As Labour's first budget draws ever closer, campaigners and think-tanks are ramping up calls for how they think the government should approach possible changes to capital gains tax (CGT), with research on what effect changes might have on entrepreneurship.

UK CGT is currently set at 20% on most assets. The Guardian newspaper reported last week that chancellor Rachel Reeves is considering raising CGT as high as 39% in the budget.

Earlier this week, The Entrepreneurs Network (TEN) urged business owners to sign an open letter calling for consideration of their views on potential changes to business asset disposal relief (BADR) and CGT.

"Higher CGT or any restrictions on BADR would make this relief less competitive at a time when the rest of the world is making their reliefs more competitive," the open letter said. "It would mean the UK has the second-highest CGT rate in Europe, and jeopardise the success of our country’s startup ecosystem by enormously weakening the incentive individuals have to build businesses."

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"Any revenue [a CGT rise] might raise in the short term would be more than offset by the damage it does to long-run productivity by stifling the growth of future startups," added Philip Salter, the founder of TEN, in a LinkedIn post.

Is CGT really driving people away?

While businesses fret over potential changes, new research has suggested that increasing CGT will not lead to lower investment, slower growth or reduced entrepreneurship.

An analysis from the Institute for Public Policy Research (IPPR) found "CGT is not a primary driver of investment decisions. Entrepreneurs and investors alike focus much more on issues such as access to financing, market opportunities and broader economic conditions."

Capital gains mainly becomes relevant at the point of exit, the research adds, when a business is sold or an asset is liquidated, long after the crucial early stages of business growth have taken place. Only a minority of entrepreneurs are swayed by CGT when they think about starting out, most are focused on successfully running their business.

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"The idea that raising capital gains tax would discourage entrepreneurship is simply a myth," said Graham Hobson, millionaire co-founder of Photobox. "Entrepreneurs are driven by passion, problem-solving and creating value — not by low taxes."