Many employees working in internet start-ups will be listening intently to the Chancellor's Budget speech for any changes to a tax quirk affecting share options.

The high-growth technology and telecom sectors are battling to find and retain staff at a time when serious shortages are being forecast over coming years.

One of their key means of attracting staff is to offer share options - and it looks as though similar schemes are destined to become commonplace throughout the new economy.

In the American IT heartland of Silicon Valley, share options are considered to be so valuable that they are virtually synonymous with cash.

In the UK, however, government approved share option schemes are limited to a maximum of �30,000 while unapproved schemes attract both income tax and a 12.2% National Insurance charge on the employer when the employee exercises the option.

Some fast-growing internet companies have complained that these costs could make the difference between success and failure when they are battling for a foothold in a highly competitive field.

Out of touch?

Americans are incredulous when they hear this, saying share options have been an essential part of the development of the new economy in the US.

How, they say, can a company with big ideas and small bank balances hold on to key staff unless they can offer the inducement of a share of the company's future success?

If such potential rewards are not on offer in the UK, they are elsewhere and it is not difficult to work out where many of those key people will go.

This line of thinking is not confined to internet start-ups - it looks set to become a fact of business life.

Keeping top performers

The world's biggest firm of management consultants, Andersen Consulting, has just announced that it is investing �130m ($200m) on behalf of employees in companies involved in e-commerce.

Under the scheme, which it says is specifically aimed at attracting and rewarding high-performing employees, another �65m ($100m) will be invested each year.

The wealth created by these investments "will be distributed to employees as 'e-units' - a unique form of compensation that harnesses the value of the electronic economy".

Andersen Consulting is also extending access to its partnership ranks, creating more than 1,000 new partners worldwide this year.

International chairman Vernon Ellis said: "We are doing this so that those who build their careers with Andersen Consulting will be able to share in the wealth created by the firm."

UK position

Gordon Brown has said he is reviewing the National Insurance charge and was determined not to let anything get in the way of creating an entrepreneurial environment in the UK.

But Treasury officials have said it will not be easy to help cash-constrained start-ups without producing a tax avoidance loophole.

The chancellor is under pressure, however, because the issue has been picked up by the Conservatives, who have promised to help companies offer lucrative share option schemes if elected at the next general election.

Last month, Shadow Chancellor Michael Portillo said: "Most of these companies simply cannot afford to pay large salaries. Share options are the answer."

This is seen by some as a little rich, as it was the Conservative Chancellor Kenneth Clarke who slapped the �30,000 ceiling on approved share option schemes, which are free of National Insurance charges.

Whatever Mr Brown comes up with, it will be difficult to solve the problem completely and a compromise is likely, such as deferring the payment or allowing it to be made in instalments.