Chancellor Jeremy Hunt revealed plans in his Autumn Statement to “turn the UK into the next Silicon Valley”.
However tax hikes, cuts to public spending and an increase in energy bills for millions of households threaten to plunge the country back into austerity as it officially enters recession.
Prime Minister Rishi Sunak installed former Health Secretary Hunt into the UK’s leading fiscal role in an effort to calm the markets following the chaos of the fleeting reign of Liz Truss and Kwasi Kwarteng, with many measures from the ‘Mini Budget’ rolled back.
Hunt told Parliament that alongside energy and infrastructure, the government’s third growth priority is innovation.
“We have a national genius for innovation: Britain is the land of Newton, Darwin, Fleming, Faraday, Franklin, Gilbert and Berners Lee,” he said. “[It is] the home of three of the world’s top 10 universities, the country with the largest life sciences and technology sectors in Europe.
“21st Century economies will be defined by new developments in artificial intelligence, quantum technologies and robotics. But we need to be better at turning world class innovation into world class companies.”
He added: “I want to combine our technology and science brilliance with our formidable financial services to turn Britain into the world’s next Silicon Valley.”
Chief scientific adviser Sir Patrick Vallance is to conduct a review into how the UK should change regulation to better support safe and fast introduction of new emerging technologies, while Hunt said the government will legislate to give the Digital Markets Unit new powers to challenge monopolies and increase the competitive pressure to innovate.
Following speculation over cuts to the UK’s research and development budget, he said: “I believe that would be a profound mistake.
“In 2017, we announced a target to invest 2.4% of our GDP in R&D and the latest ONS data suggests the UK is close to meeting that target. I want to go further… we will increase public funding for R&D to £20 billion by 2024-5 as part of our mission to make the United Kingdom a science superpower.”
A planned tax on online sales will also be shelved due to “complexity”, while electric cars, vans and motorcycles are to pay road taxes from April 2025.
How did the tech sector and investment community respond to the overall fiscal plan?
The next Silicon Valley
Janine Hirt, CEO of Innovate Finance, praised the Chancellor’s ambition to turn the UK into the world’s next Silicon Valley.
“We welcome his commitment to combine the UK’s leading financial services sector with our world class research and innovation, foster greater competition, and unlock growth through smart regulatory reform,” said Hirt.
“This should help cement the UK as the global leader in FinTech. We look forward to seeing further plans on this from government in the coming months.
“The economic forecasts published today show we face difficult times ahead, with 7.4% inflation in 2023 and the UK now in recession which will see GDP continue to fall next year and unemployment rise to nearly 5% in 2024.
“FinTech in the UK was forged in adversity – rising from the global financial crash and growing through the pandemic. By creating value and responding quickly to customer needs, FinTechs will continue to increase their role in the economy by providing better, cheaper and easier products to consumers, which will support us all through the cost of living crisis.”
Russ Shaw CBE, founder of Tech London Advocates & Global Tech Advocates, said the plans were “music to the ears of the UK tech sector”.
However he added: “AI, quantum and robotics will define the economies of this century, and so it was a shame the Chancellor was vague around his plans for the EIS and SEIS schemes which will help the next generation of entrepreneurs establish the companies of tomorrow in these verticals.
“In recent years, the tech industry has heard plenty of rhetoric from political leaders around commitments to championing Britain as a global science and technology superpower. Today’s Autumn Statement set out the right framework and mindset – it’s important the government now follows through on that commitment.”
Tim Mills, managing partner of ACF Investors, said: “It was not mentioned in the Chancellor’s speech, but confirmation in the official documents that the extension to the EIS tax relief scheme will be retained is another positive step for the innovation economy.
“Keeping EIS in place supports the innovative, high-growth companies that will help boost our economic recovery when it comes.
“EIS is also a genuine competitive advantage for the UK. Overseas investors look upon it with envy, and it has played a central role in establishing the UK as one of the world’s best places to start a company.”
UrbanChain CEO Somayeh Taheri welcomed Sir Patrick’s review. “Without truly embracing emerging technologies the UK will never reach net zero. In fact it will remain stuck with a broken energy retail energy market,” she said.
Philip Letts, chairman of ‘branded incubator’ LettsGroup, sounded a cynical note over the Silicon Valley rhetoric. “I have heard this desire for 20 years – the key is how to do it? Being one of the few UK business leaders to have run a leading Silicon Valley tech company and understanding ‘how’ Silicon Valley works and succeeds, I look forward to contributing to any government consultation process to help achieve this.
“Reforming the City, education, financing and entrepreneurial culture will be key.”
Seb Wallace, investment director at Triple Point Ventures, said R&D capital is essential to the success of many innovative tech businesses. “If we want to stimulate economic growth, we need a positive approach to R&D spending that recognises its contribution to the wider economy.
“Ultimately, abuse of the system by a few should not penalise the many legitimate users who have created successful technology businesses through these tax credits.”
Sarah Barber, CEO, Jenson Funding Partners, said “lots of entrepreneurs will be breathing a sigh of relief today”.
She added: “R&D tax credits and tax relief schemes… are critical to the growth and development of so many companies and give British firms an edge over international competition.
“The announcement of a longer-term review into R&D spending will also be appreciated – if it is handled with care. While most tax credit recipients are entirely legitimate, the Treasury estimates more than £300m of claims are fraudulent. Clamping down on false claims and re-directing that cash towards deserving, value-creating companies would be a smart move.
“The new University-centric approach to investment zones is also to be welcomed. Universities are an invaluable source of entrepreneurialism – not just in the raw number of spinouts or graduate workers, but as hubs for local business communities that promote innovation and pull in businesspeople from around the world.
“Doubling down on this is an excellent idea.”
