The role of the business expansion scheme in the United Kingdom

In 1983 the United Kingdom Government introduced the Business Expansion Scheme to close a perceived equity gap for new and small business ventures. This scheme provides investors with tax relief on their investment in unquoted companies. To date, over £700 million has been invested in over 2500 businesses. New ventures have been the main beneficiaries, accounting for around 75% of total BES investment between 1983/84 and 1984/85. When compared with other parts of the venture capital industry in the UK it appears that the BES does make a greater relative contribution to providing finance for new ventures and in small tranches (under £0.1 million). However, much of the investment has gone into individually large investments in low-risk asset-backed ventures. This imbalance has intensified as the BES has developed and the net impact of the changes announced in the 1988 Budget is likely to reinforce rather than reduce the move away from small equity investments in higher-risk start-up ventures, particularly in the manufacturing sector.