The Bank of England is pushing for tax incentives to encourage venture capitalists to invest in UK-based IT startups.
Later this month, the bank will publish a report, The Finance of High Technology Companies, in which it seeks to boost the government's Business Link advisory network for small firms. It also backs the current government policy of paying grants to young high-tech firms.
The bank states that such grants would reassure private investors that companies are sound. It is thought the proposals are likely to be accepted by the Treasury.
Howard Davies, deputy governor of the Bank of England, said at a British Computer Society meeting last week that government schemes have not been successful in helping young IT firms.
'Things like venture capital trusts and the enterprise investment scheme are positive, but have quite a few restrictions on the way they are constructed, which makes them less suitable for small technology-based firms,' he said.
Davies added that UK banks and venture capitalists must share the blame.
'In comparison with the US and Canada, it is harder to attract startup and mezzanine capital for British technology-based firms. Only a small number of UK banks are geared up to assess the underlying technology in propositions put to them.
'Our venture capital industry is structured in a way that is not economical for them to deal with smaller startups,' he said.
Ken Barnes, veteran IT venture capitalist and director of fund management firm BTMS, said: 'Tinkering with tax incentives or introducing government initiatives will not change the difficulties facing small technology companies - a restricted market and a high-risk investment profile.'
A representative for the British Venture Capital Association said the association was pleased with the report, but wanted to see the government address a wider set of issues, including research funding, education, training, technology transfer and cultural issues.
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