GM, Joanna here.

Rachel Reeves is in a pickle. 

The UK finance minister has a £22 billion “black hole” in the nation’s finances but plugging it with a capital gains tax hike jeopardises British business, the tech industry warns.

Crypto industry insiders warn that a hike risks triggering a mass exodus of innovative businesses.  

“This could have far-reaching consequences, not just for the crypto and fintech sectors but for the broader UK economy,” Nick Cowan, CEO VLRM Capital, said. 

The threat is the latest setback for the UK crypto industry. 

The UK’s financial markets watchdog has been tough on the industry, new crypto laws were delayed, and the country is struggling with a high cost of living.

Businesses will take all this into consideration when deciding where to set up shop. 

If you take all that uncertainty, “and then you say, ‘OK, guys, if you do really, really well and you hit the dreamland IPO target in five years, we’re going to take 50% of all your gains’ — well, that’s not very incentivising,” Joey Garcia, head of regulatory at Xapo Bank, told me. 

The tax dilemma

Reeves will announce her first budget on October 30. 

She reportedly wants to raise £40 billion — more than any other budget in history. 

The government says it won’t raise income tax, national insurance or VAT. 

But it seems poised to bring capital gains tax — currently at 20% on most assets — more in line with income tax, where the highest rate is 45%. 

It’s a mixed signal from Westminster. 

On the one hand, Labour has vowed to put tech at the forefront of its policies — but has said little about digital assets and nothing about its stance on crypto. 

On the other, by hiking taxes it’s saying the government will take a big bite out of the proceeds of innovation. 

Alarmed tech lobbyists have warned that raising the tax from 20% to as high as 39% will drive startups from the UK.

And a capital gains tax hike will hit crypto investors and businesses especially hard, as that’s the primary way the UK taxes crypto assets, CryptoUK policy adviser Suzanne Morsfield told me.

It’s not just about taxing the gains of cryptocurrency trading, she said. Many businesses in the UK are focused on creating blockchain products to help investment banks speed up trading in traditional assets. 

Reeves must walk a tough line between raising revenue and encouraging business, Morsfield said. 

Reach out to me at [email protected]. 

ICYMI

• US attorneys general urged President Biden and Secretary of State Antony Blinken to designate Binance executive Tigran Gambaryan as a hostage, which would unlock resources and apply diplomatic pressure to secure his release.

• The UK regulator defended its high bar for crypto, saying innovation built on unregulated foundations was a “house built on sand.”

• The Securities and Exchange Commission approved stock exchange rule changes to allow the listing of options on spot Bitcoin exchange-traded funds.

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Comment of the Week

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