Copyright scotsman
Rachel Reeves faces an uphill battle this month as she tries to prise more money out of people’s bank accounts and into the economy. The problem is that one of her first big tax decisions has already done the opposite. Much has been made of the impact of Labour’s new £1 million inheritance tax cap on farming, but little has been said about its corrosive effect on angel investing, the fuel that powers Britain’s innovation economy. Scotland has spent decades building one of Europe’s most dynamic innovation ecosystems in climate tech, life sciences, advanced engineering and data-driven innovation. But just as that effort begins to pay off, this new policy is choking off the risk capital that made that success possible. Until now, entrepreneurs and investors operated under a simple pact: take risks, create jobs, and the state will reward long-term commitment through business property relief. Combined with the Enterprise Investment Scheme (EIS), which compensates for the peril of early-stage investing, it underpinned the UK’s entire innovation engine. Reeves’s cap has broken that pact. Any investment over £1m through EIS now attracts only half the previous relief, effectively imposing a 20 per cent tax on the excess. That’s forcing investors to review their estate plans - and, more worryingly, to pause fresh commitments to young, high-risk businesses. For Scotland, this is a body blow. Unlike London, we don’t have deep pools of venture capital waiting in Mayfair offices. Our innovation economy runs on patient capital from individuals willing to go early and go big. Those investors now face a stark choice: scale back, sit out, or move their money elsewhere. First thing Monday to Friday, The Steamie newsletter bring you the best political news and analysis The damage is already visible. Funding rounds that once closed in weeks now drag on for months. Promising technologies are stalling as founders scramble to fill gaps. Conversations that used to start with “how fast can we scale?” now begin with “where else can we raise?”. Each time a Scottish start-up moves its investment base, we lose future jobs, intellectual property and tax revenue. That’s the true cost of this policy. At TRICAPITAL Angels, we’ve seen first-hand how powerful Scotland’s innovation economy can be when risk is rewarded, not punished. Over the past year, our members - a network of high-net-worth and ultra-high-net-worth investors - have committed a record £3.5m of their own money to 18 pioneering Scottish companies. That investment leveraged nearly £30m in total funding, including £3.1m from Scottish Enterprise, and has helped to create or secure more than 500 jobs across the country. Our portfolio spans everything from artificial intelligence to biotech and renewable energy. We’ve backed Aberdeen-based HonuWorx, whose autonomous, all-electric submarines could transform offshore maintenance; H2CHP, developing carbon-free power generation; and Skye’s Kaly Group, expanding a sustainable seaweed supply chain on the west coast. We’ve supported AI innovators like Aveni, life-sciences leaders such as OGI Bio and Glen Clova, and manufacturing disruptors like Sisaltech, which is reinventing insulation using natural fibres. These are not paper companies, they are the future employers, exporters and taxpayers of Scotland. They prove that when the right incentives are in place, capital flows into the kind of businesses that build the economy we all want: cleaner, fairer and globally competitive. The UK government insists it wants a “science and technology-led growth economy”. Yet its tax policy now penalises the very people who make that ambition real. If Reeves wants her Budget to be remembered as a “Budget for growth”, she can’t keep throttling the flow of private capital that fuels it. This isn’t about shielding wealthy investors, it’s about preserving the engine that turns research into revenue. Scotland leads in fields with global potential: offshore renewables, satellite science, medical devices and data-driven innovation. These industries don’t need handouts; they need confidence that the government won’t move the goalposts every time the Treasury gets nervous. Restrict the incentive, and you restrict the innovation. If the Chancellor wants to balance the books, she should focus on growth, not extraction. The £1m cap may raise modest short-term revenue, but it will cost Britain dearly in lost productivity, competitiveness and future tax receipts. The irony is that a policy designed to bring in more money could end up shrinking the very economy it hopes to tax. This is not a plea for special treatment. It’s a call for alignment between economic strategy and fiscal policy. Reeves should urgently reverse this damaging reform and return to the previous regime, restoring full business property relief for qualifying Enterprise Investment Scheme investments. That would send a clear signal that Britain still backs the innovators, founders and risk-takers who create its future prosperity. Because the real risk isn’t that investors lose a little more capital - it’s that Scotland loses a generation of companies. Our entrepreneurs are proving daily that they can build the future here, if only government would stop making it harder for them to do so. Risk-taking is not the enemy of fairness. It’s the foundation of growth. - Moray Martin is the chief executive of Tricapital, one of Scotland’s largest angel syndicates.
