After the recent UK Budget announcement, which outlined a £40bn increase in taxes, Joanna Jensen, an entrepreneur and the chair of the Enterprise Investment Scheme Association (EISA), offered insights on how these changes might impact UK entrepreneurs.
In the aftermath of both the COVID-19 pandemic and Brexit, startups and expanding businesses have been feeling the pinch; cash flow is tight, costs have surged, and international trade regulations are proving to be quite the obstacle.
Small businesses are grappling with major staffing challenges, whether it’s dealing with long-term sick leave or facing a severe shortage of workers in fields like hospitality and services. There’s also a noticeable hesitation among many about returning to office environments. A new government with a focus on growth seemed hopeful—until there were murmurs about plans to dismantle the very tools that support business expansion. Pointing fingers at the previous administration feels like a deliberate tactic to distract from the fact that these officials are new to business.
Even before the Budget was released, rumors dampened consumer spending and worried just about every small and medium-sized enterprise (SME) I’m familiar with. Checking out the FTSE trends made it clear that the financial community anticipated trouble ahead.
While the initial messaging wasn’t all doom and gloom—with statements like Starmer’s ‘our number one mission is growth,’ and Reeves’s call to ‘invest, invest, invest’—for a fleeting moment, I thought perhaps the Government had caught on to the brewing frustrations. Or maybe, for the cynics among us, they strategically leaked dire predictions to soften the blow. We all hope UK’s leaders wouldn’t sink so low.
On the upside, the budget maintained the R&D Tax Credits program, allocated more resources to the National Wealth Fund, pledged to accelerate innovation, and offered lower tax rates for the retail, hospitality, and leisure sectors.
However, there were significant changes as well, such as an increase in employers’ National Insurance from 1.2% to 1.5%, and a reduction in the secondary threshold from £9,100 to £5,000 starting April 2025. Coupled with upcoming Day-One employment legislation, UK businesses might consider setting up shop in more tax-friendly countries, which would ironically decrease the Treasury’s revenue. Why deal with the UK’s challenges if operations can be run smoothly from places like Portugal, Spain, or Italy?
The continued rhetoric about not hurting “working people”—which one assumes includes anyone with a job—doesn’t hold water. NI and minimum wage hikes will inevitably pass on costs to these very people. Take one brand I know: with a turnover over £10m, their expenses are set to increase by £300,000. To cover that rise, they’ll need to boost sales by just under £1m, which is no small feat.
While Reeves highlights the new employment rules as protective measures against unfair dismissals and work bullying, and aiming to improve paternity and maternity leave, it’s ironic that the same budget contains efforts to regulate COVID-related corruption and benefit fraud. And let’s not forget nearly a million Brits on long-term sick leave. It’s clear integrity isn’t a given among all, yet we’re expected to believe the new Day-One policy will instill honesty in the workplace. Really?
Regarding changes to Capital Gains Tax (CGT) and Business Asset Disposal Relief, previously Entrepreneurs Relief Tax (ERT), the increase in CGT—from 10% to 18% for the lower rate and from 20% to 24% for the higher rate—could have been worse. But is the £2bn expected by 2030 worth the anxiety it has caused among SMEs and entrepreneurs, now and into the future?
The modifications to Business Asset Disposal Relief are unwelcome, perhaps even short-sighted; instead of the former £10m at 10%, aligning this tax with the new lower CGT rate by 2026 seems nonsensical. Reinstating the original £10m ERT at a slightly increased 15% rate might have eased the worries among our talented founders. What a missed opportunity.
Reeves directly mentioned the continued support for Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS) legislation. Here, I would urge the Board of Trade to demonstrate their support for the entrepreneurial sector by revising the EIS.
Thirty years since its introduction, it’s time to update the investment terms to fuel more domestic investment in UK ventures. UK high net worth individuals have channeled over £32bn into 56,000 businesses thanks to the Seed Enterprise Investment Scheme and EIS, empowering our SMEs.
The Government should elevate investment limits for EIS-qualified enterprises to, for example, £50m (£100m for knowledge-intensive businesses) over a business’s lifetime and make companies eligible for EIS in the first 15 years following their initial sale. Adjusting investment thresholds to reflect inflation and extending the eligibility period would particularly aid female-led businesses, who may need capital once their children are grown and the initial investment period has passed. Ms. Reeves’s call for ‘no ceiling on your ambition, your hopes, your dreams’ should translate into removing these barriers.
Joanna Jensen is the chair of the Enterprise Investment Scheme Association (EISA) and founded Childs Farm, the UK’s top skincare brand for babies and children. She also acts as an angel investor for 12 female-founded businesses, products, and services.
