Kamran Balayev: Why entrepreneurs are fleeing Britain in the great SME escape

Kamran Balayev is an international legal and policy expert, business leader, and former London mayoral candidate.

When entrepreneurs in Britain start quietly moving to Dubai, something in the policy mix has gone badly wrong. The emirate’s attraction is not only sunshine. It is a combination of low, predictable taxes, streamlined regulation and a political culture that broadcasts a simple message to business: you are welcome here. The contrast with the current direction of policy in the United Kingdom is becoming hard to ignore.

The British tax burden is heading to a post-war and post-pandemic high by the end of this parliament, as confirmed by the Office for Budget Responsibility – a trend accelerated by Rachel Reeves’s early budgets, which have raised costs instead of easing them and offered little relief to the very businesses driving growth.

Threshold freezes and new property levies are expected to push the overall tax take to roughly thirty-eight per cent of gross domestic product. At the same time, official business statistics show that more than ninety-nine per cent of enterprises are classed as small or medium-sized, and that these firms account for around sixty per cent of private-sector employment. The government is, in effect, loading ever more weight onto the same narrow base.

London should be the most business-friendly city in Europe: deep capital markets, common law, the English language, and a critical mass of talent. Yet from the vantage point of a small or growing firm, three features now dominate the landscape: a tax system that feels heavy and volatile; a compliance culture that multiplies tasks without visibly improving outcomes; and a labour framework that makes taking on staff feel like a risk. It is not surprising that a growing number of founders and high-net-worth business owners have concluded that the balance of advantage lies elsewhere, with Dubai emerging as a particular magnet.

Tax is the first and most visible friction. Recent budgets have leaned heavily on freezes to income tax thresholds, higher charges on property and investment income, and new levies on expensive homes. This has pushed the overall burden upwards while maintaining the political fiction that headline rates have not changed.

For individuals who combine salary, dividends and property income, the effect is straightforward: more of each marginal pound goes to the state. For small and medium-sized enterprises, the picture is more complex but no less constraining. In simple terms, businesses are facing higher bills across the board – from property taxes to dividend taxes – and the cumulative effect is that it is becoming harder to reinvest profits, grow, or stay competitive.

Business rates remain an unusually large and distortionary tax by international standards, accounting for a higher share of total tax revenue than comparable property-based levies in other major European economies. Physical shops and hospitality venues complain that they are taxed as if they were enjoying a retail boom, even as online competitors operate from warehousing on cheaper effective terms.

The complaint is not simply that taxes are too high. It is that they are not stable. Business owners can live with regulation if it is stable enough to plan around. What they cannot do is invest in a new site, a product line or a hiring round when every fiscal event brings the possibility of a fresh surcharge, frozen allowance or targeted raid. In other words, uncertainty now does as much damage as the tax burden itself.

Compliance is the second big issue. Britain has developed a sprawling apparatus of regulation, supervision and verification. Financial regulations run to tens of thousands of pages; anti-money-laundering rules and identity checks now touch sectors that once regarded them as remote. Yet high-profile failures in personal protection insurance, complex pension derivatives and open-ended property funds show that sheer volume – thousands of pages of rules – is not the same as effective vigilance, which should prevent such failures. For large institutions, the response is simple: hire more compliance officers. For small firms, the choice is starker: the owner becomes the compliance department, absorbing both the financial cost and the operational risk of getting it wrong.

A cafe in south London may spend as much time dealing with licensing, recycling rules, employment documentation and the tax authority’s digital systems as it does refining its menu. A small financial technology firm may find that registering with multiple regulators, satisfying overlapping data-protection obligations and documenting its risk controls consumes much of its early capital. Lawyers, estate agents and accountants repeatedly collect the same proof of identity from clients, with no trusted central verification system to reduce duplication.

The third pressure point is employment. Official data confirm that small and medium-sized enterprises still provide the majority of private-sector jobs – roughly three in five – but the pattern is shifting.

Recent analysis shows that most of the growth in the small-business population has come from firms without employees, while the number of firms with only a few staff has edged down. That is an understandable response to rising non-wage labour costs, frequent changes to employment law and the perceived risk of disputes. Employer contributions to National Insurance, mandatory pensions and increasing statutory obligations may make sense individually; together they create a sense that each additional member of staff carries a latent legal and financial liability.

From the vantage point of a large company, these are manageable parameters. From the perspective of a family-owned restaurant or a small construction business, the decision to hire one more person can feel like the difference between solvency and failure. It is hardly surprising that many owners prefer to rely on contractors, overtime and stretching themselves further rather than create formal jobs. The economy then pays in lost productivity and foregone growth.

None of this is inevitable. The United Kingdom and London still possess assets that are not easy to replicate elsewhere: the depth of their universities, their cultural reach, their legal infrastructure, their time zone. But the direction of travel matters.

In recent years, cities such as Dubai have built an increasingly sophisticated pitch to entrepreneurs and wealthy professionals: a low and predictable tax regime, fast licensing, special economic zones and a clear political commitment to being a hub for global capital. London, by contrast, often seems to assume that its historic advantages will somehow outweigh rising taxes, expanding regulatory burdens and a labour market that discourages small employers from growing.

If policymakers wish to stem the quiet exodus, they need to reframe the domestic offer. That would mean setting a credible path for tax that favours stability over constant tinkering; simplifying compliance so that regulators focus on genuine systemic risks rather than multiplying box-ticking; and reshaping labour rules so that creating a job is seen as a public good rather than a private hazard.

A genuinely Conservative approach would start from these principles, placing enterprise and stability at the centre of economic policy. We need a programme that lowers taxes, encourages risk-taking and restores confidence. Rachel Reeves’s latest budget fails on each of these fronts, raising the cost of doing business at exactly the moment Britain should be competing for investment and talent. The question is not whether Britain can afford to be more business-friendly. It is whether it can afford not to be.