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Chancellor to launch new EIS in small firm investment package

A new enterprise investment scheme is expected to be announced in today’s autumn statement offering investors 50 per cent tax relief on money put into new businesses, according to reports.

The Guardian says the scheme will start in April and the 50 per cent relief will be offered on the first £100,000 of investment in a firm with each company eligible for up to £150,000 of investment in total.

It will be accompanied by a capital gains tax holiday for the first year to encourage those sitting on profits from previous investment to put the money into new start ups.

The two measures are thought to be costing the Treasury £50m over the next three years and are intended to help raise capital for firms which might be seen as too potentially too risky for other forms of credit. Small businesses have long complained borrowing money from banks is becoming more difficult as banks and lenders tighten their lending criteria.

Small companies will also see the one year business rate holiday currently due to end in October 2012 extended by six months, a move expected to cost £210m. Chancellor George Osborne believes 500,000 will benefit from the tax break with 330,000 paying no business rates at all in financial year 2012/13.

The moves follow the boost to EIS and VCTs the Chancellor introduced in this year’s Budget, which included increasing the level of income tax relief on EIS from 20 per cent to 30 per cent and doubling the annual EIS investment limit for individuals to £1m.

The Chancellor is also expected to announce:

  • A National Loan Guarantee Scheme to underwrite up to £40bn of loans to smaller firms.
  • An increase in the bank levy from 0.075 per cent to 1 per cent to boost revenues from the tax.
  • A new tax avoidance crackdown, including the targeting of those avoiding stamp duty on expensive properties.
  • A one year delay to auto-enrolment for small businesses.
  • A plan to encourage pension funds to invest up to £20bn, alongside £5bn from the Government in infrastructure projects.

Last week, the Government announced a mortgage indemnity scheme for 100,000 95 per cent LTV mortgages and £400m of support to housebuilders. This week a £1bn plan for subsidised work and training places was also unveiled, promising 160,00 subsidies worth £2,275 to employers taking on 18 to 24 year olds.

The Office of Budget Responsibility’s growth figures, published alongside the statement, are expected to be significantly lower than the independent forecaster predicted in March. Then it said it expected 1.7 per cent growth for this year and 2.5 per cent next year. Its figure for last year was 1.8 per cent. The Financial Times suggests it may be close to 1.3 per cent for the next two years.

The OBR’s March forecasts also projected that Government borrowing would fall from £121bn in 2011 to £29bn in 2015. Today’s figures are also expected to show a slowing in that reduction. The Chancellor had wanted to eliminate the deficit entirely by the end of the this Parliament in 2015 but in his emergency Budget just after the election last year, he gave himself some wriggle room by allowing himself an extra year to deliver if it were needed.

Reform chief economist Patrick Nolan says: “It is as much headroom as he can allow himself but the reality is that he will have to signal he will be using that year now.”

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