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A group of young entrepreneurs has issued a fresh warning that a proposed hike to income tax will hit the self-employed hardest, and accelerate a trend of young founders relocating overseas.
In a clarion call ahead of next month’s Budget, the Young Entrepreneurs Forum warned that a mooted 2p rise in income tax alongside a cut in employees’ national insurance would “devastate freelancers, contractors and start-up founders – the very people Britain needs to power growth”.
The group, which links young founders with policymakers, accused ministers of using the reform as a disguise for what it saw as a multi-billion-pound tax raid, and said any overhaul of the two main levies on income would punish risk-takers in favour of bureaucrats.
The Treasury is reportedly considering a radical shake-up of the way it taxes work next month, that would see it unveil a two per cent hike to income tax mirrored by an equal cut to national insurance. Supporters of the move, which was first proposed by left-leaning think tank the Resolution Foundation, argue it would help simplify the tax system while also generating an estimated £6bn in additional revenue.
Currently, landlords, pensioners and contracted workers pay income tax but not national insurance, meaning they would be liable to any hike without enjoying the reciprocal cut to NICs.
Economists have long argued that any major cuts to taxes on income should be made to National Insurance as a means of encouraging full-time work, with some arguing in favour of National Insurance being abolished in favour of a higher overall income tax.
Income tax speculation hitting hiring plans
But Sean Kohli, chair of the Young Entrepreneurs Forum, said the overhaul would “send a message that Britain would rather tax enterprise than encourage it”, because founders and the self-employed would also miss out on the NI cut.
“If Britain wants growth, it needs to back those with the will to build, the founders who create jobs, take risks and power our future economy,” he said. “Instead, the government seems intent on taxing that will out of existence. At a time when entrepreneurs at every stage are leaving the UK in droves, it feels as if the government is determined to hammer enterprise, young and old alike.”
The warning is the latest example of a long line of industries lobbying against tax rises that might damage their sector amid a frenzy of speculation over how ministers will seek to plug a £30bn fiscal shortfall next month.
And a poll of small business owners found that the months of rumours and dour mood music has also led bosses to take a host of pre-emptive actions ahead of any damaging measures being introduced.
As many as four in 10 have made or are considering strategic changes ahead of the Chancellor’s speech next month. Of those, a third have sought to cut costs or restructured and another 31 per cent have delayed hiring plans, the survey from Rathbones found.
Ade Babatunde, senior financial planning director at the wealth management shop, said: “These numbers reinforce what we hear from business owners and senior executives, who are clearly very concerned about the Budget and its implications for their businesses.”