The role of any good think tank or business group is to speak frankly to whoever is in Government. As many of you will already know, we’re asking entrepreneurs to sign a letter to the Chancellor following reports that she is considering hiking Capital Gains Tax (CGT) and further restricting Business Asset Disposal Relief (BADR) in the forthcoming Budget.
If you are a founder, you can read and sign our letter here. Whoever you are, please share it far and wide: email, WhatsApp or Slack groups, social media, carrier pigeon etc. The more, the mightier.
In essence, it argues that restricting BADR or hiking CGT rates would jeopardise the success of Britain’s startup ecosystem by enormously weakening the incentive individuals have to start and build businesses. It would also reduce the incentive for startups to offer employee stock options or shares, making it even harder for startups to attract the talent they need to scale.
Any revenue it might raise in the short term would be more than offset by the damage it does to long-run productivity by stifling the growth of future startups.
Below is the letter in full so you can circulate it among your own networks. Previous letters we have coordinated have garnered a lot of support and made a real difference to policy (see here, here, here, here, here, and here). This one has already been signed by over 200 entrepreneurs, including more than a few household names, but we’d like to get even more signatures.
The stakes are high. According to Evelyn Partners, one in three business owners are fast-tracking sales as capital gains raid looms. This is a response (included anonymously with permission) from a foreign-born founder in our network who started his deep tech business in the UK and has raised millions: "Not gonna lie, in my circles people are not signing letters, they are already moving country. Even *discussing* increasing CGT was enough. I know founders who have left the UK only for this reason since the election. I don’t go on record on this but it is serious."
I respectfully disagree that it’s not worth signing letters. We have shifted policy in the past with your help. But I regretfully agree that it is serious.
If you didn’t get my email about this letter, sign up here. Any journalists who want to get in touch about this should drop me email.
The Letter
Dear Chancellor,
Entrepreneurs represent a uniquely important segment of any country’s economy – but especially our own. Britain can rightly claim to be one of the best countries in the world to start and scale a business, and that reputation has been carefully earned over recent decades.
The risks entrepreneurs take in striking out and starting new and innovative companies are essential to moving the economy forward. From startups developing solutions to the climate crisis to those working to revolutionise healthcare, entrepreneurs not only create businesses that provide good, high-paid jobs, they also generate taxes to pay for public services and help tackle pressing social issues too.
At the last general election, many entrepreneurs put their faith in what they recognised was a changed Labour Party – heartened by statements you made about being the party of wealth creation and your promise to give investors the certainty they need to fuel growth. Reporting in the lead up to the Autumn Budget, however, has given many in Britain’s thriving entrepreneurial community pause for thought.
Chief among our concerns are the rumoured restrictions to Business Asset Disposal Relief (BADR) and rise in the rate of Capital Gains Tax (CGT). According to The Guardian, your officials have modelled the impact of increasing CGT as high as 33% to 39%. Higher CGT or any restrictions on BADR would make this relief less competitive at a time when the rest of the world is making their reliefs more competitive. It would mean the UK has the second-highest CGT rate in Europe, and jeopardise the success of our country’s startup ecosystem by enormously weakening the incentive individuals have to build businesses. Reporting by The Telegraph gives us some hope that the 39% figure may not be on the table – but businesses need clear and definitive reassurances right now.
This applies as much to British entrepreneurs as it does to founders from abroad who currently view Britain as an attractive destination in which to base their company – previous research from The Entrepreneurs Network revealed that four out of ten of Britain’s fastest-growing companies had a foreign-born founder or co-founder.
Many fledgling startups offer employees stock options or shares as part of their compensation package as they cannot compete with the higher salaries of established big corporates. Further restrictions to BADR would reduce this incentive, making it even harder for startups to attract the talent they need to scale while denying workers the chance to own a piece of Britain's growing companies.
Policymakers should also understand that entrepreneurship is an engine for further economic growth. By discouraging entrepreneurs from starting and growing their businesses, HM Treasury could well end up lowering the tax take overall. Indeed, this is what its own previous modelling suggests. Leading economists are also much more likely to agree than disagree that taxing capital income at a permanently lower rate than labour income would result in higher average long-term prosperity.
Given the straitened public finances it is understandable to leave no stone unturned when looking to balance the books. However, any temptation to rapidly and radically hike CGT should be resisted. Any revenue it might raise in the short term would likely be more than offset by the damage it does to long-run productivity by stifling the growth of future startups.
Our hard-fought reputation as a place where entrepreneurs can successfully build a business has been one of Britain’s economic saving graces. We, the undersigned, urge you to ensure our CGT regime remains competitive and encouraging for founders wanting to get Britain growing again.
Lunch & Learn
Our good friends at Enterprise Nation have secured the Small Business Minister, Gareth Thomas MP, for their highly recommended Lunch and Learn series. The session will take place online on 13th November from 1pm to 1.30pm. To register for the free event, please click here.
Education, Education, Recommendations
Our other good friends at Youth Business International (YBI) and Global Entrepreneurship Network (GEN) have launched a comprehensive Youth Entrepreneurship Framework. The framework brings a fresh perspective on harnessing the opportunity of youth entrepreneurship. It includes 50 actionable recommendations, with each recommendation tied to a case study in GEN’s Atlas – the world’s largest compendium of entrepreneurship policies.