Reeves’ Budget tax rumours threaten UK tech
The UK’s tech sector is facing a critical moment ahead of the Autumn Budget.
Rumoured caps on salary sacrifice pensions, alongside potential property and wealth taxes, threaten to hit the very talent and investment needed to drive growth in the sector.
At the same time, the country faces a widening tech skills gap, leaving businesses scrambling to find employees with the right qualifications and experience.
Ben Bilsland, partner and head of technology at RSM UK, warned: “UK tech is an innovation-led sector, making the R&D tax scheme crucial. Any reductions in reliefs would be particularly damaging, leading to cashflow shortages and potential cost-cutting such as layoffs.”
“Conversely, an increase in the tax benefit would encourage innovation and investment, benefitting the wider UK economy.”
Tech firms are already feeling the strain, with nearly a third of R&D claims submitted by UK tech companies initially challenged by HMRC, even when later approved.
“There’s a growing skills gap in tech, which continues to weigh on the UK’s competitiveness compared to the US,” Bilsland added.
“High taxes and the prospect of even higher rates in the Budget risk pushing skilled talent abroad just as AI and other technologies are transforming the sector.”
Talent bottleneck
AI adoption could boost the UK economy by up to £400bn by 2030, according to government forecasts.
Yet new research from Skills England shows employers struggle to keep pace.
From construction and advanced manufacturing to creative industries, digital literacy and workforce readiness are major hurdles.
Fewer than 65 per cent of construction workers can complete essential digital tasks, while SMEs across sectors are slow to train staff in AI responsibly.
Meanwhile, industry giants like Google, IBM, Microsoft, and Nvidia have pledged to help train 7.5 million UK workers by 2030.
But experts warn that without government support and an enabling tax environment, these initiatives may falter.
Jacqui Smith, Minister for Skills, said: “AI has the power to transform our economy, but only if people have the right skills.”
“We’re working with industry to equip the workforce with the tools they need for the future, raising living standards and boosting productivity.”
Pension caps and wealth taxes
Reeves is reportedly considering a £2,000 cap on salary sacrifice pension schemes, which could drastically interfere with the finances of high-earning tech workers.
Yvonne Braun, director of policy at the Association of British Insurers, warned: “Nearly 40 per cent of people would contribute less to pensions if tax relief is reduced. The constant speculation is eroding trust in the system and risks undermining long-term financial security.”
Combined with mooted mansion and wealth taxes targeting high-value properties in London and the South East, the measures could push skilled talent abroad.
The tech sector, already contending with a 10 per cent fall in skilled migration last year, could struggle to attract and retain the employees needed to deploy AI and quantum tech at scale.
Missed opportunity
The £31bn ‘tech prosperity deal’, backed by Microsoft, Nvidia, Google, and OpenAI, could cement the UK as a global tech leader.
But without a robust skills strategy and a stable tax environment, it risks deepening inequalities and leaving the workforce unprepared for AI led disruption.
Deep investment in upskilling, improved R&D incentives, and protection for pension contributions could turn this moment into a growth lever for the UK economy.
Without it, the country risks losing its competitive edge in tech and AI to international rivals.
Toby Hough, vice president of people and culture at HiBob, sums it up: “If Britain wants to become an AI superpower, we must invest not just in technology but in the people using it.”
“The real challenge isn’t technological, it’s educational. Give people the tools, training, and confidence they need, and AI becomes a catalyst for productivity and growth.”