Jeremy Hunt’s Spring Budget grabbed headlines on childcare.
However in what he termed a ‘Budget for growth’, the Chancellor also announced several measures directly affecting UK tech.
From a Plan for Quantum to investment zones and tax initiatives, he claims to be removing the barriers that stop businesses investing and intends to turn the UK into a ‘science and technology superpower’.
But what did the tech sector and wider business support landscape make of the government’s fiscal plans?
Quantum computing & AI
Hunt announced £2.5 billion investment in quantum computing. The Plan for Quantum is a 10-year programme which takes over from the current £1bn National Quantum Technologies Programme. It will create training schemes for scientists, engineers and technicians in the next-generation discipline, while aiming to boost the number of quantum firms based in the UK and attract others from overseas.
“The greatly increased investment into quantum computing is very much welcomed, as it will help to build on the world-leading ecosystem that is already established here,” said Ben Clark, director of Future Worlds, a startup accelerator at the University of Southampton.
“However, we must ensure that it not only funds early-stage research, but also has the political engagement of stakeholders across the product and funding life cycles – from venture capital to private equity to IPO – to ensure we can drive world-leading companies at scale.”
The government is also acting on all of Sir Patrick Vallance’s recommendations in the independent Future of Compute Review. This includes establishing an AI sandbox for innovators to try out products before they go to market, clarifying intellectual property rules and building an exascale supercomputer.
Hunt also announced an annual £1m Manchester Prize for the most ground-breaking AI research.
“The news that the £1m prize for the most innovative AI research will be dubbed the ‘Manchester Prize’ is a great recognition of the region’s momentum in this space, and a tribute to the many pioneering early-stage businesses based here,” said Jonathan Prescott, partner at Praetura Ventures.
Investment zones
The Budget promised to create 12 investment zones around the UK, with £80m of funding earmarked for each over five years – building on a plan from short-lived Chancellor Kwasi Kwarteng.
These ‘12 potential Canary Wharves’ will be centred around university tech hubs in England, Scotland, Wales and Northern Ireland – with none south of Birmingham – and offer lower national insurance contributions for employers, lower business rates and capital allowances on the purchase of new machinery and equipment.
“London’s success as a FinTech hub should enable it to spread the love – the wealth and jobs – throughout the UK, including to Greater Manchester and to Wales, both areas with a deep pool of tech talent. We’re pleased to see the Chancellor recognise this in his 12 new investment zones,” said Anne Boden, founder and CEO of Starling Bank.
The Liverpool City Region Mayoral Combined Authority is one of the areas set to host an investment zone. Colin Sinclair, CEO of Knowledge Quarter Liverpool, reflected: “We very much hope that the new investment zones will be pivotal to raising aspirations, accelerating R&D and driving inclusive growth, creating skilled jobs for the people of the city, the region and beyond.
“In KQ Liverpool, and at nearby Daresbury, Liverpool City Region has world-leading clusters in health and life sciences, materials chemistry and advanced manufacturing technologies. The funding and powers that investment zones could bring would give the opportunity to better leverage these existing strengths to supercharge economic growth across the City Region.”
Tax
Outside the investment zones, businesses will be eligible for 100% first year capital allowances, which means they can deduct the full cost of equipment from pre-tax profits.
The plan, which includes IT equipment, will last for the next three years and ultimately be made permanent. This is intended to soften the impact of Hunt’s decision to raise corporation tax from 19% to 25% in this new financial year.
“Allowing companies to write off the full cost of qualifying plant and machinery, including IT equipment, will give businesses a significant incentive to invest and will support additional job creation,” said Boden.
Michael Cox, CFO at IRIS Software Group, said of the corporation tax increase: “[Hunt] has avoided increasing the burden for smaller businesses and those generating the lowest profits. For those who are impacted, there will be a cash squeeze from the increased rate but this will likely take time to filter through and materially impact investment decisions.”
Enhanced credit for SMEs that spend on R&D as part of a £1.8bn package of support was also announced and described as “welcome news” by Ben Chaplin, MD at accountant Croner-i.
“It is perhaps the least tax-focused budget we’ve seen in a while, partly because there was so much contained in the Autumn Statement. However, there were still a couple of surprises,” he said.
“An announcement that the super deduction will be replaced with a new scheme allowing businesses to expense their capital expenditure for at least the next three years. This will be at a lower rate than the super deduction, but we presume it will be applicable for more businesses. Good news, but one business owners would surely have preferred more notice on.”
Caroline Plumb, CEO of accountancy firm Gravita, said it was crucial that the Chancellor promoted productivity and sustained growth for the fast-growing businesses that underpin the economy.
