I am grateful to both noble Lords for their contributions to this short debate. The noble Lord, Lord Sharkey, asked why we are doing this in two debates rather than one. I do not know, but I think it was probably decided by the business managers—whoever they may be. If one looks at the two SIs, they are substantially different and deal with different parts of the financial services market, so potentially that is why. Anyway, I for one am delighted to have the opportunity to get up twice and introduce two SIs, because I will be able to focus very much on the questions the noble Lord raised, and indeed the follow-up question from the noble Lord, Lord Livermore.
I only partially agree with the charge made by the noble Lord, Lord Sharkey, that the Government were too slow in addressing the TSC recommendation. The Government did take action: we launched a consultation in December 2021 and then took the time to consider the feedback we received. It is fair to say that we received a range of feedback, so we needed to think about the proposals and how we would take them forward. We reflected very carefully on that feedback. There was a balance to strike between better protection for consumers and being able to get much-needed capital into the SME sector. The noble Lord will know there is then that period during which nothing appears to be happening, but lots of lawyers are working very hard and drafting and preparing all the relevant legal and associated documents. So we are in a good place now and I am relatively content with the speed of progress.
The noble Lord asked whether the Government feel that there would be a reduction in investment in angel networks and SMEs. Again, we considered very carefully the various views shared by respondents on the financial thresholds to qualify for the high net worth individual exemption, because we recognise the importance of the angel investment community. We considered the responses and decided to increase the thresholds only in line with inflation, rather than bring forward a more substantial rise—which was advocated by some; obviously, others would not have wanted such a significant rise.
The exemptions will continue to facilitate angel investment in early-stage businesses and enable a broadening of angel network participation. This is the important point: where a person has been a member of a network of business angels for more than six months, they will still qualify for the self-certified sophisticated investor exemption. So there is a route through, provided that an investor joins the angel network, attends it and ensures that they fully understand what they are doing with their hard-earned cash.
The noble Lord, Lord Sharkey, then talked about investor statements; he felt that we had not gone far enough. However, the regulations make significant changes to the investor statements. First, the format of the investor statement is being updated, including making changes to the conditions to be considered a high net worth or self-certified sophisticated investor more prominent, and making it clearer to investors that promotions made under these exemptions may not be accompanied by any protections. So there will be change in what the statements look like.
Secondly, the language in the statements is being simplified: we are removing references to other pieces of financial services legislation, as that is unhelpful.
We need to make it more consumer-friendly, such that all the information is in one place in plain English. Lastly, the statements will require greater investor engagement. The updated statements will require a prospective investor to select which criterion they meet. So they cannot just sign it; they will have to say that they meet a certain, specific criterion to be either a high net worth or sophisticated investor.
There has been much discussion about the updating of the thresholds, and I accept that 18 years is probably too long. However, I will not commit the Treasury to a particular date in the future for when the thresholds should be looked at again, because that will depend on what happens to inflation. There will be periods of very low inflation, when one would not want to update the thresholds, because, on the flip side, there would be an awful lot of familiarisation from investors and investee companies to ensure that they are keeping track with the exemptions. There is a balance, but I accept that we should—and we will—keep these financial thresholds under review, such that there is not a significant disconnect in future.
The noble Lord, Lord Livermore, asked why we used January 2023 inflation data. This is not rocket science. When we did the consultation, there were people who wanted the thresholds to be higher and those who wanted them to be lower. To a certain extent, that is why we came up with an approximation of the past 18 years’ inflation. Whether we chose January or a slightly later date for inflation probably would not have made a significant difference. It was necessary to choose a moment in time to make the revised calculation and we chose January to provide that certainty. We will watch inflation and review the limits and thresholds again in due course.