Head of investment products Matthew Woodbridge says Alistair Darling has to make the move if he is serious about stimulating smaller businesses.
VCTs were launched in 1995 to attract investors to small, unquoted companies but the Government cut the tax relief from 40 to 30 per cent in 2007.
Figures from Chelsea show only £130m was raised for VCTs in the 2008/09 tax year, a huge fall from the £1.25bn raised between 2004 and 2006.
Woodbridge says: “Our prospering start-ups, sole traders and small businesses can give the economy a badly needed shot in the arm. Unfortunately, banks and other lending institutions are putting the freeze on loans to smaller businesses and particularly those at an embryonic stage in their development.
“An increase in income tax relief from the current 30 per cent would substantially increase the amount of money invested in VCTs. I would like to see a reversal of the tightening of rules which mean VCTs cannot invest in companies with assets greater than £7m. We call for this to be reversed to the previous legislation when VCTs could invest in companies with up to £15m in assets.”
Octopus Investments managing director Guy Myles says: “A small increase back to the 40 per cent relief level is warranted. It would be a small rise to a previous level that would see a huge increase in the amount of investor assets going into smaller businesses.”