Amid rising concerns over new tax policies, British tech executives and venture capitalists are questioning whether the UK can fulfill its vision of becoming a global hub for artificial intelligence. The recent tax hikes announced by the government have sparked fears that the country’s growth in tech innovation could be stifled.

On Wednesday, Finance Minister Rachel Reeves detailed an increase in capital gains tax (CGT) as part of the Labour government’s broader fiscal strategy. The move raised the CGT rate for lower earners from 10% to 18% and the higher rate from 20% to 24%, expected to generate £2.5 billion ($3.2 billion) in additional public revenue.

The changes also include adjustments to the business asset disposal relief (BADR) scheme, which offers entrepreneurs a reduced tax rate on capital gains from business sales. Under the revised rules, the lifetime limit for BADR is capped at £1 million. Furthermore, the CGT rate under BADR will rise to 14% in 2025, increasing to 18% in 2026. Reeves emphasized that, even with these increases, the UK will still hold the lowest CGT rate among G7 economies in Europe.

Despite concerns about the tax changes, some tech leaders note that the impact is less drastic than anticipated. However, the shift towards higher taxes on businesses has raised worries among tech executives and investors about inflation and hiring challenges.

In addition to the CGT adjustments, the government also raised National Insurance (NI) contributions, a tax on earnings, which is projected to bring in £25 billion annually. This increase represents the most significant revenue-raising measure announced on Wednesday.

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Alongside these changes, the tax rate on carried interest — the profit share a fund manager receives from private equity investments — is set to rise from 28% to 32%. The government is currently consulting with industry stakeholders on this increase.

Some tech leaders view these consultations as a positive step. Anne Glover, CEO of Amadeus Capital and early investor in Arm, praised the engagement with industry leaders. Yet Haakon Overli, co-founder of Dawn Capital, voiced concerns that higher capital gains taxes could hinder the UK’s potential to foster companies on par with tech giants like Nvidia.

In a move to stimulate investment, the UK also committed to mobilizing £70 billion through the newly established National Wealth Fund, a state-backed investment platform inspired by sovereign wealth funds such as Norway’s Government Pension Fund Global and Saudi Arabia’s Public Investment Fund.

With the new tax landscape, Britain’s tech sector remains cautiously hopeful yet watchful, evaluating how these changes might impact its ambitious AI and technology growth plans.