The government has announced plans to create a new working group to advise on issues affecting small businesses.

The move follows lobbying from the Forum of Private Business after the decision to replace the Small Business Council with the Business Council for Britain in 2007.

The chairman of the council Mervyn Davies said the group would aim to remove obstacles preventing people setting up and expanding businesses.

But he added that the lack of venture capitalist involvement in the small sector was a big challenge to overcome.

"We have absolutely got to reduce the regulation and the red tape for small business; that's a very pressing challenge," he told the Financial Times. "And we've got to help small businesses grow internationally without building their cost base."