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| Chancellor of the Exchequer, Rachel Reeves |
It’s been a whirlwind few months for the UK since Labour swept into office with their majority win in July. Chancellor Rachel Reeves, the first female Chancellor of the Exchequer, marched us into September with the revelation of a £22bn “black hole” in public finances. By the end of October, Reeves unveiled a new budget boldly branded as “the budget to rebuild Britain”—but at what cost?
Over the past year, the UK economy has gained momentum, with gross domestic product (GDP) returning to growth in the first half of 2024 and inflation reaching 2.0% in May—hitting the Bank of England’s target for the first time since 2021.
Despite these successes, a £22bn public finance overspend has prompted a tough autumn budget that delivers pay rises for some but taxes for many, including those in enterprise and innovation.
With the first female Chancellor’s budget now released, let’s examine what she has said about supporting female-led innovation.
Female-led Innovation: A Key Priority?
Reeves has announced measures aimed at maximising women’s contribution to the economy. The British Business Bank will expand its funding for female entrepreneurs, with a £50m investment into female-led funds. This initiative aligns with the ambitions of the Invest in Women Taskforce, providing much-needed access to capital for female innovators. Whilst the notary nod to women in the budget may be a positive first step, it is yet to be determined if this incentive will be enough to encourage and support female-led startups operating in a male-centric environment.
Taxing the Innovation Economy
Looking at the broader venture capital landscape, Capital Gains Tax (CGT) will increase from 18% to 21% for the lower bracket and from 20% to 24% for the higher bracket. Meanwhile, Business Asset Disposal Relief (BADR) will see a rise to 14% from April 2025, although its current lifetime allowance of £1m will remain unchanged.
Dubbed the “innovation tax,” these CGT and BADR hikes could dampen the UK’s appetite for founding start-ups and penalise risk-takers in innovation and entrepreneurship. However, some university spinouts argue that impact, rather than commercial return, drives their founders—suggesting the changes may not heavily affect the innovation economy. Others believe the tax adjustments align the UK more closely with other European start-up nations. While the UK may not have a ‘competitive’ tax regime, its start-ups may fare no worse than their continental counterparts.
While the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) remain intact, carried interest will face a tax increase to 32% from April 2025, rising further in April 2026. This change will impact co-investment fund managers across the UK. Although the standardisation of the carried interest rate could bring some benefits—potentially reducing rates previously as high as 39–45% (depending on dividends or interest)—the immediate impact may deter investment.
Non-Dom Status Axed
The removal of non-domicile tax status for UK residents has also raised concerns that international wealth could move overseas, undermining Britain’s appeal as a competitive investment hub against other countries with a more generous tax regimes.
Employer NI Hike and Living Wage Increase
From 30 October, Employer National Insurance (NI) contributions will also rise, and NI will also be applied to carried interest, aligning it with income tax. Combined with the increase in the national living wage to £12 an hour, some portfolio companies may face challenges, requiring revisions to employment cost models and forecasts.
A Missed Opportunity for Green Innovation?
Despite the government’s previous commitment to clean technology as a priority in the Industrial Strategy Green Paper, the budget offered little in terms of green tax incentives to drive high-growth green technologies. Despite this, the £250m commitment to British Business Bank funding, alongside investments in sectors like life sciences (£520m), aerospace (£975m), and automotive (£2bn), could provide increased opportunities for high-growth start-ups in priority areas across the UK.
The Verdict
The focus on female-led innovation is a welcome step towards greater diversity in the start-up ecosystem. However, more comprehensive support is needed to empower female entrepreneurs and women in venture capital.
While the government’s short-term economic outlook may appear bleak, Reeves is adamant that these measures will pave the way for long-term prosperity.
Will Reeves’ stringent budget ignite innovation—or extinguish entrepreneurial spirit?