19/05/2014 09:19 BST | Updated 19/07/2014 06:59 BST

Britain Needs to Encourage Investors to Come to the UK

Britain now has one of the most attractive tax systems in the world with Corporation Tax falling to 20% next year. This is great because business people and investors are vital to the future of the UK economy. We should never be embarrassed about wanting to attract people who can come here to create jobs.

There's no doubt that investors want to invest in the UK. They want to invest in our growing economy and are keen to share in our growing success. But while they want to invest here, are we sure we've made it possible for them to actually do it?

Investment visa

Investment visas exist to give people who want to invest in the UK the freedom to live and work here - and oversee their investment. An effective investment visa encourages business people to invest where money is needed most, like the UK's small businesses. Over the last few years, UK start-ups and small- and medium-sized businesses have found it difficult to secure bank loans. Lending to small business has just contracted for the fourth year in a row so we need these overseas investors.

But the UK investment visa isn't encouraging people to invest in these private companies. In fact, the influential Migration Advisory Committee (MAC) said that the "majority" of people on an investment visa in the UK were investing in government debt. This money is being used to fund Government spending. That's worthwhile, of course, but not as effective, and important, as investment in SMEs and other businesses - that's where jobs are created.

Increasing the investment threshold

The investment visa hasn't been updated since it launched in 1994. You still only need to invest £1m in the UK to qualify for one, and it contains a number of restrictions that create perverse incentives. The Government could make a number of positive changes, strengthening the visa so that it attracts more investment into companies that need money.

We could increase the £1m investment threshold to, say, £5m. The current threshold has not been updated since the early 1990s, not even for inflation. Investors love Britain because we have a safe and stable business environment as well as top quality public services and schools. Lots of investors would not be put off if we demanded a larger capital investment in the UK.

Let investors put money in private companies

The Government should also think about increasing the type of investments an individual can put their money in. At the moment investors can only easily invest in UK Government gilts and UK-listed companies. But they're not allowed to invest in private British businesses because it's difficult to put a value on these shares. There are many ways the Government could solve this problem; perhaps by asking investors in unlisted companies to provide audited accounts of these private businesses once a year.

Also, investors should be able to invest in private companies through approved Government schemes, like SEIS and EIS, which let people invest small amounts of money in smaller businesses. There's already established regulatory frameworks for investing in these structures, so it shouldn't be too difficult for these investments to count towards the threshold requirement on an investment visa. It would just require data sharing between HMRC and the Home Office - something that happens already.

Drop the topping up requirement

Finally, the Government should consider dropping the 'topping up' requirement. At the moment, people in the UK on an investment visa need to maintain at least £1m in investment at all times. If it falls below that threshold, investors have to 'top up' their investment.

This 'topping up' requirement puts investors off investing in private companies. As an investor's access to Britain depends on maintaining £1m in investment, they're more likely to err on the side of caution. This is why lots of investors keep their money in low-risk UK gilts.

If the Government chooses to extend the range of qualifying investments to include private companies, the Government should drop the 'topping up' requirement on those riskier investments. To make sure that people don't lose all this money yet still qualify for the investment visa, the Government could put a limit on the proportion of shares investors hold in private businesses.

I know the Government understands these concerns because in reply to one of my questions, the Minister wrote that "firms consider that removing the requirement to top up investments, and extending the list of qualifying investments, would attract more investors to the UK and encourage investments which would lead to greater returns." I look forward to the Government's positive response to these concerns.

We should continue to do everything we possibly can to encourage people to come to the UK to invest money and create jobs. We need to make sure that our investment visa is attractive and makes the best of the investment it raises for Britain. As its conditions have not changed since 1994, it's time for some reform. These changes will guarantee that the UK stays competitive in the global market.