Britain’s Science and Innovation Secretary Peter Kyle addresses delegates on the 2023 Labour Party conference in Liverpool.
Paul Ellis | Afp | Getty Images
LONDON — British tech bosses and enterprise capitalists are questioning whether the country can deliver on its bid to grow to be a world artificial intelligence hub after the federal government set out plans to extend taxes on businesses.
On Wednesday, Finance Minister Rachel Reeves announced a move to hike capital gains tax (CGT) — a levy on the profit investors make from the sale of an investment — as a part of a far-reaching announcement on the Labour government’s fiscal spending and tax plans.
The lower capital gains tax rate was increased to 18% from 10%, while the upper rate climbed to 24% from 20%. Reeves said the increases will help herald £2.5 billion ($3.2 billion) of additional capital to the general public purses.
It was also announced that the lifetime limit for business asset disposal relief (BADR) — which offers entrepreneurs a reduced rate on the extent of tax paid on capital gains resulting from the sale of all or a part of an organization — would sit at £1 million.
She added that the speed of CGT applied to entrepreneurs using the BADR scheme will increase to 14% in 2025 and to 18% a yr later. Still, Reeves said the U.K. would still have the bottom capital gains tax rate of any European G7 economy.
The hikes were less severe than previously feared — however the push toward the next tax environment for corporates stoked the priority of several tech executives and investors, with many suggesting the move would result in higher inflation and a slowdown in hiring.
On top of increases to CGT, the federal government also raised the speed of National Insurance (NI) contributions, a tax on earnings. Reeves forecasted the move would raise £25 billion per yr — by far the biggest revenue raising measure in a raft of pledges that were made Wednesday.
Paul Taylor, CEO and co-founder of fintech firm Thought Machine, said that hike to NI rates would result in a further £800,000 in payroll spending for his business.
“It is a significant amount for corporations like us, which depend on investor capital and already face cost pressures and targets,” he noted.
“Nearly all emerging tech businesses run on investor capital, and this increase sets them back on their path to profitability,” added Taylor, who sits on the lobbying group Unicorn Council for U.K. FinTech. “The U.S. startup and entrepreneurial environment is a model of where the U.K. must be.”
Possibilities of constructing ‘the subsequent Nvidia’ more slim
One other increase to taxation by the use of an increase within the tax rate for carried interest — the extent of tax applied to the share of profit a fund manager makes from a non-public equity investment.
Reeves announced that the speed of tax on carried interest, which is charged on capital gains, would rise to 32%, up from 28% currently.
Haakon Overli, co-founder of European enterprise capital firm Dawn Capital, said that increases to capital gains tax could make it harder for the subsequent Nvidia to be inbuilt the U.K.
“If we’re to have the subsequent NVIDIA inbuilt the UK, it should come from an organization born from enterprise capital investment,” Overli said by email.
“The tax returns from creating such an organization, which is price greater than the FTSE 100 put together, would dwarf any gains from increasing the take from enterprise capital today.”
The federal government is carrying out further consultation with industry stakeholders on plans to up taxes on carried interest. Anne Glover, CEO of Amadeus Capital, an early investor in Arm, said this was a superb thing.
 “The Chancellor has clearly listened to a number of the concerns of investors and business leaders,” she said, adding that talks on carried interest reforms should be “equally as productive and engaged.”
Britain also committed to mobilizing £70 billion of investment through the recently formed National Wealth Fund — a state-backed investment platform modelled on sovereign wealth vehicles resembling Norway’s Government Pension Fund Global and Saudi Arabia’s Public Investment Fund.
This, Glover added, “aligns with our belief that investment in technology will ultimately result in long run growth.”
She nevertheless urged the federal government to look seriously at mandating that pension funds diversify their allocation to riskier assets like enterprise capital — a typical ask from VCs to spice up the U.K. tech sector.
Clarity welcomed
Steve Hare, CEO of accounting software firm Sage, said the budget would mean “significant challenges for UK businesses, especially SMBs, who will face the impact of rising employer National Insurance contributions and minimum wage increases within the months ahead.”
Even so, he added that many firms would still welcome the “longer-term certainty and clarity provided, allowing them to plan and adapt effectively.”
Meanwhile, Sean Reddington, founder and CEO of educational technology firm Thrive, said that higher CGT rates mean tech entrepreneurs will face “greater costs when selling assets,” while the rise in employer NI contributions “could impact hiring decisions.”
“For a sustainable business environment, government support must transcend these fiscal changes,” Reddington said. “While clearer tax communication is positive, it’s unlikely to offset the pressures of heightened taxation and rising debt on small businesses and the self-employed.”
He added, “The crucial query is how businesses can maintain profitability with increased costs. Government support is crucial to offset these recent burdens and make sure the UK’s entrepreneurial spirit continues to thrive.”