“Importantly, it has reinforced its pledge to make the UK a ‘science superpower’ by introducing an enhanced R&D credit to offset the cuts to the tax credits scheme. In turn, the Chancellor may have prevented innovative, research-intensive businesses from transferring their activities offshore to territories with a more friendly corporate landscape.”
Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates, reflected: “One area where the tech community would urge the Chancellor to reconsider is the short-sighted cuts to R&D tax rebates. Today’s introduction of an ‘enhanced’ R&D credit – will simply not suffice.
“R&D is the backbone of innovation and companies working on breakthrough technologies need more support – not less – if the government is serious about a tech-driven recovery for the nation.”
Praetura partner Prescott added: “The changes to the R&D tax credit scheme are an example of giving with one hand while taking away with the other. It’s not yet clear which businesses will qualify for the enhanced credit package, so it’s likely huge swathes of Britain’s SME community – that would otherwise be primed to invest in innovation – will now have limited access to the support.
“By incentivising larger businesses more than the wider startup community, the Treasury risks undermining the Chancellor’s vision to ‘make the UK home to the next Silicon Valley’.”
Carbon capture
The Budget pledged £20bn investment into carbon capture and storage projects around the UK.
Ged Barlow, chief executive of Net Zero North West: “This funding will substantially help projects such as HyNet in the North West to speed up the decarbonisation ambitions, whilst creating and safeguarding green jobs for our local communities that will invest back into the local economy. The shift to full capital expensing is also a significant measure to help business invest in green technology, which is vitally important as firms around the region push ahead in the race to net zero.”
Wider policies
The allowance for 30 hours of free childcare a week will be extended to all children from the age of nine months, beginning in April 2024.
Jonathan Moore, education consultant at SMART Technologies, welcomed increased investment for services supporting children and parents but called for more action on education.
“In addition to the cost of living and energy bill support, it’s positive to see a reformed childcare scheme that better supports working parents and further investment in upskilling young people with special needs and disabilities,” he said.
“These investments will be vital in strengthening support for children, protecting student wellbeing and enhancing the UK’s education system. However, the sector remains in crisis and there is still little detail as to how the £2.3bn investment for this year will be spent, or how the government is reacting to teacher’s concerns. Teacher strikes are continuing throughout the UK, and the government has not addressed these concerns in today’s Budget.
“Teachers are calling out for greater support – and not just in the form of salary rises, but also when it comes to resources, support staff and tools. We know teacher burnout is at an all time high, particularly in the SEN sector where teachers are truly at breaking point. Staff are calling out for their demands to be urgently addressed so they can provide excellent learning experiences for students, whilst also having the necessary tools and wellbeing support at hand.
“Education defines all our futures. Ultimately, failing to address the above will have huge impacts on students, teachers and broader school communities – and will only hinder the UK’s growth.”
The Chancellor also said benefit claimants must satisfy higher requirements and raised the cap on pension pots to £60,000 a year from the current £40,000.
Ahmad Al Khatib, CEO of MarTech SaaS platform Qudo, said he was disappointed not to see more measures announced to support the UK’s startup and tech sectors, given the multiple challenges and uncertainties of the current climate.
“One of the biggest shocks for the tech industry was the collapse of SVB, one of the leading banks for startups and venture capital firms. This has created a sense of insecurity and distrust among many tech businesses and investors, who rely on SVB for their financial needs. The government and other banks need to step up their communication and reassurance efforts to restore confidence and stability in the system.
“Another major concern for me is the imminent closure of Tech Nation, a network that has been providing valuable resources and opportunities for ambitious tech entrepreneurs across the country for nearly a decade. Tech Nation has helped thousands of startups grow and scale their businesses, as well as showcase their potential on a global stage. Without Tech Nation’s support, many startups may struggle to access funding, talent, mentoring and markets.
“I believe that the government should also listen more to the voices and concerns of tech entrepreneurs and consumers, who are at the forefront of creating value and impact through technology. By engaging more with them, the government can better understand their needs and challenges, as well as their aspirations and visions for the future.”
Ritam Gandhi, founder and director of Studio Graphene, said: “This Budget was a mixed bag. The PM makes a habit of mentioning that he’s spent time in Silicon Valley, while the Chancellor often references his own entrepreneurial experiences. So, it stands to reason they’d champion entrepreneurship, particularly in tech, and these topics were certainly at the heart of Hunt’s speech – yet he also overlooked some key issues inhibiting innovation and growth.
“The current axis we have in 10 and 11 Downing Street should give tech companies cause for optimism. But their rhetoric of wanting to make the UK a ‘tech superpower’ still requires more substance, and policies cannot be limited to isolated ‘zones’; they must be available to tech firms across the UK. Hopefully more will follow in the Autumn to build on some of the positive commitments outlined today.”