Tax Increase: British Technology Industry Concerned

British venture capitalists and entrepreneurs are warning of negative consequences for the technology sector if the Labour government proceeds with its planned tax increases. Among the chief concerns are a rise in capital gains tax and stricter regulations on performance-based compensation by Chancellor Rachel Reeves. The discussions primarily revolve around the taxation of so-called 'carried interest' and potential capital gains taxes, which could significantly impact the investment climate. Matthew Scullion, founder of the software group Matillion, valued at over one billion USD, expressed concern about the proposed changes. He emphasized that such tax policies would hinder entrepreneurship and risk-taking – precisely the factors that Britain urgently needs to bolster its economy. Taavet Hinrikus, co-founder of the London Stock Exchange-listed fintech firm Wise, also warned that higher taxes could make the country less attractive for talent and thus be detrimental overall. This would weaken the United Kingdom in the global competition for skilled professionals and innovative start-ups. Prime Minister Sir Keir Starmer has signaled that wealthy citizens should bear a greater tax burden. Insiders believe that capital gains and inheritance taxes could rise in the October budget, while other major revenue sources such as income tax, national insurance, and VAT are expected to remain unchanged. A Treasury spokesperson emphasized that following the review of public spending, tough decisions on spending, benefits, and taxes would need to be made to stabilize the country's economic fundamentals and resolve the financial deficit of 22 billion pounds. These decisions are to be made within the budget framework. Currently, capital gains are taxed at 20 percent on the sale of businesses and 'carried interest' at 28 percent, compared to the top income tax rate of 45 percent plus national insurance. Some in the industry would be significantly affected by these changes. Capital investors warn that a sharp tax increase could lead to an exodus of deal-makers from the UK. Venture capitalists, who often acquire minority stakes in young companies, fear that structural reforms could lead to losses on successful transactions. They believe they should be treated differently from private equity managers, who take over more mature companies and increase their value. Haakon Overli of Dawn Capital emphasizes that aligning capital gains tax with income tax would significantly impact their economic modus operandi. The government must consider the broader costs of a weakened venture capital sector in the UK. Scullion stated that while he could understand a moderate increase in capital gains tax, aligning it with income tax would be untenable. This could potentially lead him and his business partners to leave the country, further pressuring the UK. Last year, British start-ups raised 21.3 billion USD, mostly from investors outside Europe. The Labour government's proposed tax increases come at a time when other countries are actively working to become more attractive for high-earning professionals and entrepreneurs, according to industry experts.