THE Government should encourage small firms to re-invest more of their profits by introducing a business version of Tessas - tax-exempt savings accounts, already available to individuals - according to Barclays Bank, writes Roger Trapp.

The move would help to promote long-term investment and sustained recovery in the sector, David Lavarack, the bank's head of small business services, told a conference in London yesterday.

Barclays said the importance of retained profits for business growth was demonstrated by its research showing that more than three- quarters of businesses prefer using them rather than bank finance or venture capital as a funding source. Moreover, the survey of nearly 1,000 small firms found that 87 per cent would re-invest more of their profits if the tax system was altered.

'It is vital that businesses have the right balance between their own capital and bank borrowing if they are to avoid the problems of over- gearing associated with the last recovery,' Mr Lavarack said.

His call for intervention came as the conference, which Barclays funded, heard that the largest survey of the sector demonstrated that some of the Government's small firms policies were ineffective or counter-productive.