The Trillion Dollar Question in This UK Budget.
Updated: 21 hours ago
Why Set Up a Company in Britain?
Two asks from a British entrepreneur who wants to. Neither requires rejoining the EU, neither is a subsidy.
Author: Simon Rasalingham, 2026
Foreword
A founder starting a frontier life sciences AI technology company today has no rational reason to do it in Britain. I am asking for two changes in this Budget, neither of which requires us to rejoin the EU.
The prize for getting it right is a trillion dollars of economic impact.
I have been involved in building technology businesses that have created around a billion dollars of economic value in the UK, based on the Treasury's own Green Book methodology. That is the unit. Get a hundred British companies like that, the order of magnitude is a hundred billion. Get a thousand across over the next decade and you are in trillion dollar territory, held here, taxed here, owned here.
Two asks. Both reward success. Both can be decided now, before we get into an argument about the EU.
Some lessons from history
The first and second industrial revolution ran on two key converging factors
The industrial revolution from the 1760s was not powered by genius alone. It was powered by British engineering meeting a particular economic moment.
This is Robert C Allen's account of it, resonates with the AI revolution we are living through now. Britain in the eighteenth century was a high wage economy by the standards of anywhere in the world, it sat on the cheapest energy in Europe. That combination made it rational to spend money replacing expensive human labour with machines that burned cheap coal.
Adam Smith was writing at exactly this moment, his account of self interest describes what was happening around him. The calculus tipped towards invention. A small island became a powerhouse because the risk capital rewarded engineering and by automata at scale.
The same inventive mindset, in a low wage economy with dear fuel, would not have delivered the revolution. This is where we are in 2026.
British firms pay the highest industrial electricity prices of the twenty four member countries of the International Energy Agency. Around 50% more than their German and French competitors. Four times what companies in the United States pay. Around three times what firms in India and China pay. Our wage advantage has gone the other way too. We no longer pay more than everywhere else in the world. We pay less than America for the same engineers.
The winning formula is inverted. We have the dear energy and relatively cheap labour, which is the configuration Allen says makes invention harder to justify financing.
The fourth revolution needs the same two factors
Artificial intelligence runs on electricity and on capable people. You no longer need a team of PhDs to build a business on it, but you do need power and talent. We are attempting the fourth revolution with inverted dynamics.
Which brings me to the model I keep hearing quoted inside government. Why can we not be the Premier League of artificial intelligence? Or Formula One?
I understand the appeal. The Premier League is the most watched football competition on earth and generates growing tax receipts year after year. Most of the Formula One grid is designed and built within an hour of Oxford, in what the industry calls Motorsport Valley, it is some of the finest engineering anywhere.
The question is who captures the value when you win.
Most Premier League clubs are in foreign hands and England has not won a World Cup since 1966. Most Formula One teams are engineered in England and owned in Austria, Germany, America, France and the Gulf, the championships are lifted under other flags. In both cases Britain has become the best place in the world to do the work and does not capture the prize.
Deepmind was an early example and the same thing is now happening in quantum. We fund the pathway, we develop the teams, then they get bought.
The ambition is not to host the league. It is to win it. That is how you return a trillion dollars to the British economy.
Nobody in the Treasury can legislate who owns Manchester City. If we do not fix industrial electricity pricing, AI innovation becomes too costly here, entrepreneurs will build their winning teams somewhere else. This a history lesson we need to learn from quickly.
The young UK talent is getting smart
In the 2025 international assessments England placed eighth in science, ninth in reading and tenth in maths, the strongest of the four UK nations and one of the few systems in the world to rise while scores fell nearly everywhere else. Our universities remain among the very best at exactly the science these companies are built on. That is a serious foundation.
I am a grammar school boy. My education was free, my father travelled four hours a day so that we could get a chance to attend our local grammar school, Rainham Mark.
That education took me to a Prix Galien, to being cited in the House of Commons. A Churchill method Martini from an American ambassador. Meeting General Valerii Zaluzhnyi, who commanded Ukraine's armed forces through the first years of the full scale invasion. It put me on the Foreign Secretary's jet for his first overseas visit, to India. It took me to Number 10 for the first time in my life, on Diwali, to meet our first Hindu Prime Minister. I would not have thought any of that possible in a million years.
I do not know many countries where that path exists.
Unfortunately it is still not a rational reason to set up my next business here.
That is not a complaint. It is my analysis. What follows is the founder's calculation as it stands in 2026, measured against the United States, Australia, Ireland, Germany, the Netherlands, France, Israel and India.
With a debate about rejoining the European Union now out in the open, one thing is worth settling first. Ireland is the only English speaking member state, it beats us on both rewarding research and rewarding the founder at exit. Australia and the United States are not members and win hands down. Membership is not the variable that separates us from any of them.
