Give start-ups sales, not tax breaks, says US investment guru

THE government should support start-up companies by favouring them when buying products and services rather than giving them tax breaks, according to an American investment guru.

Ken Morse, who set up the Entrepreneurship Centre at the Massachusetts Institute of Technology (MIT), said that providing customers for small businesses would help them to grow faster than cutting government levies.

He said prompt payment was crucial and that larger companies should be offered tax breaks if they did business with start-up firms and paid them on time. His comments contrast with a growing clamour from the investment community for the government to use the tax system to stimulate business creation.

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Sir Tom Hunter last week called for taxation to be used to encourage economic growth with more "ground-level support" for start-ups.

Xavier Rolet, chief executive of the London Stock Exchange, suggested that Scotland should become a tax-free zone for investors wanting to fund start-up companies.

Morse's comments come ahead of a "Finance for Growth" workshop being run by Edinburgh University's Informatics Venture programme this month.

The workshop will be led by Morse's MIT colleague Bill Aulet, and will include a panel discussion involving business angel Nelson Gray, Kelvin Capital's John McNicol and Kathy Greenwood from TRI Cap.

Morse told Scotland on Sunday: "What entrepreneurs need the most, in good times and bad times, are customers. They need customers who are demanding but fair and who pay on time.

"The European Parliament is working on legislation that would require local government to pay SMEs for their products and services within 30 days and I strongly support that idea.

"In my opinion, what Scotland should do to support start-up companies is to instruct its agencies to buy more from them and pay them quickly. If large companies were given tax breaks for buying from small companies then that would have a greater effect than giving tax breaks to small companies."

A Scottish Government spokesman defended its record with start-ups, saying: "We are working closely with supplier representative bodies and public sector partners to develop and implement a range of measures to improve SME access to public contracts. The Scottish Government understands the importance of prompt payment and has dramatically improved its performance, with 96.8 per cent of all transactions paid within ten working days in May."