Tech and talent at risk as Reeves eyes tax hikes in November budget
Britain’s tech sector is bracing for impact as fears grow that Labour’s upcoming Budget could drive investors, and their capital, out of the country.
Brent Hoberman, co-founder of Lastminute.com and a prominent supporter of UK start-ups through Founders Forum and Firstminute Capital, warned that venture capital (VC) funds are actively considering relocation to Europe if taxes rise further.
“I spoke to someone yesterday from one of the top three VC funds who said ‘we’re all going if they push us any more”, Hoberman told the Telegraph.
He described proposals aligning capital gains with income tax and introducing a two per cent wealth tax as both “alienating” and “crazy”, noting that Italy and Switzerland are already being evaluated as alternatives.
The warning comes amid chancellor Rachel Reeves’ preparations for a tax overhaul aimed at plugging a projected £30bn hole in public finances.
While the Labour government has faced pressure to introduce a wealth tax and a “mansion tax”, critics argue that aggressive moves targeting the wealthy could backfire, prompting an exodus that would shrink, not grow, the Treasury’s coffers. The Chancellor has ruled out a dedicated wealth tax though economists expect a raid on pensions and property.
Economists at the Centre for Economics and Business Research estimate that if half of non-domiciled individuals leave the UK, the Exchequer could lose £12.2bn over this parliament.
AI investment and the UK’s goldilocks opportunity
Despite the fiscal worries, Hoberman remains bullish about the UK’s AI potential.
He highlighted recent US investment, including the $31bn unlocked during president Trump’s state visit, aimed at AI data centres and projects from companies like Microsoft, Google, and Nvidia.
“Look at the upside. Say there’s a five per cent chance that it destroys the world or a nine per cent chance that it cures all cancer. I’d take the bet on the cure for cancer”, Hoberman said, noting that energy costs remain the largest barrier to scaling AI in the UK.
Data centre energy bills here are multiples of those in continental Europe, limiting competitiveness until the government addresses the issue.
Yet he sees opportunity. Nvidia’s investment in UK start-ups such as Wayve, which Hoberman also backs, shows the potential for the UK to become a hub for AI innovation.
But, he warned that government procurement practices remain a bottleneck.
“It is easier for the government to buy from Palantir than from a startup. Nobody wants to get fired for hiring from a startup that goes bust”, he argued.
Hoberman also argued the government to attract skilled talent, especially from the US, in light of higher H-1B visa fees.
“People in government are focused on getting migration down, whereas there should be a focus on getting skilled migration up”, he said, advocating for a more streamlined approach to highly skilled visas
Hoberman also backed the introduction of digital ID cards to improve government efficiency, citing India’s Aadhaar system as a benchmark.
“I love the government to have data on people. The argument is you don’t want that if you don’t trust the government – which I understand – but overall, I think more data will help them spend money better”, he said.
The proposal remains contentious across the political spectrum, with critics warning it could create a “papers please” state and overreach into individual freedoms.
Dwindling investor confidence
UK tech small businesses, or SMEs, employ around 700,000 people and contribute more than £80bn annually to the economy.
As the chancellor readies the Budget, founders are looking for stability, clear multi-year tax planning, and support for R&D.
Constant tweaks to corporation tax, national insurance, and R&D reliefs make long-term investment difficult, and many are calling for accelerated capital allowances to incentivise digital and AI adoption.
City PM polling released on Monday underscores the challenge for the Labour government.
A majority of Brits expect Rachel Reeves’ Budget to make them worse off, and three in four have lost faith in the government’s economic growth plans.
Around 56 per cent anticipate the economy will worsen in the next year, while 57 per cent expect the Budget to hurt their personal finances, rising to 80 per cent among older voters.
The survey suggests Labour faces a steep climb to regain trust on economic management.
Pessimism is pronounced among older voters, reflecting concerns over pension and property taxation.
Nearly half of respondents reported that living standards have declined over the past year, while just 16 per cent saw improvement.
Investors like Hoberman warn that heavy-handed taxation and policy uncertainty could drive capital abroad, even as the country attracts billions in AI investment.
With SMEs forming the backbone of innovation, the government faces a choice: reinforce the ecosystem with predictable policy, talent incentives, and supportive infrastructure, or risk losing the very innovators that could power Britain’s next wave of economic growth.