Business leaders warn Rachel Reeves that raising capital gains tax would stifle UK investment

Businesses backed by BGF, the UK’s most active private equity investor, have issued a stark warning to Chancellor Rachel Reeves, saying they would scale back investment in the UK if capital gains tax (CGT) is increased in the upcoming budget.

The message emerged from a survey of companies funded by BGF, many of which are based outside of London and the southeast.

In the survey, 88% of chief executives and company founders said increasing CGT would signal a lack of support for entrepreneurs, with 74% expecting it to directly harm their businesses. More than three-quarters (78%) indicated that a CGT hike would deter them from making further investments, ultimately threatening job creation and economic growth.

BGF CEO Andy Gregory emphasised the growing uncertainty faced by businesses, noting that the potential CGT increase could have serious consequences for small and medium-sized enterprises (SMEs). While the Treasury has not officially targeted CGT for a rise, it remains one of the few major tax avenues still available for potential increases, after Reeves ruled out hikes to income tax, National Insurance, VAT, or Corporation Tax.

BGF, which was established in 2011 following the financial crisis, has invested £4 billion into over 600 businesses, including consumer brands like Brompton and Gousto. This year alone, it has invested £309 million in 33 companies.

Tech start-ups are particularly concerned about the potential impact of higher CGT rates on employees with share options, often used as a way to supplement lower salaries. Many fear that an increase would negatively affect employee motivation and retention.

The survey also revealed criticism of the government’s “make work pay” agenda, which seeks to enhance worker rights, including day-one unfair dismissal protections and the right to disconnect outside of work hours. More than 71% of respondents said the balance between employee and employer rights has shifted too far, potentially harming smaller businesses.

A Treasury spokesperson declined to comment on the survey, stating: “We do not comment on speculation around tax changes outside of fiscal events.”

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Business leaders warn Rachel Reeves that raising capital gains tax would stifle UK investment