Connected media – Connected media
In a recent blog post, the Startup Coalition, a prominent tech lobby group in the UK, expressed concerns regarding potential repercussions of the government’s new tax policies, suggesting that they could lead to a significant “brain drain” in the technology sector. The remarks come in light of the British Labor government’s announcement on Wednesday to raise capital gains tax (CGT) rates on share sales, a move intended to bolster public finances and stimulate economic growth.
Finance Minister Rachel Reeves outlined the proposed changes in her inaugural budget, stating that the lowest CGT rate would increase from 10% to 18%, while the top rate would rise from 20% to 24%. This adjustment is projected to generate approximately £2.5 billion for the government. Reeves emphasized the need to encourage entrepreneurship and wealth creation while ensuring sufficient funding for public services.
Reeves confirmed that the £1 million lifetime limit on tax-free gains through the Entrepreneurs’ Relief scheme would remain intact, alleviating some fears among business owners regarding the potential elimination of such incentives. However, she announced that the CGT rate for entrepreneurs utilizing this relief when selling their businesses would increase to 14% in 2025 and 18% by 2026, which some entrepreneurs view as a significant concern.
In addition to the changes to capital gains tax, Reeves revealed plans to hike the National Insurance (NI) rate for employers from 13.8% on earnings above £9,100 to 15% for salaries exceeding £5,000. These measures are part of a broader strategy by the newly elected Labor government to address a substantial funding gap in public finances.
Following speculation about potential tax hikes, the tech community expressed apprehension about the implications for innovation and talent retention. The Startup Coalition conducted a survey involving 713 tech founders and investors, revealing that 89% would consider relocating themselves or their businesses abroad, with 72% having already explored such options. The survey further indicated that 94% of respondents would contemplate establishing future ventures outside the UK if CGT rates were to increase.
Dom Hallas, executive director of the Startup Coalition, acknowledged the survey results but noted that while the outlook is concerning, he believes founders are unlikely to abandon the UK at the first sign of difficulty. Hallas commented that the government had shown a willingness to listen to the concerns of entrepreneurs, particularly regarding crucial investments in research and development.
Barney Hussey-Yeo, co-founder and CEO of the financial technology app Cleo, remarked on the growing trend of founders considering relocation, particularly to tech hubs like Silicon Valley. While he expressed some satisfaction with the budget announcement, he noted that many in the sector remain wary and are contemplating potential moves abroad.
Paul Taylor, CEO of fintech firm Thought Machine, highlighted the financial burden that increased NI contributions would place on his company, estimating an additional £800,000 in payroll costs. This increase could strain resources for companies heavily reliant on investor funding, especially during a period marked by heightened cost pressures.
There is a growing call among tech entrepreneurs and investors for the government to refocus its efforts on fostering growth and innovation, aligning with the commitments made during Labor’s election campaign. Phil Kwok, co-founder of the e-learning startup EasyA, pointed out that early-stage companies in the UK are facing challenges in securing funding, and a higher CGT could deter investors from taking risks in the market.
Hannah Seal, a partner at Index Ventures, urged the government to implement reforms that facilitate employee ownership and prioritize innovation. She emphasized that nurturing a startup-friendly environment is essential for maintaining the UK’s competitive edge in the global market.
Edgar Randall, managing director at Dun & Bradstreet, stressed the importance of considering the cumulative impact of various policies on economic growth. He warned that entrepreneurs evaluate the broader ecosystem when making business decisions, rather than solely focusing on tax policies.
As the UK government navigates these complex fiscal changes, the tech sector remains watchful, concerned about the potential long-term effects on innovation, investment, and talent retention. The balance between generating public revenue and fostering a supportive environment for entrepreneurship will be crucial in determining the future landscape of the British technology industry.
Related media – Connected media
