Rachel Reeves will suffer an exodus of talent to the US unless she addresses a crisis facing the UK’s fastest-growing businesses in Wednesday’s Budget, Labour backers have warned.

In an open letter to the Chancellor on the eve of the Budget, a Labour MP, pressure groups and business leaders urged Ms Reeves to tackle the “valley of death” facing UK entrepreneurs.

It warned that current growth incentives were “inadequate” and contributing to a “structural failure” in the UK’s investment climate that was damaging the economy.

The letter was spearheaded by Sarah Edwards, a Labour MP who sits on the Commons business and trade committee, and coordinated by the Good Growth Foundation. It warned that the move was forcing successful companies to look overseas for the funding needed to expand.

This was particularly the case in regions outside London and the South East, the letter added.

“This failure of retention – the ‘valley of death’ for high-growth firms – means that companies that have survived the start-up phase are frequently forced to look overseas for the capital required to expand,” the letter warned.

“This market failure inadvertently contributes to regional inequality, failing to translate local research excellence into good jobs and local prosperity.”

The letter is also signed by Joe Jervis, the head of Labour Renaissance, which was founded by Labour MP Stephen Kinnock and is funded privately by party members.

Yvette Cooper, the Foreign Secretary, and Justin Madders, a former employment minister, have also sat on the group’s advisory board.

SME4Labour, whose fundraisers have been attended by senior Labour figures including Sir Keir Starmer, is also a signatory alongside Praful Nargund, director of the Good Growth Foundation as well as several business leaders.

While the letter does not directly name the US, businesses large and small have fled to the world’s biggest economy, which has seen as having much deeper capital markets and more generous funding arrangements.

The group calls for the current Enterprise Investment Scheme (EIS) to be scrapped and replaced with a new regime costing £650m offering more generous tax breaks and relief to a broader number of companies to incentivise entrepreneurs to keep their businesses in Britain.

The letter adds: “It is our collective conviction that the upcoming Budget must prioritise support for the hard grafters behind these businesses – the engines of aspiration, pride and opportunity in every corner of the country.

“By doing so, the Government can deliver on its pledge to be on the side of workers, both the employed and the self-employed. When we grow, the economy grows.”

Business confidence has plummeted over the year following Ms Reeves’s record tax raid in October 2024.

Peter Kyle, the Business Secretary, admitted on Monday that Labour’s tax rises have led to an exodus of wealthy Britons.

Mr Kyle conceded that “some of the decisions” made by the Government since taking office had caused “some people to leave”.

Ms Reeves’s non-dom raid has also triggered an exodus of some of Britain’s richest people.

Lakshmi Mittal, the steel magnate who is worth more than £15bn according to the Sunday Times Rich List, is said to have moved his tax residence from the UK to Switzerland and will spend most of his time in Dubai.

A Treasury spokesman declined to comment.

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