.” 

While we wait for more clarity on what this might look like (next year apparently), it has already been hailed as a solution which could see state subsidy bolster the tech sector, catch falling failures and create the British Google. 

But Business Secretary Alok Sharma has confirmed that when it comes to state aid, the UK expects to use World Trade Organisation’s (WTO) rules on state subsidies. “We do not want a return to the 1970s approach of picking winners and bailing out unsustainable companies with taxpayers’ money,” he said. 

A trade deal with Japan announced on Friday September 11 has agreed to a much stricter policy of state aid than that set out to Brussels, so any clarity on how this might impact on funding for small firms in reality is yet to be identified.