In yesterday’s Budget, the Chancellor announced £2.5bn of new resources for the British Business Bank in response to the Patient Capital Review. This, together with existing resources, will unlock up to £13bn of finance to support UK smaller businesses looking to scale-up and realise their growth potential.
Much of the increase in resourcing is due to the leading role the Bank is being asked to take in implementing an innovative package to increase patient capital in the UK. This derives from the recommendations of HM Treasury’s Patient Capital Review, which received expert support from an industry panel led by Sir Damon Buffini.
Over time, the measures are expected to boost UK productivity through helping firms with the ambition to scale up access the capital they need to fully achieve their growth potential.
The Bank will work to increase Patient Capital through the following:
1. A new £2.5bn Patient Capital entity will be incubated within the Bank. As we do today, it will invest commercially into venture and growth capital, but with significant extra resources. The key innovation is that it will be designed from the outset with a view to future sale into the private sector – subject to a value for money assessment – once it has built its portfolio and track record.
2. British Business Investments – the Bank’s existing commercial arm – will cornerstone a small number of large scale, private sector managed funds of funds, which will in turn catalyse patient investment into high potential businesses. A ‘Request for Proposals’ to manage the first phase of these funds (up to £500million) will be issued early next year, and two subsequent phases are possible subject to the market response.
3. Government has committed to maintaining our ECF programme with up to £1 billion of commitments over the next 10 years through British Business Finance Limited, which would be expected to support at least £1.5 billion of new investment. This will provide stability to the market, and publicly recognises the central role this programme plays in the Bank’s equity offering.
Alongside HMT, and as a further potential measure to increase patient capital, we will also be exploring whether to introduce a new guarantee programme designed to enhance returns in debt/mezzanine investments but targeted at funds rather than banks. This would likely be similar to the ‘Small Business Investment Company’ programme already operated by the Small Business Administration in the USA.
The overall aim of this package of measures is to increase access to longer-term finance for innovative, high-growth smaller companies so they can achieve their full growth potential.
We will achieve this by crowding in private capital, expanding investor diversity, and utilising and developing private sector fund management expertise. We aim to leverage the Bank’s own position as the second largest Limited Partner in UK venture capital to demonstrate the attractiveness of this market. In the longer-term our ambition is to support the development of sustainable private sector expertise in the UK, reducing the need for a permanent public-sector intervention.
In addition to these measures around patient capital, there were some other important measures for the bank announced yesterday that will benefit smaller businesses.
The Bank has been asked to create and deliver a regional angel investment programme. Our research has clearly demonstrated an imbalance across regions, most markedly in equity finance, and this is one step to help tackle that imbalance. The scale of the programme will depend on demand.
Enterprise Finance Guarantee
Funding for our successful Enterprise Finance Guarantee (EFG) programme has been extended for a further four years and expanded to £500million per year, enabling us to guarantee £2billion of lending over that time. The programme will be taking on new lenders and offering a new asset finance option, which will enable it to further diversify the lending available to smaller businesses that want to invest and grow.
The Bank has undertaken to carry out research in two areas of policy interest to the Government. This reflects the Bank being increasingly seen as the centre of expertise on SME finance for Government. The Bank has committed to:
- Working with HM Treasury to explore how Intellectual Property (IP) could be used as security to help innovative firms with IP to raise finance.
- Undertaking behavioural research into how to overcome the specific barriers faced by female-led firms in accessing venture capital.