Kuber reacts to Brexit

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Date28 Jun 2016
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Categories

The Vote on Friday for the UK to leave the European Union will have a significant impact on the investment industry, with regulation being a key component
of this change.  The markets have reacted with unprecedented volatility which will have been fuelled by the shock
of the outcome compounded by the political uncertainty over what Brexit will look like and uncertainty around who
will lead the country through the negotiations. There is some doubt that Brexit will happen at all.

Financial Services has been the worst affected sector, and the volatility is most acute in large multi-national
institutions.  This is because Brexit could have profound implications for those businesses which rely on
European Passports and may have to undergo some major restructuring depending how the regulations change.
These firms may need to make seismic changes to their businesses depending on what comes out of the negotiations.

However, firms which are purely UK domestic focused will not be affected in the same way.
Small and medium sized businesses continue to need funding and many of the investment opportunities
available via EIS or SEIS will not directly be affected.

George Osborne, The Chancellor of the Exchequer, has admitted that the country “is in good shape”,
there will be no “Brexit Budget” and that the Government “will not rush to invoke Article 50”.
This will give the EIS and VCT industries a certain amount of protection from changes since any changes to
these regimes have to be ratified by Europe before they can take effect.

The negative impact on the economy may be countered by the many corporate projects that were delayed by the
uncertainty, which can now go ahead.  Business investment in the first half of the year was down by approximately
5% and the Centre for Economic and Business Research estimates that around 30% of this spending will now go ahead
fuelling a boost to the economy.

We are unlikely to exit the EU before 2019 and in the meantime, SMEs will need funding more than ever because of
the lack of foreign investment.  In the coming weeks, volatility will subside and a clearer picture as to what the
opportunities are will emerge.

From the Kuber’s perspective, there are a number of benefits:

  • Our industry has been constrained by regulation because of the need to obtain EU approval for changes to
    the Venture Capital Schemes regime
  • Securing changes such as the amendments to the Social Investment Tax Relief rules have been proven to be
    extremely complex within the EU and going forward these will likely be much easier
  • The Venture Capital Schemes will become more important to the UK economy because the need for inward
    investment is going to be more important than ever.

Once the political noise subsides and the markets stabilise, Kuber is looking forward to the opportunities that
may arise from Brexit and the positive actions we can take for our clients.