Venture capital trust (VCT) providers have questioned the chancellor’s commitment to a “startup” Britian after she cut upfront income tax relief on investments in their tax shelters from 30% to 20%.

The Treasury said the measure was aimed at achieving a better balance in the amount of tax relief given to VCTs compared to enterprise investment schemes (EIS) to ensure funds targeted the highest growth companies.

Wealthy investors who have used up their ISA and pension allowances turn to VCTs for their capital gains tax protections and high tax-free dividends they generally provide. The trusts invest in unquoted businesses and companies listed on AIM, the Alternative Investment Market, London’s junior exchange.

Officials forecast the cut in relief will save the government £125m in 2027/28 falling to £95m in the following two financial years and rising to £100m in 2030/31.

There was better news for the sector as Rachel Reeves also increased the amount of money new businesses could raise. “Lifetime limits” for non-knowledge intensive companies rise to £24m and for knowledge-intensive firms to £40m.

But Richard Stone, chief executive of the Association of Investment Companies, was unimpressed, in contrast with his pleasure at the cash ISA reform, saying when upfront relief was previously cut from 40% to 30% in 2006/07 the amounts raised fell by two thirds and did not recover for 16 years.

“We welcome the chancellor’s decision to expand the VCT investment limits and increase the size of companies that VCTs can invest in. But this will all be in vain if VCTs can’t raise funds from investors and advisers,” he said.