UK Chancellor Rachel Reeves is set to unveil her first budget, promising a ‘new era for economic growth’ after a turbulent first few months in charge.
The budget proposed by Rachel Reeves and the Labour government, which took office in July after a snap election, highlights a £22 billion shortfall.
The shortfall has caused concern among businesses about potential tax increases and investment opportunities.
Many campaigners have argued that Rachel Reeves’ budget should prioritise developing the UK’s startup culture, promote university spin-outs, and provide increased support for scaling — especially for tech companies.
However, industry figures also warned that mooted tax changes, including Capital Gains Tax, could stymie growth.
Start-ups and Universities
The UK remains a leader in technological innovation, sitting squarely behind the US and China for global venture capital investment.
The UK tech industry is worth more than double Germany’s ($467bn) and three times that of France’s ($307bn).
But, the start-up picture still faces significant challenges around investment and scaling, talent, and encouraging entrepreneurship.
At a recent policy event in Westminster, Chi Onwurah MP, Chair of the Science, Innovation, and Technology Committee, discussed Rachel Reeves’ budget during a keynote speech.
She urged her Labour colleagues to support the UK’s innovation landscape and tech sector by backing universities.
Onwurah, who was the Shadow Minister for Science and Tech until the election, said: “There needs to be incentives and examples that we can set to inspire more entrepreneurial cultures in our universities.
“Many people have mentioned that so many of our talented young people study STEM subjects, but then go into other areas of the economy or culture.
“We should ensure that we are celebrating the influencers and celebrities that tech can provide and the cultural reference points for being a founder or an entrepreneur, as well.”
The event served as a platform for early-stage investor and philanthropist Dr. Ewan Kirk to present a series of policy proposals.
He argued that these proposals would prioritise innovation and entrepreneurship in the Government’s growth agenda, should Rachel Reeves decide to include them in her first budget.
Kirk has outlined several key policy points, including the introduction of a 10-year visa for all STEM graduates from UK universities.
He proposes replicating the UK’s research “Golden Triangle” — comprising Oxford, Cambridge, and London — in other regions of the country.
Additionally, he suggests creating delivery boards made up of industry experts to facilitate digital transformation in key sectors across the UK.
Kirk said: “The Government has rightly nailed its flag to the mast of economic growth, but the country is currently very strapped for cash. So, we need to see the delivery of cheap policies that can have an outsized impact. That is exactly what this policy is.
“Universities are education vehicles for producing and developing talent. The UK has one of the best higher education systems in the world, and it produces some of the best academics, innovators, and entrepreneurs in the world.
“But we’re voluntarily brain-draining ourselves by forcing this talent out once we’ve created it — through a combination of visa restrictions, expensive applications, and a wider hostile and difficult environment that we’ve created for foreign STEM students.
“Growth and productivity have flatlined for too long, and innovation and entrepreneurship are the levers we need to pull to do something about this woeful problem.
“This is precisely why we need to maintain and unleash the STEM talent emerging from our universities. This is a cheap and sensible policy — all it needs is the will to push it through.”
Read more: Labour’s next steps: HealthTech, GreenTech, and Startup industry leaders weigh in
Tax
During her campaign, Reeves assured that there would be no additional tax increases for “working people.” However, there is growing speculation that increases could affect areas like Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR) if included in Reeves’ budget.
Tech leaders told TechInformed that, if included in the budget, such rises could stifle innovation, especially in start-ups.
Tom Leathes, CEO and co-founder at Motorway warned: “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 UK’s technology ecosystem.
“Speculated plans to increase CGT rates or lower BADR will make scaling, selling, or reinvesting in new ventures significantly less attractive for many founders. Any barriers to founders starting and growing companies are going to hurt the UK in the long term.
“It’s also going to get harder for innovative tech companies to attract the talent they need to scale. As a tax on businesses (and therefore employees) increases, costs to employ the best talent go up.
“Incentivising employees with tax-efficient employee equity schemes is a powerful way to counter this, but the UK’s current startup equity plans are not good enough.
“We need the government to deliver policies that not only incentivise founders to get started but also help them incentivise the best talent to join them.
“Unless the government prioritises these points, we risk talent looking elsewhere to set up shop and scale. We should be boosting UK entrepreneurial spirit, not hindering it.”
CGT taxes the sale of an asset as opposed to general income and is variable based on income and “carried interest”. The amount taxed is based on the gained value, not the amount received during the sale.
Phil Kwok, CEO and co-founder of Easy A, cautioned that an increase in CGT could negatively affect scaling businesses and startups in two significant ways.
First, it would impact founders and early investors holding stock options, as they would be subject to the tax increase when selling their shares. This could penalise them for large sales or scaling their operations.
Additionally, he suggested that the rise in CGT could discourage investors, leading them to consider opportunities outside the UK tech scene in other markets.
“If the government sees tech as the bedrock of economic productivity and innovation, the approach seems clear — fostering an environment which encourages and nurtures these innovators so they can explore the full potential of all Web3 has to offer,” he added.
“Another area is support for young companies responsible for leading new tech innovations. Available capital for early-stage startups is low in the UK, with investors adopting a risk-averse approach.
“This is in contrast to the US, where early-stage startups can tap into investment and scale at pace. There are countless examples of renowned US startups whose rapid rise and success are down to the funding they secured early on.
“To be globally competitive, we need initiatives to support these young companies. We should take advantage of London’s reputation as a tech hub, which it has successfully built over the last two decades.”
Cybersecurity
As Rachel Reeves’ budget approaches, one key area for the Chancellor to consider is cybersecurity and making sure companies are positioned to invest in cyber-hygiene.
Reeves should adopt a “long-term view” in allocating resources to improve national cyber-defences, according to Barry O’Connell, GM of EMEA services at Trustwave.
“Plans to incentivise UK technology companies, enhanced business tax relief for cybersecurity investments, and injections of public funding into critical cybersecurity infrastructures and awareness programmes would be welcome moves to help boost the UK’s fortifications against evolving threats,” he added.
“Getting the basics right is the first critical priority, and implementing proper cyber-hygiene in an increasingly digital world requires Government intervention.
“This would be an important step to ensure that we are prioritising investments that protect the NHS and other public services, and the thousands of people consequently impacted, from devastating cyber harm.
“Overall, the Autumn Budget presents an opportunity for the government to reinforce its commitment to a secure and resilient digital infrastructure, which is essential for protecting sensitive data and maintaining public trust in digital services.”
Read more: Labour’s next steps: Cyber security, AI, & Open-Source industry leaders weigh in
