Government in further crackdown on energy VCTs

George-Osborne-700x450.jpgThe government is to exclude all energy generating activities from VCTs and EISs schemes from 6 April 2016, the Treasury has revealed today.

In July, the government stated that it “will continue to monitor” the use of the EIS and VCT for investment in community energy organisations benefiting from subsidies for the generation of renewable energy.

The government will exclude “all remaining energy generation activities from the schemes from 6 April 2016”, while from 30 November 2015, “the generation of renewable energy benefiting from other government support by community energy organisations will no longer be qualifying activities” for VCTs and EISs investment schemes, the Government announced in today’s Autumn Statement.

Tilney Bestinvest managing director Jason Hollands says the government move on these further changes to VCTs is not “a big deal” but just a general exclusion of energy projects from VCTs schemes.

He says: “There are already various types of energy projects that have been excluded from VCT schemes. This is just a general principle that the government has established instead of going through specific exclusions.”

Octopus managing director Paul Latham says today’s announcement to exclude all energy generation activities from qualifying is “the next logical step” in reforming VCTs schemes.

He says: “[We] are used to tweaks to the legislation and today’s news has no impact on any EIS and VCT investments made to date on behalf of our investors nor investments we are seeking to make between now and April 2016.

“VCT and EIS legislation has been subject to numerous legislative changes over the years as the government seeks to ensure they continue to fulfil their policy objectives and remain successful government approved initiatives. In recent years this has included making a number of changes to prevent certain energy generation activities qualifying for EIS and VCT funding as the UK renewable and wider energy industry matures.”

Association of Investment Companies communications director Annabel Brodie-Smith also says today’s announcement will have quite a “limited impact”.

She says: “Obviously this has been the way it’s been going, it’s the direction of travel, over the last few years the Government has increasingly restricted VCT investment in energy generation as the market is maturing and clearly that is a decision they’ve taken.

“In that context, the announcement today is likely to have quite a limited impact. If you look at a lot of VCT investment in this area they’re already making changes as a result of the Feed in tariffs changes and are not making new investments.

Brodie-Smith says there are currently eight offerings in the VCT energy sector and these will have stopped or are going to stop investing, and are reconsidering their strategy.

Hollands says the government’s decision to exclude VCTs from investing in renewable energy for community-based organisations is because these firms are “very low risk” and are already subsidised by other schemes.

He says: “There are already a number of different subsidies schemes that support these types of companies so the government clearly doesn’t want to create a subsidies plus.

“In the past, VCT and EIS investment into various renewable energy projects was popular, as these typically benefitted from other forms of subsidy under various renewable energy incentive schemes – such the Renewable Obligations Certificate regime and Renewable Heat Incentives – which essentially made these very low risk.

“As the government, rightly, didn’t want to ‘pay’ twice for this type of support, companies benefitting from these ranges of subsidies became ineligible for future tax advantaged venture capital support in 2014. This latest tweak just closes the door on other forms of energy generating projects.”

Madeleine Ingram, head of investor relations at EIS fund manager Calculus Capital, agrees that the government believes EIS, SEIS and VCT tax reliefs “should only be given for investments which carry a measure of equity investment risk”.