The Old Street roundabout in east London is known as a hub for tech start-ups    Credit: PA

An entire generation of UK start-up in the technology sector and other industries could be wiped out unless the government rethinks its bailout scheme, it has been claimed.

The Liberal Democrats’ business taskforce, chaired by former Siemens chief executive Juergen Maier, says the Future Fund, launched last month by chancellor Rishi Sunak, “simply won’t work for many UK start-ups”.

The £500m fund offers firms convertible loans of between £125,000 and £5m – provided they can secure private investment of at least the same amount.

But the taskforce said the terms of the programme make it incompatible with the Enterprise Investment Scheme (EIS), which offers tax breaks to individual financial backers of start-ups – effectively ruling out the vast majority of ‘angel’ investments.

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“Innovation-led technology start-ups have become a major success for the UK economy, but the coronavirus crisis could wipe out a whole generation of start-ups if they can’t get government support,” Maier said. “The Future Fund could be a lifeline for these businesses, but it is far too focused on venture capital firms and simply won’t work for many UK start-ups.”

He added: “The government must ensure that the majority of start-ups who rely on investments from individuals under the Enterprise Investment Scheme can qualify for these loans. If the government gets this right now, the benefits in jobs and economic growth will be enormous.”

Around £1.9bn of investments are made through the EIS each year, with 3,920 companies raising funds under the scheme in 2017-18, according to figures from HMRC. The taskforce wants ministers to fix the scheme so it is compatible with the existing EIS and start-ups who rely on individual investors can benefit from the funding.

Ed Davey, the Lib Dems’ acting leader, said the scheme in its current form is hindered by “pointless red tape”.

“The coronavirus crisis is causing enormous financial hardship for families and businesses across the country,” he told PublicTechnology sister publication PoliticsHome. “Once this crisis is over, we are going to need the best of British innovation to grow the economy and create good, well-paying jobs in all parts of the UK. We cannot afford to see brilliant start-ups disappear for good.”

Sunak described UK start-ups as “one of our great economic strengths, and will help power our growth out of the coronavirus crisis”.

The chancellor added: “This new, world-leading fund will mean they can access the capital they need at this difficult time, ensuring dynamic, fast-growing firms across all sectors will be able to continue to create new ideas and spread prosperity.”

The government said the scale of the fund will be “kept under review” and will initially be open until the end of September.