The old Labour left has never quite grasped the unseen damage of so-called “employment rights”. Make it harder to sack someone and employers will hire fewer to begin with. If the cost of a wrong hire is dragging around an unproductive worker for years, the risk to employers of taking a chance on someone increases. Businesses will naturally be more cautious about employing those they are uncertain about.

Similar incentives apply to capital. Rachel Reeves is said to be considering a 20 per cent “exit tax” on the unrealised capital gains of wealthy individuals leaving the UK. That means business founders, investors, or anyone with significant gains who now fancies the tax avoidance of sunnier climes.

It is spun as a “settling-up charge”, designed to claw in £2 billion and bring Britain into line with other G7 countries. It satisfies several “tax equity” considerations too. If you’d pay capital gains tax by selling your company here, why not if you take the shares abroad?

Yet, just as making it harder to fire workers leads firms to hire fewer of them, making it costlier to leave a country will deter wealthy investors from residing here to begin with. Any revenue collected from an exit tax will be offset, at least in part, by relocations eroding our overall tax base.

This happens on two levels. First, an exit tax deters entrepreneurs and investors from choosing to move to Britain if they believe they might make considerable gains here before wanting to move again. Second, as the tax expert Dan Neidle has written, those already here who anticipate large future gains on the value of their business shareholdings are encouraged to leave earlier when the tax liability is lower.

Both effects cost revenues. They reduce future income tax receipts from salaries and dividends. They probably reduce the likelihood of chief executives and investors investing in company activity here too. As the Startup Coalition letter signed by more than 150 founders to Reeves implied this week: an exit tax would damage investment and growth, which the government claims to be desperate for.

Floating this policy in public is already harming the tax base. Kite-fly about an exit tax at the border and you give the wealthy a reason to redomicile early. That haemorrhages revenues for no revenue gain. The Revolut founder Nik Storonsky has just relocated to the UAE, taking £3.4 billion in unrealised gains with him. Each day this idea remains in the air without a firm denial, the more likely it is that others follow.

Is the money then worth the risk? Yes, some countries have exit taxes, but they are hardly cash cows. France watered down its aggressive version after it raised only about €70 million in 2017, far lower than expected, with President Macron comparing it to telling a spouse they can never divorce. When Norway raised its wealth tax and tightened its exit rules, more than 30 ultra-high-net-worth individuals fled the country in 2022. That was more than the previous 13 years combined.

Treasury models suggest a UK exit tax might theoretically raise about £2 billion, or 0.2 per cent of total receipts. That’s small compared with a projected £30 billion-plus fiscal black hole. But it also probably ignores many of these behavioural effects, not to mention that nearly three quarters of the revenue are estimated to come from ten ultra-wealthy individuals. Given how mobile they are, those sums look uncertain.

This is Reeves’s dilemma. Is a modest revenue haul worth the reputational damage of signalling her government’s anxiety about relocations away from our sluggish economy? Provided overseas gains are exempt on arrival, there is a case for an exit tax as a coherent anti-tax avoidance measure. But in post-Brexit Britain, its introduction risks a louder message: rather than attracting wealth, the government is scrambling to extract something from those heading for the door.