Should UK based startups vote LibDem? Probably not.


Tomorrow the UK goes to the polls in one of the most hotly contested elections in years. Labour has been in power for 13 years and the Conservatives have been champing at the bit to get back in. But the third party, in the shape of the Liberal Democrats, has accelerated into the race on the back of the charisma of its leader, Nick Clegg, or “Cleggmania” as it’s now known.

But if you are a startup with a limited company in the UK (and this counts for many non-UK-born startups that have incorporated in the UK because of the business-friendly environment), how should you vote? Which party is going to do the most for technology startups?

The Labour party has proposed an increase in National Insurance. That’s not great for any company, and adds extra costs, especially in startups. The Conservatives plan to stop the NI increase.

However, what most entrepreneurs are interested in – admittedly after building an awesome product which gets traction and, hopefully, has a business model in sight – is the exit.

So the question is, which political party most favours exits?

Currently when you sell a large capital asset like a company in the UK you are taxed via Capital Gains Tax or CGT.

To sell a company means the company is worth something and it’s been paying employees, paid tax, national insurance, corporation tax etc. So CGT is not the same as income tax.

The Labour party increased CGT a couple of years ago, but plan to keep it at 10-18%.

Labour will also keep reductions in corporation tax, at 28 percent.

The Conservatives also plan no change to CGT, at least as far as we know so far. Unfortunately there is not a great deal of clarity about what the Conservatices propose. A party policy group set up by David Cameron and led by former Cabinet minister John Redwood recommended reducing business taxes and raising the threshold for higher rate income tax. But Shadow CHancellor George Osborne has been vague saying he’ll look at a “range of options”.

But under the LibDems CGT would suddenly be re-classed as “income” which attracts rates of up to 50% (and with a reduced annual allowance).

The Lib Dem leader has said that capital gains tax would be brought in line with income tax, with two rates: 20 per cent and 50 per cent. He also said he would slash the annual capital gains tax allowance from £10,000 to £1,000, raising £1.9bn to help fund the party’s promise to bring those earning less than £10,000 out of income tax altogether.

Of course what this means is that while bringing people out of tax, there is ultimately not much incentive for them to create something new. Just old fashioned cash / lifestyle businesses which never have a liquidity event.

Other LibDem plans include a mandatory pay audit for all firms that are listed in the UK, forcing them to publish the number of people they employ that earn over £200,000. What a great way to incentivise people – mark them out as pariahs.

So this LibDem attitude to CGT issue is a potentially huge problem for entrepreneurs who might want, eventually, to find an exit for their company. It is in fact the opposite of encouraging to anyone wanting to start or grow a business.

Mark Littlewood at TheBLN has some great info graphic pron to illustrate this.

The red is the Capital Gains Tax Rates, and the Blue the Income Tax. In the 1970s the Conservatives tended to keep CGT high while Labout governments kept it lower. Under the LibDems proposed policies it would jump dramatically updwards.

On the other side of the coin, early stage Angel investors, who generally have to take a large personal risk on a startup, are currently able to do so because their investment gains are taxed at 0% (if EIS relief is granted) to a standard rate of 18%.

Under the LibDems, investment gains would also be taxed at up to 50%.

Therefore, in one fell swoop the LibDems would remove all incentive to becoming an Angel investor, with the consequent knock-ons for innovation and entrepreneurship in the UK. The risks would no longer make economic sense so they wouldn’t invest in the first place.

Various business leaders have pointed this out, such as WPP’s Martin Sorrell.

Luke Johnson, the former Channel 4 chairman, says that angel investment is a vital source of capital for start-ups because of low interest rates and the reluctance of banks to lend. He actually says he is “frightened” by the Liberal Democrats’ “extraordinarily destructive” proposal to raise capital gains tax to up to 50 per cent in line with income tax and the effect it would have on entrepreneurship.

As The Times puts it “Wealth creators who have not been driven abroad by Mr Brown’s 50% income tax rate would rush for the exits if Mr Cable’s 50% capital gains tax were introduced.”

We could of course point out that the disaster that is the Digital Economy Bill, which Labour and Tories backed, was opposed for the most part by the LibDems (and one or two Labour MPs). Bully for them.

But this LibDem policy is a huge problem. Because currently growth is the only way out of the current economic mess, and without investment and entrepreneurs you don’t get growth. Or the new digital businesses which governments all over continually say they champion.

How will you vote? Leave you comments below.

Update: Some commenters on Twitter point out that Clegg said in a radio phone interview that there would be changes to the Entrepreneur relief which reduces CGT to 10% on the first £2 million in the entrepreneur’s lifetime. This allows then for very, very small exits but nothing that would pique the interest of an investor in a tech company.

More TechCrunch

Ahead of the AI safety summit kicking off in Seoul, South Korea later this week, its co-host the United Kingdom is expanding its own efforts in the field. The AI…

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

11 hours ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

2 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

3 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities