Government U-turns on rules that shut out female investors

Days ahead of International Women’s Day, the UK Government has announced it will roll back an update to a new angel investment rule that would have disproportionately affected female investors, that was coined “The new glass ceiling“.

Investors on angel platforms had previously needed to earn over £100k to qualify for angel status. In January, the threshold was raised to £170k in a move that critics said would worsen the gender funding gap for women-owned startups.

According to a report by The Telegraph published on Saturday, the decision will be officially reversed in the upcoming Spring Statement due on March 6.

What is being reversed?

New laws introduced on January 31 raised the wealth threshold to qualify for Sophisticated Investor status (a requirement for engaging in advanced types of investment types like angel investment) from £100,000 to £170,000.

Ostensibly, the policy was changed due to the record-high rate of inflation, which has seen earnings increase exponentially, and safeguard against investors potentially defaulting on funding payments.

Other criteria were also altered. Individuals no longer need to have made more than one investment in an unlisted company in the previous two years, while the annual turnover threshold for company directors was raised from £1m in the last two years to £1.6m.

New rules derided as ‘barrier to growth’

Before the rules had even been introduced, they immediately raised significant backlash from investors and business experts.

Critics warned at the time that the move would indirectly shut out a huge swathe of female investors who generally earn less than male counterparts, as well as those from minority ethnic background or based outside of London.

Campaign group ‘InvestHER‘, which received backing from high-profile business names including Mary Portas, gained significant traction in calling for the changes to be reversed. 

In an open letter published last month, campaigners lambasted the decision, writing: “the impact of HM Treasury’s changes will disproportionately impact the number of women who are eligible for angel investing in comparison to the number of men who qualify.

“Now is not the time to put in place such barriers to growth. We should all be encouraging investment in entrepreneurialism.”

Previous research has found that women founders receive just 2% of all UK venture capital – a statistic that remains stubbornly low despite the rising number of female entrepreneurs. 

When will the change be introduced?

After more than four weeks of uncertainty, the government has finally listened to its detractors, with the changes to income requirements for high net worth individuals set to be reversed in the Spring Budget in two day’s time.

For the moment, it remains unclear whether the changes to annual revenue requirements and number of investments made will also be undone. 

The news has been welcomed by campaigners, but will inevitably raise questions about how such a confused policy ever came into fruition.

Indeed, the decision to raise the income threshold for Sophisticated Investors is even more baffling given the government’s current business targets. 

As the UK economy dips in and out of recession, Whitehall has hedged its bets on the UK’s startup community, targeting an increase of the number of female entrepreneurs of 50% by 2030.

This year, the government also introduced a number of initiatives aimed at building an equal funding landscape, including the creation of a business task force chaired by Starling Bank founder Anne Boden.

What does this mean for women business owners?

According to research from money.co.uk, self-employment among women has seen a significant and steady increase from 920,000 in 1995 to 1.6 million by 2023. 

Nonetheless, funding barriers still exist, with figures showing that 16.9% of companies receiving no external investment are those run by women – higher than any other category.

In light of the fact that female investors are twice as likely to back female-led start-ups as male investors, the latest government U-turn is imperative to ensure that the gap between women and male business owners continues to narrow.

Lucinda O’Brien, senior editor at money.co.uk, said: “The entrepreneurial landscape is moving in the right direction of inclusion for women. However, there are still areas for improvement.

“With more support, education, and access to resources, female entrepreneurs of all backgrounds will play a pivotal role in shaping the future of the UK economy.”