Why SME investment could be the answer to furlough employment bubble
Over the last few weeks, Chancellor Rishi Sunak spelled out how he and the Treasury plan to end the Job Retention Scheme - also known as furlough - at the end of October. The scheme is currently paying 80% of the wages of at least 8.4 million workers placed on furlough by their employers. Many are concerned that the majority of these workers will be made redundant as soon as the scheme ends, leading to mass unemployment.
Between 2011 and 2017, SMEs provided 70% of private sector job growth and up until recently the sector employed over 16 million people - more than half of the private sector workforce.
Government programmes such as the Enterprise Investment Scheme (EIS) offer private investors tax-efficient investment opportunities designed to encourage them to support growing SMEs.
These growing SMEs are often using these funds to hire more employees and scale their firm. In its current state the EIS provides around £2bn of funding a year to growing firms and has provided over £20bn in its 25 year history.
Luke Davis, CEO of IW Capital, a specialist in EIS investment - discusses the scheme:
“The EIS is one of the UK Government’s most successful initiatives in terms of driving investment into high growth early-stage companies. It has helped produce some incredible business successes that otherwise may not have got off the ground due to the reluctance of banks to lend to these firms. Growing SMEs offer huge opportunities in terms of job creation and increasing the tax efficiencies of EIS is a certain way to increase investment into these firms, offering a part of the solution to the furlough problem.
"When the EIS income tax relief was extended from 20% to 30% in 2011, the amount invested in small companies through the scheme saw a tremendous jump. If the Government were to extend the scope or tax efficiencies of the scheme again, it could really help catalyse private investment - a crucial source of growth finance. While any increase in tax reliefs would impact the revenue of the treasury, this would very likely be more than balanced by increased taxes on business revenues and those on new employees - as we have seen previously with the scheme."