In anticipation of the upcoming general election on July 4th, we look into each party's policies  for potential implications to early stage investors and companies. With polling figures indicating a Labour majority, the Labour Party’s policies are interesting us. At the time of writing this blog, several parties have yet to release their official manifestos; however, each party has released reports over the past year, which I assume align with their manifestos... 

Labour Party Policies

1) Increasing venture capital investment

The Labour Party's manifesto is further expanded upon in their 'Start-Up, Scale-Up' report which delves into their pioneering strategies for venture capital, outlining their vision to boost innovation through VC support, ultimately igniting economic progress and enhancing quality of life.  The report notes that if the UK’s level of investment was to match the level of investment in the US ( as a % of GDP) it would result in almost £16 billion more in venture capital investment.  I believe that this is a positive sign that the party is committed to position innovation as a catalyst for growth and development.👍👍

2) Supporting start-ups 

Labour indicated that they intend to restructure several aspects of legislation to remove some of the obstacles to investment (such as access to capital and unpaid invoices) that currently prevent businesses from scaling. The party intends to continue to support the Enterprise Investment Schemes, for investors in early stage businesses.👍👍

Furthermore, greater independence is to be provided to the British Business Bank (BBB), a government-owned financial institution that facilitates greater access to finance for small firms. The report proposes the government allow the BBB to raise external funds which could potentially further improve the financial landscape for start-ups in the UK.👍👍

3) Reinvigorating capital markets

Another key aspect of the Labour Party’s plan to grow the UK venture capital sector is to link institutions (such as pension funds) with venture capital firms to foster investment in high-growth start-ups. This will involve the creation of a list of accredited VC firms that institutional firms will be encouraged to review for investment. This approach has been inspired by the French government’s Tibi initiative which provides support for investment in French technology companies, which has exhibited large-scale success since its inception in 2021.👍👍

4) Focus on marginalised groups

Labour acknowledge the disparity between investment in businesses founded by members of different minority groups compared to other founders and how this is directly preventing the maximisation of the UK economy's potential. For example, only 5% of UK venture funding goes to female founders and a shocking 0.24% to black founders. The report does not outline specific plans to counteract this upsetting statistic; however, the intention is to continue gathering data  to identify, assess and prevent barriers that may inhibit individuals from receiving support.👍👍

Conservative Party Policies

The Conservatives' strategy for small business development is centred on creating investment zones to stimulate local economies. Each of the eight zones selected are to receive £80 million to improve skills, infrastructure, and provide tax incentives.👍👍

The Conservatives also plan to tackle the issue of late payments by promoting digital invoicing and improving enforcement of the Prompt Payment Code.This initiative is part of a broader effort to create a supportive environment for start-ups and small businesses.👍👍

The Spring budget had revealed plans to invest £75 billion in tech start-ups, with the goal of establishing the UK as a leading technology and science hub. 👍👍

The Conservatives intend to continue their support of the Enterprise Investment Schemes and Venture Capital Trusts. You can read more about the Spring Budget and its effects in our prior blog post here.  👍👍

Liberal Democrats Party policies

The Liberal Democrats released their 2024 manifesto which focuses efforts to provide stability and reinvigorate the UK economy by tackling late payments, funding the creation of a local banking sector to meet the needs of SMEs and rebuilding relationships with the EU. 👍

Green Party policies

The Green party manifesto intends to invest £2 billion per year into grants for transitioning small businesses into more environmentally friendly practices and set up mutual banks to increase investment and improve local economic stability . 🌎🍃👍

Reform UK Party policies

Similarly, the Reform party  Contract intends to adjust corporation tax and VAT thresholds in order to be more favourable to early stage businesses.👍

Capital Gains Tax

A key topic of interest are the parties' policies on capital gains tax (CGT). The Labour party has previously stated that they will not to change the current CGT rates, however this has not been explicitly confirmed in their manifesto.  The Conservative party has proposed scrapping CGT for landlords who sell to sitting tenants to incentivise landlords to sell and improve the housing market for young buyers. 🏠👍

Conversely, the Liberal Democrats intend to introduce three rates for CGT (similar to income tax)  20% (for gains up to £50,000), 40% (between £50,000 and £100,000) and 45% (over £100,000). Furthermore, they suggest increasing capital gains tax-free allowance  from £3,000 to £5,000.  The Green party also intends on aligning CGT with income tax rates.👍

General elections frequently lead to periods of economic uncertainty and potential volatility in the commercial landscape. A running theme across many of the UK political parties' plans for the venture capital sector suggest willingness for actioning, and the proposal of transformative approaches.  This could mark the beginning of a promising new era for investors, individual businesses and the economy as a whole. Certain policies appear to have the potential to not only enhance the financial ecosystem for early-stage businesses but also to elevate the UK’s global standing in venture capital investment and economic growth!  However, the true outcome of each party's proposed policies are yet to be proven, and promises don't always match reality.

Regardless of the election outcome, it is important to note that often the regulation of individual industries have a larger impact than macro-economic intervention, and this is why investors must continue to apply a rigorous level of diligence when evaluating potential investments. It is interesting to watch how the election and its impact on venture capital and early-stage businesses in the UK unfolds. Nevertheless, we remain optimistic about VC's future prospects.