Rumours of an ‘exit tax’ targeting entrepreneurs leaving the UK are gaining momentum ahead of this month’s looming Budget, triggering a wave of criticism and warnings to the Chancellor that such a move could have a chilling effect on British scale-ups.

Although not officially under consideration, multiple reports suggest that Chancellor Rachel Reeves is mulling a 20% “settling-up” tax on wealthy individuals and business owners, aiming to claw back the hundreds of millions in revenue lost each year to the exodus of high-net-worth entrepreneurs abroad.

Rather than recouping money lost, however, Reeves has been warned such a tax would risk the success of the UK’s burgeoning tech ecosystem, and force homegrown founders abroad before their companies mature.

In an open letter to the Chancellor, the tech campaign group Startup Coalition said that a potential exit tax “would not only tell founders that their ideas and innovations aren’t welcome, but that they should either get out early or not come at all”.

“We share the Government’s ambition for growth and sound public finances. Progress on these will only be achieved by making the UK the best place to scale the next generation of global companies, not by punishing those who choose to leave,” said the letter.

Already signed by more than 1,200 founders and business leaders, including execs from Citi, Salesforce, and ClearBank, the letter calls on the Government to rebuild trust with entrepreneurs after the “painful burden” of recent tax changes shouldered by the industry.

“We should be under no illusions that these changes have made global tech founders and investors question the competitiveness of the UK,” they wrote.

“At a time when founders are being courted around the world, we should be building bridges, not walls. We should attract talent and capital, pool investment, and deliver policies that lower barriers and give globally minded founders every reason to build in the UK and scale to the world.”

Reeves may have little choice, however, if the Government hopes to replenish the UK’s coffers after years of Tory austerity and a pandemic era which continues to take a toll, with the Chancellor pointedly refusing to rule out tax rises ahead of the Budget on the 26th.

Figures suggest that the Exchequer loses around £500 million each year to entrepreneurial flight, with over 10,000 millionaires relocating to more tax-friendly jurisdictions last year alone, each one taking with them the tax contribution of 49 average earners.

But instead of closing the gap and boosting revenue, even the mere suggestion of Reeves’ plan is already taking a toll on the economy.

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This week, the Telegraph reported that Herman Narula, one of the UK’s wealthiest young entrepreneurs and CEO of the £2.5 billion tech firm Improbable, is preparing to move to the UAE, citing the rumoured tax changes as “irresponsible” and warning it will force a lot of people to leave Britain for distant shores.

“I don’t particularly want to leave the UK – but I might want to one day, and I don’t want to be banned from that option,” Narula told reporters.

Elsewhere, just a year after arriving in London, Checkout.com’s billionaire founder Guillaume Pousaz fled to Monaco amid Labour’s tougher stance on non-doms and capital gains, while the Times reports that the co-founder of AI firm InstaDeep, Karim Beguir, has moved residency to Switzerland.

More embarrassing for the Government, even the chair of the publicly funded AI Security Institute, Ian Hogarth, has reportedly moved the headquarters of his VC firm from London to Estonia ahead of the Budget.