This week, hundreds of startup founders in the UK signed a petition urging finance minister Rachel Reeves not to impose a 20% exit tax on entrepreneurs leaving the country.
With just weeks to go before Reeves delivers her annual budget — described as “make or break” for the government’s relationship with the local ecosystem — she’s walking a tightrope upon which many European politicians have struggled to keep an even footing.
Everyone loves an underdog. There’s a long-standing (albeit quite American) image of startup founders in the popular imagination: tinkering away in their garages, maxing out credit cards and surviving on instant noodles as they pursue an idea they believe will change the world.
But at the point when early ambition converts into actual success, when you have real options around selling up or setting even more aggressive goals, it starts getting a little more complicated — particularly in Europe.
Europeans have long viewed wealth differently to their American cousins (at least on the surface). That’s what made a recent speech from Entrepreneurs First cofounder Matt Clifford — in which he issued a rallying cry to “Make Britain rich again!” — so captivating.
Unashamedly tying personal enrichment to national prosperity, Clifford delivered a convincing sermon based on a simple truth: the state has to make money to spend money. Public services and cultural institutions need to find funding somewhere. But where? Do we tax the rich or wait for their fortunes to trickle down into the workforce?
“It is fair that the wealthy contribute more,” says Andrew Holder, managing director at financial advisory firm Brades. “But smart policy balances fairness with growth. The behavioural reality is that very high taxes can prompt avoidance, relocation and lower productive investment.”
Many countries around the world — including the US, France, Germany, Spain and Israel — already charge exit taxes, so introducing the levy in Britain shouldn’t seem outlandish. Opponents argue not having one was one of Britain’s diminishing advantages for entrepreneurs.
A similar argument has been underway in France this week, where fear of the “Zucman tax” — a proposed 2% tax on individuals whose total wealth surpasses €100m — has enraged the country's startup leaders.
“With it being easier than ever before for wealthy people to change where they live, it’s important that tax policy balances the need to raise taxes from wealthy residents and the need to ensure the UK remains an attractive place for them to live,” says Alexandra Britton-Davis, a partner in the private wealth team at Saffery LLP.
In lieu of taxes, business leaders have urged Reeves to make changes to R&D tax credits, while tweaking some of the limits on the Seed Enterprise Investment Scheme (SEIS) — a government-backed scheme encouraging investment in early-stage startups — and the Enterprise Investment Scheme (EIS).
But given how clearly concerned these people are about not losing any of their money, is there more investors themselves could be doing?
Simon Evans, a serial entrepreneur and founder of Karno, a Bristol-based immersive gaming studio, disagrees with introducing an exit tax, but tells me risk-averse VCs are doing more to undermine the local ecosystem in the UK than Keir Starmer, the prime minister.
“The culture here is different to the US, but it’s not the government inhibiting entrepreneurial success,” Evans says. While the government has awarded Karno close to £100k in grants and tax credits, investors have been harder to bring on board.
“The fact that our offer doesn’t meet their ‘thesis’ — i.e. What everyone else is investing in — means we get rejected,” he says. “There’s a little money here, but there’s also a debilitating fear of failure.”
