Chancellor George Osborne is confident tax break will raise the pool of capital available to small businesses.
Following the green light from the European commission, the chancellor is to go ahead with proposals floated in the budget to expand the Enterprise Investment Scheme. The plan involves raising the income tax relief from 20% to 30% for EIS investments, backdated to April 2011, and doubling investor limits to £1m, which will come into effect in April 2012.
Osborne said: "We want to make the UK the best place to start, finance and grow a business. These changes will give a bigger tax break to those who take risks for growth and jobs in Britain by investing in the small companies that have the potential to be fast growing."
At a time when growth is slowing and unemployment rising, the government is keen to help businesses with the potential to expand rapidly.
The Treasury said high-growth companies account for only 6% of businesses in the UK employing more than 10 people, but in the past three years had been responsible for creating 54% of all jobs in firms with more than 10 staff.
Figures for later years are not yet available but Osborne is confident the move will increase the pool of capital available to small businesses and provide an alternative to bank credit.