Rumours that the Treasury is considering an ‘exit tax’ must be put to bed, immediately.

An exit tax is the wrong solution to the wrong problem. The real divide in our economy isn’t just between rich and poor, but between those working to get us out of economic malaise and the legacy incumbents happy to keep coasting on the rents of stagnation. The tax system should target those that extract without creating – slowing the economic growth that would make us all better off – not the entrepreneurs restoring British dynamism.

In a tough fiscal moment, an exit tax might look superficially attractive. Other countries have them, but the UK does not. Some argue this asymmetry creates an arbitrage opportunity for internationally-mobile, wealthy individuals and an incentive for those currently here to move abroad before crystallising their gains. This was perhaps best illustrated by Revolut CEO Nik Storonsky’s recent move to Dubai. Should the Government wish, in time, to shift the tax burden from income to capital, then they may want to introduce an exit tax beforehand to prevent capital flight later.

But this doesn’t mean the UK should drastically expand its regime, which already covers assets sold if someone returns within five years and for carried interest earned while resident. Rather than increasing revenues, an exit tax would push founders to relocate earlier, long before they build significant taxable wealth. It would also discourage future entrepreneurs from building in the UK. There is already a strong incentive for British founders to move to countries like the US; introducing an exit tax risks realising and accelerating that outcome. It would also weaken startups’ ability to compete for talent with stock options, adding tax liability uncertainty to valuation uncertainty. Far from helping the Exchequer raise more tax, the Government risks forfeiting the chance to capture revenue from new firms at all, kneecapping a new economic engine just as it’s getting going, and undermining all the other benefits that founders and their companies bring, from technology spillovers to high-paying jobs.

This isn’t just theory. Like it or not, we have clear evidence that high net worth individuals respond to incentives: when Norway increased its effective tax rate on wealth, it saw an immediate exodus of wealthy individuals. This effect is likely to be much stronger in the UK, where wealth is more international and more mobile. The operative question is not whether Britain is an outlier, but whether introducing an exit tax changes the calculus of founders deciding whether to stay or move here. Fear about being locked into a disadvantageous tax regime may cause founders to leave prematurely, still selling into our economy but with Britain capturing much less of the value here.

As Dan Neidle shows, the unsatisfying answer is probably that we should maintain the status quo: it is neither worth scrapping CGT to compete with tax havens nor introducing an exit tax, so we just need to accept that entrepreneurs will have an incentive to leave. Instead, our goal should be to make the UK as attractive as possible for founders to build and scale their businesses from here, a strategy we have benefited from for years.

It is also concerning that someone has briefed the exit tax proposal to journalists, prompting hundreds of entrepreneurs to explore their options ahead of the Budget. Many are already moving, and there are still two weeks to go. This is akin to causing a bank run. At best it’s irresponsible, crushing the last of entrepreneurs’ optimism about the UK and making the choice to move to countries like the US much easier. But at worst, it is dangerous: signposting that you’re considering a potential exit tax – incentivising people to leave before it kicks in – eliminates whatever revenue-generating upside there was to start with. Once that talent and capital moves, it’s not coming back. For an exit tax to make any sense at all, it simply cannot be trailed in advance. The ironic ‘silver lining’ here is that early briefing may mean it’s now pointless to continue with at all.

The deeper issue, however, is that this highlights the government’s need for a stronger economic philosophy. Not just a growth story, but growth instincts.

Until now, the government has adopted a neutral, ‘pro business’ posture. But an exit tax is downstream of this political economy agnosticism: combined with its self-imposed straightjacket on the main taxes, it is left looking for any possible lever to address the fiscal situation, rather than intentionally designing the tax system to reward productive capitalism and disincentivise wealth accumulation through rent-seeking.

Yet as we set out in our founding essay, Rediscovering British Progress, here are the seeds of a coherent economic philosophy that is authentic to this government and would unlock economic growth, while also meeting the political moment with a diagnosis of deep system failure. This wedge is not only good economics, but also stands in contrast to the alternatives on offer elsewhere: reflexive, anti-profit, anti-capitalism; ‘everything-is-fineism’; or shifty, grifty economics.

British technology companies should be front and centre of a new economic revival. Startups are the delivery units of progress. Founders are increasingly tackling ever more ambitious problems in the national interest, in areas like health, energy, climate, materials, defence and finance. And amid a backdrop of economic stagnation and the decline in national production, these companies are critical to restoring British dynamism and bringing competition to markets in sore need of innovation.

In contrast, an exit tax would be a step in the wrong direction. It prioritises the optics of taxing wealth over the substance of generating it, while risking an exodus of the very firms and founders capable of rebuilding Britain’s economy. It raises little, hurts growth, and suggests that the UK is not serious about competing.

Instead, the government should focus on enabling these new economic engines that will chart the path out of stagnation. Whatever positive steps the government was planning to take, they now risk being undermined by an exit tax. The Chancellor must kill the rumours now, before it’s too late.