Reeves tax raid ‘risks harming UK economy’, top business groups warn

Some of the country’s top business groups have warned that Rachel Reeves’s rumoured plans to ditch a slew of tax breaks for entrepreneurs at the budget “risk harming” the economy and dissuading founders from setting up companies in Britain.

In an open letter to the Chancellor today, four business groups representing over 1200 UK founders and investors, including the Quoted Companies Alliance and fintech trade body Innovate Finance, sounded the alarm on suggestions the government could scrap tax reliefs, including business asset disposal relief and an inheritance tax break on AIM shares.

Any hike in capital gains tax or changes to tax incentives like the Enterprise Investment Scheme and Venture Capital Trust system, which allow investors to reap tax rewards for backing early-stage companies, also risked eroding Britain’s appeal to start a business, the groups warned.

“The tax environment is often key to the decision for an entrepreneur when deciding where to establish their business,” the four bodies, which also included The Entrepreneurs Network and UK Business Angels Association, told the Chancellor.

“For a successful scale-up business ultimately reaching a stockmarket listing, the taxation revenue generated for the UK over time (income tax paid by staff, corporation tax paid by the company, unrecoverable VAT paid by exempt businesses such as FinTechs) is multiples of the fiscal cost of tax incentives provided to the founders and early stage investors.”

It marks the latest in a string of klaxons from the private sector ahead of what is expected to be a punishing budget at the end of this month.

Painful choices in the upcoming Autumn budget

While Reeves and the Prime Minister, Keir Starmer, have made boosting economic growth a pillar of their pitch to the electorate, they have warned of a “painful” budget at the end of this month needed to fill an alleged £22bn blackhole in the public finances.

However, many measures said to be in contention have spooked businesses and triggered a wave of letters and warnings to the Chancellor over their unintended impact.

In a letter to Reeves earlier this month, some 140 companies warned against the move to scrap an inheritance tax break for shares on London’s junior stock market AIM.

The boss of the London Stock Exchange, Julia Hoggett, also told the City minister, Tulip Siddiq, that such a move threatened the “ongoing viability” of the market, Sky News reported.

The relief is seen as a key incentive for backing smaller stocks and investment bank, Peel Hunt, has warned that stock could dive as much as 30 per cent should the Treasury push ahead with the plans.

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It would also lead to a net reduction of £3.2bn in the overall tax take, the bank warned.

Some 500 fintech entrepreneurs warned against raising the capital gains tax last week, fearing it would remove the financial incentive for entrepreneurs to set up companies.

In their letter today, the business bodies echoed the call and urged Reeves not to “upset structures that have proved valuable” in boosting investment into companies.

“To compromise these incentives would risk harming the UK economy and the broader benefits that successful growth companies deliver,” they added.

The Treasury has been contacted for comment.