Currently the UK has probably the most business and job friendly economy in Europe. A record number of companies (close to 700,000) were formed in the UK last year and the country’s unemployment rate of 3.8pc is at its lowest for 45 years. This has been achieved by following pro-business policies, yet still more could be done to improve growth business investment. Lowering corporation tax further and ensuring entrepreneur tax relief is at least maintained would be helpful.

Two further areas that are often overlooked but are crucial to the UK growth business investment are the Enterprise Investment (EIS) and Seed Enterprise Investment (SEIS) schemes.

Although the prospect of Brexit is causing some uncertainty, leaving the EU is an opportunity to remove EU restrictions on these schemes, which will benefit business formation and growth business investment as well as the country’s overall economic prospects.

Improve our business-friendly environment

Since 2010 The UK economy has grown by some 18pc and employment levels have been driven up by the business-friendly environment, with policies such as the lowering of corporation tax from 28pc to 19pc having a strong positive impact. Corporation tax still has the potential to be cut further – for example, Ireland’s corporation tax rate is 12.5pc.

It is also important that Entrepreneurs Relief is maintained, with the latest HMRC statistics showing that it has some 40,000 claimants every year. Entrepreneurs’ relief offers business owners the opportunity to pay 10pc tax on the first £10 million of gains instead of paying capital gains tax. If this relief is taken away it will push entrepreneurs away from Britain as they are likely to start up in other countries elsewhere in Europe or the USA.

‘EU restrictions have led to a fall in the volume of EIS equity funding for SMEs’

Lifting EU restrictions on EIS/SEIS would benefit us

Another key measure would be to reform EIS and SEIS, both vital for funding the growth of early stage companies. Restrictions placed on these schemes by the EU could be lifted post-Brexit, benefitting small business growth as well as the wider economy. The latest HMRC statistics show that over 24,620 individual companies have received investment through the EIS scheme, with almost £14.2 billion of funds being raised.

However, the EU has required various changes to be made to EIS legislation, which has complicated qualifying requirements, adding to legal costs for modest equity raisings and delaying the time taken for HMRC pre-clearance. These restrictions have led to a fall in the volume of EIS equity funding for SMEs. There are a number of reforms that would address these issues and ensure that these schemes help early stage businesses to secure the funding they need in order to maximise their growth potential.

Offer tax relief to existing investors

EU regulations require that investors who already hold shares in a company can only obtain EIS relief if those other shares were the original subscriber shares or were part of an EIS issue. It assumes that existing shareholders will have full information about the company and do not need an incentive to invest. This policy is unnecessarily restrictive and potentially blocks a source of capital for small companies.

Remove the 2025 sunset clause

There is currently a sunset clause in which EIS and SEIS will end in 2025 without further legislative action as state aid schemes are typically time limited. This is an issue for the UK as the equity funding gap in this country is longstanding and has become increasingly acute over the past few years with risk appetites very low. To stimulate long-term small business growth, it is important that the schemes continue past 2025.

Scrap cap on how much you can raise

State aid has a general limit of €15 million (£12 million), with knowledge-intensive companies eligible for £20 million. The UK proposed higher limits due to the larger equity funding gap in the UK, however, negotiations were unsuccessful. There is a strong case for this limit to be increased or removed entirely.

Allow funding of rent and wages

The EU requires that funds must be used for companies in the growth and development stage. This is, of course, a noble objective but a key issue with this policy is that it does not permit funding of pre-existing expenditure, such as wages of existing staff and office rent. This kind of funding is crucial for companies that are pre-profit but have a strong growth potential.

Scrap the age limit on qualifying companies

Currently the scheme is limited to companies that have recorded commercial sales for less than seven years, unless the funding is follow-on funding for the same business, or if the business is entering a new market. The logic behind this is that a seven-year-old company has a substantial enough history and track record for investors to judge it, which means that no state aid is required.

This, however, is too simple a view, with the age of a company not being an appropriate measure of risk, as business development is not linear. Other factors such as the size of the company are much more important.

Let EIS companies buy assets from failed rivals

Current rules stipulate that state aid funds should not be used to finance buyouts. While the principle underpinning this policy is solid, it is applied too rigorously. Buying certain assets of a failed business from an administrator could technically be regarded as acquiring a business; however, given that the business has failed this should not be the case.

Allow EIS companies to buy assets of failed businesses

Under existing regulations if a company that is a participant in an EIS scheme becomes a 50pc or more subsidiary of another company it loses EIS funding. This is, of course, a highly complex anti-avoidance issue. But outright withdrawal of EIS relief without investigating the individual circumstance can lead to companies losing vital funding after they had taken on a much-needed partner, enabling them to continue to grow.

Howard Leigh (Lord Leigh of Hurley) is founder and senior partner of Cavendish Corporate Finance and senior treasurer of the Conservative Party