Tax changes 'will undermine plan to nurture innovation'

A government plan to aid the development of Britain's hi-tech and innovative industries has been criticised as a "slap across the face" of industry after the Chancellor cut tax relief for start-up businesses.

Among the initiatives in the Innovation Nation White Paper that John Denham, Secretary of State for Innovation, Universities and Skills, presented to Parliament yesterday, the Government said it will pay companies to work with universities to incorporate new technologies and services into their businesses. The so-called "innovation vouchers" scheme is at the heart of the Government's push to "make Britain the best country in the world to run an innovative business or public service," Mr Denham said.

Douglas Richard, head of the technology research group Library House and a former star of the Dragon's Den television show, called the initiative "a slap across the face" to Britain's innovative companies, who were being treated "as if they are not smart enough to do it themselves". He added: "The challenge here is not innovation. Innovation is happening. The problem is a regulatory and tax climate that is hostile to small business."

In the Budget, the Chancellor, Alistair Darling, pushed ahead with plans to eliminate taper relief, a tax break that Gordon Brown introduced a decade ago to encourage entrepreneurialism. Mr Richard said: "With that one change the Government did more damage than any benefit they will create from the things they are doing now."

Under the plan, all 21 government departments will be required to draw up an "innovation procurement plan" on how they will incorporate new technologies from smaller businesses. The scheme is designed to open a channel into the Government's £150bn procurement budget for small and medium-sized companies. The department said it would also "look into the practicality" of setting a target of 30 per cent of all contracts that must be awarded to smaller companies in the next five years, and will produce an annual innovation report on the progress toward its goals.

"Some of it won't work. That's the nature of innovation," said Mr Denham. The potential of revolutionary technology far outweighed the certain failures that will also occur. He said: "You can't have the iPod without the Sinclair C5."

Richard Lambert, head of the CBI, said: "The Government talks the right kind of talk in this report, and its aim to make the UK an 'innovation nation' is a laudable one. What we now need to see is action. It is important we look at our 'innovation ecosystem' as a whole and don't just think of innovation as 'doing science' or 'inventing things'."

Anne Glover, chief executive of the venture capital firmAmadeus Capital Partners, has been asked to examine whatbarriers to government contracts can be removed for smallbusiness.