A Missed Opportunity? Should EIS Reform Be a Priority

In her Mansion House speech, Chancellor Rachel Reeves, struck an optimistic tone around investment. She cited £120 billion of private investment into the UK in the past 12 months, the FTSE surpassing 9,000 points, and the UK’s status as the third-largest venture capital market globally. These milestones were presented as compelling evidence of the UK’s continued investment appeal.

Capitalising on the sustained appetite for British companies, Reeves outlined a plan to drive further growth. A key theme of Reeves’ address was the need to reshape the national discourse around risk. “For too long, we have presented investment in too negative a light,” she said. “We’ve been quick to warn people of the risks, without giving proper weight to the benefits.”

This reframing is especially relevant in the context of post-2008 financial regulation, where an emphasis on risk management has often come at the expense of innovation and growth. 

Sarah Turner, CEO of Angel Academe noted, regulatory emphasis on risk discourages many, especially women, from engaging with growth investment. “Risk is something to be managed,” Turner told Sustainable Times, “not something to be feared”. 

Former Pensions Minister, Guy Opperman, argues that even a 1% allocation of pension assets to venture capital — incentivised by targeted tax breaks — could fill a "massive gap in development finance". And crucially, such reforms wouldn’t simply represent Treasury giveaways. They would be investments in the future economy — “equity in potential long-term winners,” as he puts it.

Suggesting that, this perspective applies not just to individuals, but to institutional investors. With the right incentives, regulatory oversight, and public support, these funds could become powerful engines of growth.

Naturally, the push to reframe risk has drawn criticism. Detractors have accused Reeves of seeking to divert public funds into risky ventures, with some claiming “Rachel Reeves is after your money”. Yet, advocates counter that without a shift in how risk is understood and managed, the UK risks missing out on its next generation of high-growth companies.

On the conversation around risk and investment one omission stood out to many in the startup and sustainability sectors, there was no mention of reform to the Enterprise Investment Scheme (EIS), a vital channel for early-stage investment.

For over two decades, EIS has helped channel private capital into UK startups by offering tax reliefs to individual investors who are willing to take on high risk, but potentially future proofing startups, in return for the potential of high reward. It has been especially instrumental in fuelling innovation in sectors like climate tech, advanced manufacturing, and health.

Since its inception, the Enterprise Investment Scheme (EIS) has channelled nearly £30 billion  into over 53,000 UK startups, with record-breaking momentum in 2021–2022 as £2.3 billion was raised by 4,480 companies, the highest annual total since the scheme began. This post-pandemic surge reflects EIS’s proven ability to attract private capital into early-stage innovation, especially in high-growth sectors like tech and green industry, and increasingly across UK regions beyond London.

However, as it stands, EIS is largely the preserve of high-net-worth individuals. The scheme excludes the largest source of long-term capital in the UK: pension funds. This is despite the fact that unlocking even a small percentage of pension assets for early-stage companies could radically transform the funding landscape for innovation.

Philip Hare of the EIS association shared his thoughts with Sustainable Times. “The EIS and SEIS provides important tax reliefs to individuals who wish to invest risk capital in growing businesses. The reliefs are targeted towards smaller companies in certain industries. In pursuance of its growth agenda, the Government should consider removing the age requirement for these companies (which particularly affects businesses in the regions of the UK), and increasing the total amount of tax advantaged investment these companies can receive. The EIS, SEIS and VCTs are ready-made solutions, and could be enhanced to provide additional capital to the UK's growing businesses”

Half a Vision?

Rachel Reeves’ speech did celebrate the Mansion House Compact, a set of agreements with pension funds to direct more of their capital into UK growth. But without the necessary tax incentives and updated investment products, that vision remains underpowered.

Former pensions minister Guy Opperman put it bluntly when talking with Sustainable Times,

“The changes in the mansion house speech are welcome but without incentives I fear that pensions funds will be reluctant to invest in sustainable start ups. We need an EIS scheme for pension funds, or other tax incentives, to justify a trustee and investment manager investing in a speculative asset.” 

In other words, risk is the elephant in the room. Pension fund trustees are duty-bound to safeguard members’ capital, and current regulation and incentives offer them little justification to engage with inherently risky, high-impact, early-stage businesses.

What Could EIS Reform Look Like?

There’s growing consensus across the finance and startup communities that the EIS needs to evolve if it’s to align with the government's broader ambitions.

Reforms could include:

• Allowing pension funds to participate in EIS or a parallel scheme with equivalent tax benefits, tailored to institutional constraints.

• Raising company and investor caps, expanding the reach of the scheme to later-stage scale-ups beyond Seed funding.

• Broadening sector eligibility, particularly to include sustainable property development or circular economy ventures.

• Introducing secondary liquidity options to help institutional investors manage risk and exit timelines more effectively.

  
  

These steps  would also support a more inclusive model of economic growth, where retail savers benefit indirectly through their pensions and direct investors co-invest with larger institutions knowing that later investment is available 

While EIS reform remains speculative, institutional investors are already exploring ways to access high-growth private markets within existing frameworks. Viva Investors, the £238bn investment division of UK insurer Aviva, recently signalled its intent to broaden its long-term asset fund (LTAF) range to target wealth managers, moving beyond its traditional corporate pension clientele.

LTAFs are a relatively new regulatory vehicle designed to give defined contribution pension schemes access to private markets, one of the fastest-growing areas in asset management. Viva currently manages four such funds, demonstrating clear institutional demand for exposure to illiquid assets like private equity, venture capital, and infrastructure.

This shift suggests a growing institutional readiness to engage with longer-duration, higher-risk assets but critically, within structures designed for their needs, rather than through mechanisms like the EIS which were built for retail investors.

Time for Treasury to Step Up?

Some, such as Opperman, argue that Rachel Reeves missed a golden opportunity in her Mansion House speech to signal meaningful reform to the EIS and in doing so, to ignite a new era of sustainable capital mobilisation. If the government is serious about making the UK the best place to start, scale, and list companies, it may consider looking at wider support becoming available in the investment ecosystem.