Prime Minister Keir Starmer has pledged that Chancellor Rachel Reeves’ first Budget will focus on economic growth and wealth creation. However, concerns are rising that proposed tax increases could undermine this commitment.
Sir Martin Sorrell, a prominent British businessman, has warned in City A.M. that raising capital gains tax (CGT) without adjustments for inflation or time apportionment could drive entrepreneurs and business owners out of the UK.
This concern is echoed by British tech leaders, including Lewis Liu, CEO of Eigen, recently acquired by Sirion Labs. Liu fears that a CGT hike could damage the UK’s tech sector. “Top entrepreneurs have global options, and with higher valuations available in the US, the UK must stay competitive. A CGT increase might push talent abroad, which is a risk we cannot afford,” he stated.
Liu also advocates for an overhaul of the “broken” R&D tax credits system, enhanced support for scaling businesses, and an expansion of government SEIS and EIS schemes, which incentivize private investment in small businesses.
The UK tech industry could face a talent and investment exodus if tax hikes adversely affect founders. Early exits are common, with many choosing to sell rather than scale into global leaders. Major companies like Arm and Flutter have already left the UK for better opportunities abroad. A more stringent CGT regime could accelerate this trend, reducing the UK’s chances of nurturing homegrown tech giants.
Tech and media analyst Alex DeGroote has also raised concerns, noting that a significant CGT increase, coupled with possible cuts to inheritance tax exemptions, could negatively impact UK markets and tech investment, especially at a time when AI is a major global investment focus.
AI firms are particularly anxious about the upcoming Budget. The sector, which has experienced rapid global growth, needs a supportive fiscal environment for the UK to remain competitive. Anssi Ruokonen, director of AI research at Basware, urges the Budget to provide clear guidelines for AI, especially in financial services. “The budget should foster collaboration between regulators, industry, and AI experts to establish best practices and standards,” he said.
Stuart Munton, chief of operations and technology at And Digital, has called for a Budget that reinvigorates the UK’s AI efforts. “The UK has already invested heavily in AI, so it’s crucial that this investment continues,” he said, emphasizing that training and education should be central to AI policies to maximize workplace benefits.
As the Budget approaches, UK tech leaders are making a last-minute effort to influence Labour’s plans. However, with public finances under strain, tax increases seem unavoidable. Starmer has warned that the October Budget could be “painful,” and the situation might “get worse before it gets better.”
Given the significant contribution of the tech sector to the UK economy—over £150bn annually—Labour should reconsider policies that could harm this vital industry if it is serious about fostering economic growth.
