Venture capital trusts (VCTs) are calling on the Chancellor to reverse a ‘bonkers’ cut in a key tax break that could shrink funding for innovative and fast-growing firms by 40 per cent.

VCTs, which back 1,100 firms and have £6.6billion of funds, are popular with cash-rich individuals partly because of the upfront income tax relief.

In her last Budget, Rachel Reeves raised the sum that could be put into a VCT to £200,000. 

But she slashed the income tax relief investors could receive from 30 to 20 per cent in a ‘completely bonkers’ move, said Alex Davies, head of the Wealth Club.

In a letter to her successor, John Healey, the trade body for VCTs said this ‘had weakened investor confidence’ and could ‘reduce fundraising and restrict capital for the fastest-growing’ firms by 20 to 40 per cent. 

Citing the PM’s plans for the regions, it read: ‘VCTs are already helping move private capital into the high-growth firms that can create skilled jobs beyond London and the south east.’

The Venture Capital Trust Association also found 62 per cent of VCT-backed founders now plan to scale back growth, 45 per cent would cut jobs and a quarter might move abroad.

The Treasury said that on tax it did not comment on ‘rumour, speculation or proposals’.