Budget boost to venture capital schemes

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The Independent Online
FRESH MEASURES to boost the provision of venture capital to genuine start-up businesses are due to be unveiled by Gordon Brown in next week's Budget. The Chancellor is expected to announce an enhanced scheme for Venture Capital Trusts (VCTs), but restricted to companies that are genuinely new.

The measures will be part of a Budget with two dominant themes - promoting enterprise and creating a fairer society. Mr Brown sees entrepreneurship as vital to raising productivity.

The Budget will also confirm the creation of a public-private Enterprise Fund, trailed in last year's Competitiveness White Paper. This could either provide direct loans or guarantee loans taken out by start-up firms. There will be measures to boost entrepreneurship, including improved employee share ownership schemes.

Treasury research has shown that UK venture capital is heavily biased towards investing in management buyouts rather than new businesses, unlike the US. The market for small company equity is also far less liquid.

Venture capitalists invested pounds 3.1bn in the UK in 1997, but pounds 2bn went on financial restructuring, according to figures from the British Venture Capital Association. Just pounds 159m was invested in early-stage companies and pounds 58m in start-ups.

Mr Brown is likely to tailor tax breaks towards genuine provision of venture capital. The Budget will adapt the recommendation of the Williams Report on financing hi-tech businesses. Published in November, it suggested offering full marginal tax relief to investors but confined to hi-tech firms.

The Treasury is nervous about defining "hi-tech", and about the charge that it will try to "pick winners". However, the enhanced VCTs could be opened to all brand new businesses seeking to raise funds.

The CBI's small and medium enterprise council has called for extra measures to boost entrepreneurship. It stressed the need to simplify the available tax reliefs and incentives, and criticised the complexity of executive share ownership schemes needed to provide incentives to key managers and employees in new businesses. Share option schemes have played a key role in US start-ups, and Mr Brown is sympathetic to proposals for an improved UK scheme.

The CBI has also called for improvements to the business asset capital gains tax taper, which now requires employees to hold a minimum 5 per cent stake in the company's equity to qualify. Key employees' holdings can be diluted below that level by equity issues, the CBI says, and the limit should be abolished for full-time staff. The 25 per cent minimum for outside investors should fall to 5 per cent, it says.