Phill Robinson, founder of Boardwave – a networking programme for software executives – and former COO and CMO of Salesforce, reflected: “As a software entrepreneur who has lived and worked in Silicon Valley for two separate periods of my life, I welcome the Chancellor’s desire to emulate it and the government’s renewed commitment to R&D, science and innovation.
“To truly succeed we need to foster a nation that ensures leaders of AI, quantum and robotics companies not only have access to ever-replenishing talent, investment but others who have walked in their shoes.
“In 2020, 39 of the top 100 companies by value in the US were software or software-enabled businesses; in Asia it was 25; in Europe it was 7. Right now in the UK it is ONE. One in the top 100 most valuable companies in the UK is a software firm.
“There needs to be more than just words and aspiration: we have to put together the talent, the advisors, the capital to make a giant leap forward quickly.”
Tax hikes, spending cuts & rising energy prices
Hunt announced a two-year freeze in the personal allowance threshold and a fall in the threshold for highest earners to £125,140, delivering the highest tax burden the country has seen for at least 70 years – £25 billion of tax hikes.
Anton Roe, CEO at HR, payroll and finance tech provider MHR, said this means vital local and national structures will get the funds they need – but also places many workers into a higher level of tax.
“Not only will businesses need to be ready to pivot payrolls to such changes, they also need to be ready to support their employees in tackling these financial changes during a time of continued financial constraint,” he said.
Millions of households will see their energy bills going up by hundreds of pounds a year from April, despite a planned extension to the relief scheme, as it will be set at a higher cap.
Benefits and state pensions will rise in line with inflation, but there will be £30 billion in spending cuts.
Roan Lavery, co-founder and CEO of accounting software firm FreeAgent, said it made for “gloomy news”.
“It’s disappointing that the Chancellor has not thought more creatively when devising his solution to the UK’s current fiscal issues,” he said.
“The reality is that the SME sector in the UK is currently at risk. Many small businesses are being squeezed by rising inflation rates and costs, while at the same time also being hit by critical, ongoing issues such as chronic late payment and restricted access to finance. The last thing that they need is to be unfairly targeted by tax rises and significant legislative upheaval.
“The Autumn Statement also offered a great chance to provide targeted help for SMEs to give them a better chance of survival in the future. Obviously the Chancellor was limited in terms of making major, sweeping changes, but there could have been some smaller policy announcements that would have had a huge impact on the small business sector.
“In particular, I would have liked to see the prompt payment code being mandated for larger businesses within the private sector, in the same way that it is for contracts in the public sector. We know that one of the main reasons why small businesses struggle to survive is failing to maintain a healthy cash flow, so this would have been a hugely beneficial step in helping to tackle this issue.
“Unfortunately, the Chancellor has missed the opportunity to give SMEs some much-needed relief.”
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Chieu Cao, CEO of Mintago, an inclusive financial wellbeing solution, added: “The measures announced today – from tax rises to spending cuts – are unlikely to induce any kind of confidence among Britons who are worried about their short and long-term financial wellbeing.
“Already this week, we have seen reports that suggest that 9 in 10 retirees are considering returning to work. Clearly, peoples’ long-term financial security is not at the level that it should be.
“With the level of spending cuts announced today, the government is obviously unable to provide the support that many people need; employers, therefore, must step up and question what more they can do to support their staff.”
Mohsin Rashid, co-founder of ZIPZERO – a shopping app allowing people to earn cash towards their monthly bills – said the Budget meant “misery for millions”.
“We must never forget why the price we all must pay is so high: the failed Truss experiment left a burning hole in the UK economy, the size of £30 billion. From irresponsible to unforgiving government, the bitter return to austerity will no doubt double down on hardship across the whole country.
“People are struggling, and they are desperately concerned. Concerned over how they will pay their bills, keep the lights on and put food on the table.
“This government’s response is unconscionable: unnamed Council Tax ‘flexibilities’, disenfranchising residents from their rights to approve large hikes, and stripping down energy support into a skeleton package unfit to carry consumers past the finish line, all while raising personal taxes.”
Tackling the UK skills gap
An extra £2.3 billion per year was promised for cash-strapped schools over the next two years, while Hunt has appointed Sir Michael Barber to advise on the implementation of the government’s skills reform programme.
“Nurturing the next generation is crucial for plugging the global technology skills gap,” said Camellia Chan, CEO and founder of data security firm X-PHY.
“In particular, the cybersecurity industry is suffering, with the World Economic Forum reporting there is a cybersecurity workforce gap of more than 2.72 million.
“It’s a combination of softer skills, like being forward-thinking, and technical skills, like understanding AI, that’s lacking. Emphasising these in schools is a good first step and spending this money wisely will be crucial.”
Katie Gallagher, chair of the UK Tech Cluster Group and MD of Manchester Digital, reflected: “Despite the impending recession, the tech industry across the UK regions remains strong and vibrant.
“We desperately wanted to hear more commitments to help both the tech talent pathways to ease the ongoing skills crisis, as well as firm commitments to help early-stage startups which are imperative to growing our tech economy.
“A change to how the Apprenticeship Levy works would have helped businesses unlock more funding to upskill existing staff and bring in new talent pipelines. There should be a huge focus on upskilling the UK workforce, as well as developing our talent pathways right from school age.
“Overall our tech and digital industry across the whole of the UK is strong and innovative, but is being held back by lack of joined-up-thinking around funding in people and skills, as well as ongoing Brexit fallout.”
Shaw of Tech London Advocates & Global Tech Advocates added: “Additional funding for schools and the implementation of the Skills Reform Programme were promising and necessary steps in strengthening the pipeline of talent to power these growth sectors – particularly given the UK tech sector now has the second most vacancies behind healthcare.”