The UK government’s recent tax policy adjustments have sparked concerns regarding their potential effect on innovation and business growth in the tech sector.
- Chancellor Rachel Reeves announced increases to capital gains tax, with the lower rate rising from 10% to 18% and the higher rate from 20% to 24%.
- Employers’ National Insurance contributions have seen an increase of 1.2 percentage points, climbing to 15%.
- Key figures in the tech industry warn that these changes may discourage entrepreneurship and reduce talent attraction in the UK.
- Despite these concerns, the UK maintains a relatively competitive position in the global tech market.
Chancellor Rachel Reeves has recently unveiled significant changes to tax policies in the UK, raising the lower rate of capital gains tax from 10% to 18% and the higher rate from 20% to 24%. These adjustments are part of a broader strategy to address a claimed £22 billion deficit in public finances. Furthermore, employers’ National Insurance contributions have increased by 1.2 percentage points, now totalling 15%, which is projected to impact payroll expenses notably.
Paul Taylor, the CEO of Thought Machine, a multi-billion dollar banking software company, expressed that these tax hikes could discourage business expansion and recruitment in the tech sector. He highlighted that the increased National Insurance contributions could add £800,000 to his company’s annual payroll expenses. Taylor remarked that these changes are likely to deter emerging tech businesses, which rely heavily on investor funding, by making growth less appealing.
The adjustments to capital gains tax have been critiqued as a measure that ‘punishes risk-takers,’ according to Taylor, potentially making the UK tech scene less attractive for top talent. By reducing the potential value of company shares, these tax changes could undermine the incentive for professionals to join high-growth tech ventures, an essential component for innovation and economic growth.
ClearBank CEO Charles McManus added that the combined tax increases might dissuade entrepreneurs from starting new businesses in the UK. This could exacerbate existing trends where companies prefer to list and operate in markets outside London. McManus stressed the importance of fostering an environment conducive to business, where risks are rewarded, and opportunities for growth are accessible.
Tom Leathes, CEO of Motorway, voiced similar concerns, suggesting that the changes to capital gains tax could make scaling tech companies and reinvesting in the sector less appealing. The anticipation of these tax adjustments had already caused anxiety within the industry, with fears that they might deter investment and slow down the progress of tech start-ups.
Despite the worries expressed by industry leaders, some, like Philip Belamant of Zilch, maintain a positive outlook. Belamant acknowledges the minor tax increases but asserts that the UK continues to be a formidable player in the global tech scene, highlighting the importance of clear communication between the government and businesses to ensure stability and growth.
The UK’s new tax measures, while contentious, aim to balance fiscal responsibilities with maintaining its competitive edge in the tech sector.
