Coalition undermining enterprise, claims chief of venture capital firm

THE head of Scotland's biggest venture capital firm has accused the coalition government of lacking consistency in its approach to encouraging enterprise and of demonising the banks instead of focusing on growing the economy.

Calum Paterson of Scottish Equity Partners said there is "undoubtedly" an issue over access to capital, but raising capital gains tax is an example of how the government is punishing rather than helping enterprise.

Paterson, managing partner at SEP, said: "If we are serious about encouraging enterprise we have to ensure the tax system supports it rather than undermines it. After the increase in CGT it is not difficult to see that there is a lack of consistency."

He said the government had to call a halt to its continued criticism of the banks. Vince Cable, the Business Secretary, has spoken of his frustration at the slow pace of bank lending and of the need to improve the flow of capital to companies through alternative sources of capital, including the use of the tax system. He has warned the banks to expect more taxes or sanctions on bonuses unless they toe the line.

But Paterson said: "Demonisation of the bank sector is not a helpful attitude. We need a more considered view instead of what seems to be policymaking on the hoof.

"It is disappointing to keep hearing about the deficit, the need to raise taxes and impose cuts. There is very little discussion about what is needed to create a high growth, dynamic economy."

Paterson's comments, during an interview with Scotland on Sunday to mark SEP's tenth anniversary, coincide with the publication of a green paper from the Business Secretary and Chancellor George Osborne aimed at stimulating growth through alternative sources of finance.

Osborne said at the launch of the consultation process: "As the economy recovers, it is crucial to ensure that the supply of finance supports rather than constrains demand and business confidence."

But Paterson believes there are dangers in increasing taxes and encouraging hostility towards the banks. His company, however, could benefit from any decision to encourage more equity finance. Cable has shown some sympathy with calls to switch the focus of tax relief from debt finance.

SEP has evolved into one of Europe's biggest venture capital firms, investing private and institutional funds into more than 50 high growth firms that include some notable successes: Wolfson Microelectronics, Skyscanner and Sumerian.

It was formed out of Scottish Development Finance, initially part of the Scottish Development Agency, which became Scottish Enterprise.

It now employs 25 staff in Glasgow and London and its 160 million SEP III fund launched in 2006 was the largest VC fundraising in Europe that year.

Paterson said SEP IV could follow in the next year or two, but a third of the current fund is yet to be invested.

The company has survived a contraction in the VC sector caused by the technology crash in the early part of the last decade and the more recent financial crisis.

Research by the National Endowment for Science, Technology and the Arts shows a 50 per cent fall in venture capital investment in the UK in the last two years, with large players such as 3i withdrawing from the VC market.