British Firms with a Combined £2.6 Billion in Revenue are Considering Fleeing the Country, Fearing Fresh Tax Hikes in the Budget

The anticipation surrounding the U.K.’s upcoming budget announcement has caused considerable unrest among businesses, and not in a positive way. Small businesses are increasingly worried about their potential hindrances to growth, while many founders are hastening to sell their startups before the anticipated implementation of new taxes by Chancellor Rachel Reeves.

These looming tax changes are causing businesses, collectively generating an impressive £2.6 billion in revenues, to contemplate leaving the country. This trend was highlighted in a survey conducted by Startup Coalition, encompassing 500 company founders who together employ 22,000 people.

Additionally, a staggering 90% of those surveyed expressed that they would prefer to establish a new company abroad instead of the U.K. if Reeves decides to increase capital gains taxes above the 20% threshold. This sentiment reflects the apprehension felt by many entrepreneurs and businesses across the nation.

While the current capital gains tax impacts only a minority of the population, Chancellor Reeves should potentially be more cautious of the broader implications such changes might have on the U.K.’s standing as a global tech hub, known for attracting some of the world’s most talented entrepreneurs. The fear of tax hikes is creating a downtrend in business confidence ahead of the Autumn Budget, which is anticipated to feature tax scaling meant to mend a £22 billion fiscal gap.

Since taking office in July, the Labour Party led by Prime Minister Keir Starmer has decided against introducing some taxes, such as income and national insurance. However, many other tax proposals still on the docket could significantly affect high-earners, employers, and entrepreneurs.

These changes are poised to be implemented in the context of tepid growth, declining investments, and a challenging productivity crisis in the U.K. While there is hope that the forthcoming budget could pivot the British economy towards a different trajectory, it will require striking a fine balance between instituting impactful changes and continuing to incentivize business operations.

Currently, business founders benefit from a reduced tax rate of 10% on profits when selling or liquidating their companies, as opposed to a 20% rate. Any alterations to this tax relief could generate extensive repercussions throughout various industries.

“Entrepreneurs thrive on incentives that reward risk. But I have a real concern that the looming Autumn budget could shift the balance, impacting growth and innovation in the U.K.’s technology ecosystem,” remarked Tom Leathes, CEO and co-founder of Motorway, a car sale marketplace. “It’s also going to get harder for innovative tech companies to attract the talent they need to scale.”

One of Reeves’s potential plans includes reducing tax relief associated with London’s AIM, the junior stock market. This segment has already decreased in size by 92 companies within this year, reaching its smallest extent since 2001. Additionally, the London Stock Exchange has witnessed a reduction in listings, despite experiencing a few promising ones, such as Raspberry Pi.

Concerns about these policies were expressed by Duncan Edwards, CEO of BritishAmerican Business, as he highlighted the seeming contradiction between raising taxes and promoting business growth. “Raising taxes, making it more expensive to do business here, penalizing investment through raising capital gains tax and so on, looks like a strange approach to delivering that growth agenda,” he noted.

Despite the anxieties, Reeves remains committed to her stance that the new measures, set to be unveiled on Wednesday, will spur economic growth and reverse the long period of stagnation. In a recent column, she reiterated her fiscal strategy, focusing on increased investment within the U.K. while fostering growth prospects.

As the unveiling of the U.K. budget approaches, businesses and entrepreneurs remain on edge, deliberating on their next moves in response to the potential tax reforms. The government faces the challenge of implementing a budget that not only addresses financial deficits but also continues to support the country’s business ecosystem, which remains crucial for sustained economic prosperity.