Investors and small businesses will be hoping chancellor George Osborne will not reduce tax benefits or impose further restrictions on Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS) in today’s Budget.

Osborne recently raised vague concerns over the effectiveness of VCTs, which prompted rumours that their tax incentives may be revised.

Mike Currie, partner at VCT provider Foresight Group, has argued that if the government believes private sector businesses will lead the UK out of recession and absorb many of the public sector job losses, ‘it would be incongruous that they introduce uncertainty or downgrade one of the few investment products that are genuinely backing British business at a time that banks are not’.

He added,‘VCTs are more accessible to ordinary investors as opposed to EISs which are typically for more “sophisticated” investors. 

The government’s “we are all in this together”mantra would sound hollow if they favoured a tax break that only the rich can comfortably invest in.’  

Furthermore, VCT legal specialists Harbottle & Lewis agreed that the future of these niche investment areas needed to be clarified to restore confidence to investors.  

Tony Littner, head of venture capital at the firm, said, ‘The concern Mr Osborne apparently has is that the VCT scheme is being used to create a tax loophole rather than to serve its true purpose of promoting innovation and enterprise.  

‘However, just because some people may be abusing the scheme, should that be a justification to scrap it entirely?

'There is a body of evidence pointing to the effectiveness and importance of VCTs in providing crucial funding to small and medium-sized enterprises, particularly at a time when the banks remain reluctant to lend.’