With UK public finances under pressure, Chancellor Rachel Reeves is set to favour tax rises over spending cuts, a move that could have lasting effects on investment, growth, and talent in the tech industry.

The most discussed rumour is the introduction of a wealth tax. Although popular among some MPs, there is no consolidated Labour plan for its implementation. From an economic perspective, this could be counterproductive. It risks discouraging saving and capital accumulation, both crucial for tech founders and investors.

Combined with the abolition of non-dom tax rules, a wealth tax could drive wealthy individuals and venture capital out of the UK. For a sector that relies on mobile, international capital, this could be damaging. The hope is that the government recognises these risks and avoids policies that could undermine entrepreneurial confidence.

Further changes to tax rates and allowances are also possible. The Chancellor has shown a preference for increasing tax revenue rather than reducing spending, meaning additional adjustments to thresholds or reliefs cannot be ruled out. For tech founders, Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) remains a key concern. Recent increases in capital gains tax rates already make exit planning more complex.

There is also speculation about the future of the Digital Services Tax (DST), a 2% levy on revenues from large multinational platforms. Whilst scrapping it might help attract offshore investment, it would carry a significant fiscal cost. For now, it seems more likely that the DST will remain in place.

R&D and investment incentive

R&D tax relief continues to be a vital funding mechanism for innovative tech companies. The government consulted earlier this year on introducing advance clearance for R&D claims to help firms with legitimate claims access funds faster, whilst reducing error and fraud. If the process to make an R&D claim becomes more efficient, it could make a real difference to growing businesses dependent on reliable cash flow.

The government has reaffirmed its commitment to supporting R&D through public spending, and after several major reforms in recent years, stability would be welcome. A pause on further structural changes would give companies time to plan confidently.

Employee incentivisation and costs

The manifesto pledge not to raise taxes on “working people” will be tested again this autumn. It now seems likely that the Chancellor will increase income tax, but perhaps with a corresponding decrease in employee’s NICs. Further rises in employer NICs would pose a serious concern for the tech sector; the April 2025 increase to 15% has already squeezed margins for many businesses in the scale-up phase, particularly those reinvesting profits into R&D and recruitment.

Rumours of changes to salary sacrifice schemes are also causing anxiety. These schemes, commonly used to offer pension and wellbeing benefits, are valued for their flexibility. Any caps or restrictions would reduce their usefulness, particularly for established employers with larger workforces.

Meanwhile, employee share schemes such as EMI and CSOP remain central to tech firms’ ability to attract and retain skilled workers. Recent flexibility enabling EMI/CSOP sales on the PISCES trading platform has been a welcome step in improving liquidity for employees, while broadening investment opportunities into UK tech. The sector hopes this Budget will build on that progress rather than introduce additional complexity.

Encouraging offshore investment

There have been a series of encouraging announcements around offshore investment in the UK’s tech infrastructure. Nvidia’s co-founder Jensen Huang recently predicted that the UK could become an “AI superpower”, whilst reports suggest that OpenAI, Microsoft and Google are all expanding their UK presence. These commitments, alongside domestic initiatives such as the TechFirst training programme and £2bn of public AI funding, show the potential for genuine growth.

However, that potential depends on maintaining a competitive and predictable tax environment. Investors are far less likely to commit to large-scale projects if they believe future government policies could target wealth or offshore income. To remain attractive, the UK must balance fairness with long-term competitiveness.

The message from the tech sector is clear: this is not the time for further upheaval. What businesses need most from this budget is stability, a consistent framework that rewards innovation, supports employment, and encourages domestic and international investment.

The sector also recognises the fiscal pressures the Chancellor faces and that tax rises may now be unavoidable. But the real priority should be predictability and a clear signal that the UK remains committed to growth, not a patchwork of short-term measures or piecemeal tax changes that could undermine confidence in the country’s tech industry.