Healey’s new tax break for company founders will fail to meet the Chancellor of the Exchequer’s goal of keeping ambitious and successful entrepreneurs in the UK, economists and tax experts said.

Healey used his first budget on Wednesday to announce a new tax relief for company founders on the first £10 million of capital gains. He said the move would encourage innovative companies to start and stay in the UK, rather than listing shares abroad — as planned by Revolut — or selling to foreign buyers, as was the case for DeepMind, acquired over a decade ago by Google.

But critics said the chancellor’s founders’ relief lacked ambition, and would be insignificant to the types of multi-billion-pound companies that the country really wants to attract.

“If I’m the person thinking I’m going to start the next unicorn, a billion-pound company, you are going to give me a 10% tax rate on 1% of the value of that?” said Arun Advani, director of the Centre for the Analysis of Taxation. “That’s no incentive at all.”The changes come as Prime Minister Andy Burnham’s government seeks to spur growth against a backdrop of the conflict in Iran that threatens instead to slow the economy through higher inflation and interest rates.

Amid a dearth of listings on London’s stock market, Healey was warned earlier this month by lobby group the Capital Markets Industry Taskforce that the UK risks becoming an “incubator nation” which loses companies to other countries.

The new relief will allow entrepreneurs who sell their business to pay capital gains tax at 10% on for the first £10 million, instead of the headline level of 24%. But James Quarmby, a tax attorney for the ultra-wealthy at Stephenson Harwood, said it was “complex and very conditional on turnover, growth and employment of staff.”

“There will be zero certainty for a founder that she or he will qualify for relief when at the outset of a project,” Quarmby said. “Its a bit of a turkey.”

Advani said the choice for founders was to stay in the UK, pay 10% on their first £10 million of gains and then 24% on the rest of it, or “leave the UK and pay 0% on all of it.”

“There are these superstar companies, and that’s the world we live in: we obviously absolutely want them to be located in the UK rather than somewhere else,” said Advani, who’s also an economics professor at the University of Warwick. “The problem with this thing is it does none of that.”Advani instead advocated creating a “unicorn relief,” offering founders an uncapped relief but limited to thriving businesses of a certain size — for example, those worth over £100 million. That could be levied in conjunction with an “exit tax” similar to those in countries including Canada, the US and Australia, he said. That would tax founders as though they’d sold the business if they sought to move abroad.

Not everyone was critical. Andrew Birrell, a former associate at Morgan Stanley in London who co-founded AI analytics firm Allermuir Capital in 2021, said the founders’ relief would have some benefit. It “will probably help keep exiting British entrepreneurs in the UK and encourage a few more,” he said.

Other company founders said more needed to change in the UK to help attract unicorn companies. In a post on LinkedIn, John Caudwell, the billionaire founder of Phones 4u, said founders’ relief was “a welcome signal” but that “nobody I know who has grown a business from scratch did it for the tax treatment on the way out.”He said that the “real test is whether people feel they can survive long enough to get there.”

Dolby Family Ventures Executive Chairman Pascal Levensohn said that while founders’ relief is a “welcome signal,” start-ups tend to leave when they need to find capital to grow their business. “Everybody knows that it’s the scale-up round that is the problem,” he said. Rules around how the UK structures agreements that allow investors to get their shares as well as the prevalence of non-compete clauses in employee contracts are among several factors hurting local founders, he said.

Healey also announced a cut to business asset disposal relief, which allows company owners to pay a lower rate of 18% when selling their company. The relief will now only cover up to £500,000 of gains, half the previous threshold. The combination of that and the new founders’ relief is near-neutral in terms of cost to the Treasury, but will shift from giving a lower level of relief to a broader number of company owners to greater tax breaks for fewer entrepreneurs.

To qualify for founders’ relief, an entrepreneur must have held 25% of the company’s shares when it began trading, held them for at least five years before disposal, and been a UK resident for at least five continuous tax years before the disposal, among other conditions.

“The conditions are a challenge to meet for a wide audience of future entrepreneurs,” said Harinder Hundle, managing partner of multi-family office Hundle. The combination of the measures “do not read as a country competing hard for entrepreneurs,” he said.