Scotland should be a tax-free zone for start-up investors, says LSE boss

Published on Sunday 15 November 2009 21:14

ANGEL investment figures have backed calls for more incentives to invest in innovative companies after the head of the London Stock Exchange floated the idea of tax exemptions on funding.

Xavier Rolet, who took over as chief executive of the LSE in the summer, called for Scotland to become a tax-free zone for investors wanting to fund start-up companies.

In an interview with Scotland on Sunday, Rolet said the UK suffered from a Europe-wide failure to properly invest in ideas and the development of small companies, with politicians "too focused on job losses rather than job creation". A failure in the financial services industry to develop a mechanism to fund start-ups was "the number-one cause of unemployment in Europe".

Rolet said radical changes were needed to encourage the growth of new businesses, with tax breaks on funding costing the UK government nothing because such investment hardly exists at the moment.

He said: "Perhaps Scotland should be a tax-free zone for funds dedicated to providing seed capital to early-stage companies. What are you losing by doing this, because today it is not happening?"

Rolet also called for the UK's mainstream banks to become involved by pumping hundreds of millions of pounds into investment in the sector.

"The UK government has an innovation fund but it is not enough," he said. "I would ask the big banks to create a fund, to each put 100 million into it. What is 100m to Royal Bank of Scotland these days? It is not even a comma in its accounts."

Nelson Gray, the special projects manager for Linc Scotland, the business angels' network, said the risks of the start-up sector, where the majority of companies fail, made it difficult to lure people into funding.

"If I'm trying to convince someone to invest money in a start-up project and I am telling them that there is two in ten prospect of making a good return in six or seven years' time, it's a pretty tough sell," he said.

Gray, a fund manager with private equity group Braveheart, said tax-free zones sounded "a bit too duty free-ish".

But he said the UK government should consider extending the Enterprise Investment Scheme, which offers tax relief to investors pumping equity into new high-risk companies.

Meanwhile, a fallow period for Scottish companies floating on the LSE could soon end.

Mark Fahy, senior manager in the LSE's UK primary markets division, revealed that, in the past fortnight, four companies have held discussions with the exchange about floating in 2010 and 2011.