A series of decisions taken in this Budget is. Which means this Budget matters more than any future referendum.
Where companies actually end up
I have said it many times. This country is good at the science, funded with public money, in publicly funded universities. Government says in every strategy document that sovereign capability in artificial intelligence, quantum, life sciences and medical technology matters.
Then look at the ownership.
Oxford Ionics, the highest value quantum spinout the University of Oxford has produced, was acquired by IonQ in June 2025 for around $1.075bn. Cambridge Quantum Computing, the most significant quantum software company we built, was merged into Quantinuum under Honeywell's majority ownership and is now headquartered in the United States. Two of the strongest positions Britain held in the technology we call a national priority, both now inside American companies.
The founders built something remarkable and were right to take the deals in front of them. An acquisition is not a failure. The question is whether there was any domestic option that could have matched the offer in front of them.
The ownership, the strategic direction, the listing and every pound of future upside will now generate hundreds of billions of dollars in America.
So what is the credible domestic alternative? We are good at the start of the journey. The SEIS and EIS schemes are the most founder friendly early stage reliefs of any of these countries. A first cheque from a British angel, against one in America, Australia or Ireland does not comes close. But this is supposed to risk capital? So why are we not reaping the rewards?
This is the shape of the whole problem.
Are we just an incubation economy?
We are extremely good at the incubation. We produce the science, the clearance, the first customers and the proof.
What our tax system does not do is encourage anyone to hold on to it. We cut the lifetime allowance from £10m to £1m and raised the rate from 10% to 18%, which tells a founder that equity held to maturity is taxed like a windfall. We have built a structure that converts equity into income. So why take the risk at all? Why not take a salary at OpenAI or Anthropic?
Because if you do take the risk, you have to cross the valley of death. A fat monthly paycheck at OpenAI or Anthropic then?
Every economy loses companies in the Valley of Death. The difference is what each one does about it. The American founder deducts engineering costs in the year and takes up to half a million dollars a year off the payroll bill, at the stage when there is probably no venture funding at all.
In Australia the state covers close to half the cost of the science. The Israeli company draws non-dilutive grants against an approved research plan, then pays single rate tax on the income on the other side. The Indian company gets engineering at a fraction of our cost, with a twelve billion dollar state fund lending at no interest.
These are worth copying into the British playbook. This is not a marginal disadvantage. It is a different set of financial rules for the opposing team on the same pitch.
It is not a subsidy either. These are the rules everybody else already plays under, but they are competing with us on our own turf with an advantage and we can level the playing field.
How do you get a trillion of economic value for the UK?
The billion dollars of assessed impact came from companies I helped found. It is the unit of what is achievable.
A hundred British companies across the valley over the next decade is a hundred billion dollars of impact, held here, taxed here, with the ownership and the next set of founders here too. A thousand across and you are in trillion dollar territory. That is the point at which this stops being industrial policy and becomes the difference between a wealthy country and a declining one.
The arithmetic is linear and real economies are not. Some companies will land far above that figure, most below, plenty will fail. Based on my two Budget asks we have a greater chance of successful outcomes.
Success breeds success, the cost of a payroll offset and a restored exit relief is small against a hundred billion or trillion dollars of value that stays here.
So here is what I want from this Budget. Two things that change the calculus for British founders.
Ask one: a competitive R&D rate, paid every month rather than eighteen months after the fact
I am asking for a higher R&D rate.
I have heard directly from a former Chancellor of the Exchequer that the Treasury's objection is that these credits do not come back as tax receipts. HMRC's 2020 evaluations found that RDEC generated £2.40 to £2.70 of additional research for each £1 of relief, while the small company scheme generated £0.60 to £1.28. At the bottom of that range the relief is not reliably buying extra research.
My point is about when it lands. Receiving the credit each month rather than eighteen months later changes whether the company ever becomes profitable at all, because it raises the probability of getting across the valley of death.
Small companies are not bad at converting research into something of value. Turning it into profit takes time, a credit paid monthly is not extra money. It is the same money, arriving while it can still buy the time. The most precious commodity for a start up.
The current design produces the very outcome the Treasury measures and then complains about.
