Anticipation of the U.K.’s upcoming budget has set off a frenzy—and not the good kind. Small businesses fear their growth will be impeded, while founders scramble to sell their startups before new taxes kick in as part of Chancellor of the Exchequer Rachel Reeves’ plans.
Those fears are prompting other businesses to consider taking other dramatic steps. Businesses collectively generating £2.6 billion in revenues are considering fleeing the country, the Telegraph reported, citing a survey of 500 company founders employing 22,000 people by Startup Coalition.
Moreover, 90% of those surveyed also said they’d set up a new company abroad instead of in the U.K. if Reeves proposes to hike capital gains taxes above the 20% threshold.
“While the tax currently affects just 3% of the population, the chancellor should be more concerned about whether such changes could undermine the U.K.’s status as a global tech hub that attracts some of the world’s best entrepreneurs,” James McClure, a partner at venture capital firm Antler, wrote in a Fortune op-ed on Monday.
The fears cascade into falling business confidence ahead of the Autumn Budget, which is expected to include tax increases that plug a £22 billion “black hole.”
The Labour Party, led by Prime Minister Keir Starmer and elected into power in July, has ruled out some taxes, including income and national insurance. However, the taxes still on the table could impact high-earners, employers, and entrepreneurs.
Countdown to the Autumn Budget
These changes will take effect against a backdrop of sluggish growth, slowing investments, and a dire productivity crisis in the U.K. While observers hope the new budget could shift gears for the British economy, it will be a delicate balance between bringing drastic changes and continuing to motivate business.
Currently, founders pay a lower tax rate of 10% on profits when they sell or liquidate their companies rather than 20%. If that tax break changes, it could have far-reaching ripple effects.
“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,” said Tom Leathes, cofounder and CEO of Motorway, a used-car marketplace. “It’s also going to get harder for innovative tech companies to attract the talent they need to scale.”
Among Reeves’ plans is a reported cut to tax relief for London’s junior stock market, AIM. This year, the listing has shrunk by 92 companies to its smallest size since 2001. The London Stock Exchange has also lost several listings amid a handful of promising ones, such as Raspberry Pi.
“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,” Duncan Edwards, the CEO of BritishAmerican Business, told CNBC.
Still, Reeves has promised that her new measures, set to be announced on Wednesday, will reverse a prolonged period of stagnation and result in economic growth. Last week, she wrote in a Financial Times column that her fiscal rules will look to invest more in the U.K. while promoting growth.