You'd have to be mad to start a business in Labour's Britain
No other country except China is losing more millionaires and billionaires than Britain. It has meant a consequential loss of billions of pounds in UK tax revenues as well as the jobs and economic activity their spending helped to generate.
But what about entrepreneurs seeking to build businesses here, be they British or foreign investors who once thought the UK was a great place to start up a business? How are they reacting to the policies of the Labour Government? What are their prospects and what does it mean for our economic prosperity?
The news is not good. Labour's tax hikes have led to a significant increase in entrepreneurs voluntarily liquidating viable solvent businesses, reaching the highest level since the pandemic. There were 12,602 members' voluntary liquidations (MVLs) in the 2024-25 tax year – the highest since the pandemic – out of a total of 36,807 liquidations, driven primarily by recent tax policy changes, according to advisers.
There is no single reason Labour is making life difficult for entrepreneurs – that's because there are at least six bad policy choices that Labour is responsible for. The message from Labour couldn't be clearer we don't care if British entrepreneurs find better opportunities in other countries.
1. There is the huge hike in capital gains tax (CGT) levied on entrepreneurs – up eight percentage points from 10pc to 18pc coming in April 2026.
2. Entrepreneurs also face the four percentage point increase in the CGT main rate from 20pc to 24pc which makes it more difficult for companies to raise capital by increasing their cost of capital. A study of cross-border transactions involving countries with differences in capital gains tax rates found that a 1pc point increase in the capital gains tax rate reduces the value of equity by around 0.3pc, suggesting capital gains taxes significantly raise firms' cost of capital.
3. These CGT hikes are just part of Labour's overall tax assault on high-net-worth individuals, – often pivotal investors in early-stage companies – which is driving many of them out of the UK. Indeed, evidence shows Labour's overall tax assault is already making departures happen. There is also the increase in business rates and other tax rises such as on stamp duty that are felt acutely by entrepreneurs.
Another challenge is how an increase in CGT rates makes it more difficult for start-up companies to attract and retain skilled and capable staff, who seek the prospect of a decent capital gain to compensate for the poorer job security offered by start-ups. IR35 means that it's much more difficult to bring in freelancers on a flexible basis to meet short-term needs.
4. Then there's the hugely increased bill for employers' National Insurance contributions. For small businesses, cash flow is crucial, and any increase in employer costs eats into growth potential. Not only has the rate increased it also now starts at a far lower threshold, added to which the minimum wage has increased too.
When added to penal rates of taxes on earnings, 62pc when you reach £100,000; and 47pc above £125,000, entrepreneurs have much less money available for investment.
Serial entrepreneur and investor James Dooley has said: 'I've had to reevaluate hiring plans for the next year. Instead of taking on new full-time staff, I'll likely rely more on contractors or freelancers to control costs. For small tech companies like mine, these changes don't just nibble at the margins, they take a real bite out of hiring capacity.'
5. Then we have the imposition of inheritance tax (IHT) on family firms, which means that if an entrepreneur is successful he or she will have great difficulty in passing on the business to the next generation. Why start a company in Britain if you're going to have to bail out of the country later on to avoid a penal death tax hurting your family?
There is already evidence that family shareholders are exiting now to avoid IHT as the liability remains for 10 years (up from seven) after departure.
6. And it's not just the tax rises that Labour has introduced, there's Angela Rayner's union-led Employment Rights Bill too, bringing changes around gig workers, redundancy costs and compensation that could raise the cost of hiring and slow down growth. Startups thrive on agility, and new laws and regulations that slow development down make entrepreneurs question if the effort is worth it.
The threat to entrepreneurs in Britain is not imaginary but being felt already. A recent survey of 200 business owners, commissioned by Handelsbanken Wealth & Asset Management found nearly two out of five have either left the UK or are considering their imminent departure in the next two years.
Likely destinations included Spain, which came top, followed by the United States, France – and Dubai, amongst others. In a survey by the Federation of Small Businesses the increase in minimum wage, new workers' rights and employers' National Insurance contributions caused a third of companies to expect they would cut back on staff while only one in 10 said they planned to take more people on.
Business advisers report that opening conversations with their clients now often start with exploring the possibility of relocating abroad – and why not? Others say their clients are throwing in the towel, seeking voluntary liquidations of viable businesses so they can take their money and run.
Put together, entrepreneurs face a perfect storm of less capital availability, higher taxes diminishing the business returns and personal rewards, higher overheads making profit harder, a treacly tide of new regulations slowing them down – and the probability that passing the successful business or its value on to the family comes at a high cost that does not have to be paid in other countries.
The brutal truth is the UK is no country for entrepreneurs. It is becoming tougher all the time; the challenges are becoming harder to overcome, the risks of failure greater and the possibility of retaining any financial rewards are diminishing.
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