What we are competing against, as working precedents
Instrument | What the founder gets | When | |
United Kingdom | Merged RDEC, ERIS for intensive firms | 20% gross, up to 27p per £1 | Tax return, then most likely an enquiry before any cash. A year or more |
United States | Section 174A expensing, Section 41 credit | Immediate expensing of domestic research, plus up to $500,000 a year against employer payroll taxes | In-year, against payroll |
Australia | R&D Tax Incentive | 43.5% refundable under $20m turnover. Draft law would take the top rate to 48% from July 2028 and cut supporting activities | On assessment, refundable |
Ireland | R&D tax credit | 35%, raised from 30%, first year payment threshold €87,500 | Instalments |
Germany | Forschungszulage | Effectively 35% for a smaller company, up to €4.2m a year from January 2026, with a new 20% overhead claim | Offset, paid out where there is no liability |
Netherlands | WBSO | A reduction in payroll tax | The month the engineer is paid |
France | CIR | 30% up to €100m, left intact in the 2026 finance law | Refundable for smaller firms |
Israel | Innovation Authority grants, Preferred Technology Enterprise regime | Non-dilutive grants against an approved research budget, repaid as royalties on sales. 7.5% or 12% corporate tax on qualifying technology income | Grant, paid against the project |
India | Section 35 deduction, patent box, state fund | 100% deduction, so ordinary expensing rather than a super deduction. 10% on qualifying patent royalties. A ₹1 trillion research fund approved in July 2025, lending interest free for AI, semiconductors and deep technology | Deduction, plus state lending |
Read the last column rather than the third. We are not only uncompetitive on rate. We are the only one of the nine that delivers its support after the fact.
The ask: raise the effective rate for research intensive small companies to be competitive, at least matching Ireland and Germany and aiming at the Australian refundable level. Deliver it as a payroll offset in the month the wages are paid, on the Dutch or American model. Use AI to carry the monthly administrative burden on both sides, which is how you keep error and fraud falling, paying faster increases the probability of start-up turning a profit.
Ask two: an exit worth reaching for in Britain
This is the one founders actually decide on, the one where we have moved furthest in the wrong direction.
Entrepreneurs' Relief used to mean 10% capital gains tax on up to £10m of lifetime gains. Take the risk, spend a decade, sell, keep nine tenths of the first ten million. As young entreprenuer it was all I needed to hear.
It is gone. The lifetime limit fell from £10m to £1m in March 2020, the relief was renamed Business Asset Disposal Relief, and the rate has climbed since: 10%, then 14% from April 2025, and 18% from 6 April 2026. What was worth up to £1m of tax saved is now worth about £60,000. When you want unicorns at a serious exits it is not a rounding error.
America excludes up to $15m of gain under its small business stock rules, widened last year, tiered from three years, for a Delaware corporation. Not a preferential rate. Excluded. Australia has no equivalent cap and gives individuals a 50% discount after twelve months.
The comparison that should worry the Treasury is neither of those. On 1 January 2026, Ireland raised its entrepreneur relief lifetime limit from €1m to €1.5m and held the rate at 10%. Corporation tax 12.5%. Research credit lifted to 35%. In the same window we cut our allowance from £10m to £1m and raised the rate from 10% to 18%.
An English speaking common law country in the European Union, ninety minutes from London. Nobody has to relocate to California to take that deal and you get access to the EU.
A £10m allowance at 10% is not a British advantage. It is what we already had, it is still less than the American exclusion.
The ask: a allowance that means something to someone building a scalable company. £10m at 10%, or a British equivalent of the American exclusion tied to holding the shares for several years, so that it rewards the founders who stayed. Applied per venture that Increases the probability of unicorn founders staying here and repeating their success.
Is there any point of setting up in Britain?
I am not an accountant, I am not a doctor and I am not a lawyer. I am an engineer.
Three hundred years ago this island out-built the first and second industrial revolutions because we made inventions worth the risk of financing tem. We engineered our success. The inventiveness has not gone anywhere.
I think two changes in this Budget tip the scales. Pay the research credit monthly, at a rate that matches the competition. Give founders an exit worth staying for and to repeat their success.
Over a decade, the difference between doing that and not doing it is the difference between a billion dollars and maybe a trillion pounds.
That is worth staying for, with Churchill method Martini in hand. Author: Simon Rasalingham, 2026
How to Build a Start-up: the full series
Sources: House of Lords Library on electricity prices in Great Britain, Tes on England's PISA 2025 rankings, HM Treasury R&D Tax Reliefs Report, additionality figures, ForrestBrown on HMRC's error and fraud estimates, Brodies on the 6 April 2026 BADR change, Ross Martin on Entrepreneurs' Relief history, RSM on the OBBBA small business stock expansion, Grant Thornton on full expensing of domestic research, PwC Australia on the proposed R&DTI changes, Squire Patton Boggs on Irish Budget 2026, Baker Tilly on the 2026 Forschungszulage, OECD INNOTAX on WBSO, Finance Innovation on CIR in the Loi de finances 2026, Israel Innovation Authority on the 2026 tax reform, PwC on Israeli tax credits and incentives, RSM India on India's R&D tax incentives, The Quantum Insider on IonQ's acquisition of Oxford Ionics, University of Oxford on its highest value quantum spinout acquisition.
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