The upcoming Budget may offer plans to deal with the shortfall in private investment for smaller enterprises.
One possible policy measure may be to make the tax incentives available for business angels more attractive.
The Chancellor, George Osborne has said that stimulating the provision of private investment for fast-growth firms was high on the agenda for the Budget, which is due to be delivered on 23 March.
One beneficiary may be the Enterprise Investment Scheme (EIS) which provides private investors with relief on income and capital gains tax.
Mr Osborne said: “One of the issues we need to address is the lack of equity finance. Equity finance has been a weakness in the British economy for a long time. The Government can do things. One is to provide tax advantages for angel investors. We’ve got the EIS and VCT schemes. EIS is a scheme that is working well, but there are improvements that we could make to expand it.
“There’s a temptation to do some new initiative because you get publicity for that, but my view in this area is that we should stick to what’s working so let’s think what we can do better.”
The EIS was established to enable smaller enterprises to secure funding by offering tax breaks for investors who purchase shares in the firms.
Investors can buy between £500 and £500,000 shares per company in any one tax year and set 20 per cent of the cost against income tax. If the shares are held for at least three years, any gain made won’t face capital gains tax. Losses, on the other hand, can be set against income tax.
The news on the Venture Capital Trust scheme may not be quite so good, with the Treasury said to be reviewing the income tax and capital gains tax incentives in an effort to place greater emphasis on risk capital.
The Chancellor said: “With the VCT scheme, there’s a question mark over whether it’s real venture capital, and risky in a good sense of investing in growth businesses.
“When you’re designing tax breaks you have to be careful you’re not creating a tax loophole.”