Jeremy Hunt has promised to harness the British “national genius” and “Brexit freedoms” to drive growth across the tech sector, transforming it into Europe’s Silicon Valley.
The Chancellor outlined the government’s financial focuses while delivering the Autumn Statement on Thursday. Substantial tax increases and the confirmation of a recession were the spotlit admissions, but the Conservatives promised to continue investing in technology as a priority.
Members of the tech industry have reacted to the Autumn Statement with varying degrees of enthusiasm and excitement.
The prevailing opinion is that the ambition to grow the UK’s tech sector into a global power was unanimously welcomed. However, key details on government-backed schemes to foster startups were missing, for example, sparking questions about how the UK plans to capitalise on emerging tech verticals.
“It’s encouraging that the Chancellor recognised the value of innovation and technology, and that the government will continue to support its growth with increased public funding for research and development, and to better integrate technology and science with an already world-class financial services industry in order to turn Britain into 'the world’s next Silicon Valley’,” said Dr Henry Balani, head of industry and regulatory affairs at Encompass Corporation.
“This is certainly an ambitious, but not entirely unreasonable, goal. Achieving it will require businesses, regulators, and decision-makers to be fully aligned on fostering cutting-edge innovation at the highest level.”
A number of different promises and policy changes were announced that impact the tech sector and it starts with exercising the nation’s newfound Brexit freedoms to break up Big Tech, Hunt said.
Reform of EU, UK law
The Chancellor said over the next year, the UK would be assembling a taskforce to review current EU law and identify reformation opportunities for the purposes of driving future industry growth.
These reforms will be targeting a number of sectors such as technology, financial services, life sciences, green industries, and manufacturing.
The taskforce will be led by Sir Patrick Vallance, the government’s chief scientific advisor, and a clearer picture of how these reforms will take shape is expected by the end of 2023.
Reform of the Solvency II regulation is one set of rules the government will look to overhaul. Hunt claimed in his Autumn Statement that changes to the regulation, which stipulates how much capital an insurance business must retain to prevent insolvency, will “unlock tens of billions of pounds of investment across a range of sectors”.
The UK has previously been criticised for ‘dragging its feet’ on the matter of regulating Big Tech, but Hunt also promised to accelerate the passing of the Digital Markets, Competition and Consumer Bill.
The Bill aims to provide greater powers to the Digital Markets Unit, which sits in the Competition and Markets Authority (CMA), to tackle anti-competitive behaviours in digital markets, thus leading to higher-quality products and services.
Startup schemes left in the dark
With the government’s explicit focus on building the UK into the next ‘tech eutopia’, many have called into question the lack of detail on schemes for startups to grow their businesses.
Initiatives such as the Seed Enterprise Investment Scheme (SEIS), designed to provide vital investment to startups at their earliest point of trading, and the Enterprise Investment Scheme (EIS) which offers various tax reliefs, the money from which must be fed back into the business within two years, were two that experts said needed further clarification.
“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,” said Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates.
Former Chancellor Kwasi Kwarteng’s mini-budget previously outlined an extension of the SEIS and EIS schemes.
Hunt’s Autumn Statement sought to make a number of reversals to his predecessor’s plans, which were criticised for compelling the Bank of England to make emergency interventions to stabilise the economy, but there is no indication that the startup schemes are included in these planned changes.
R&D funding continued to grow
There were originally some fears over how far spending would be cut to raise money for the UK’s dwindling economy, but Hunt assured his plans involved spending as much as possible. To cut spending would degrade the UK’s high-quality public services, he told the Commons.
The Chancellor committed to increasing investment into public infrastructure and supporting R&D efforts by increasing funding to £20 billion per year by 2024-2025.
The government also committed to increasing funding for the UK’s nine Catapults - independent, non-profit organisations established to promote innovation through R&D - by 35%.
“The fear ahead of this Autumn Statement was that reducing the national debt and tackling inflation would take precedence over backing innovation and growth,” said Shaw. “Instead, the Chancellor’s plans to ‘turn Britain into the world’s next Silicon Valley’ were music to the ears of the UK tech sector.
“On the face of it, commitments to increasing the R&D budget to £20bn by 2025 and establishing investment zones to build clusters around universities in need of ‘levelling up’ support, suggest that this government has the policies to match the Chancellor’s intentions.”
Tax
The Chancellor confirmed the planned increase to corporation tax, rising from 19% to 25% from April 2023, and will apply to companies whose profits exceed £250,000.
Hunt said this is still the lowest rate in the G7 and smaller companies whose profits do not exceed £50,000 will stay on the current rate of 19%.
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Starting April 2023, business rates bills will also be changing after properties will be revalued in line with current market conditions.
However, the government will introduce a package of tax cuts worth £13.6 billion over the next five years which will see things like the business rates multiplier frozen for at least another year to protect against rising inflation.
Retail, hospitality, and leisure businesses will also enjoy an extended business relief package worth £2.1 billion - a package the government has branded “the most generous” in 30 years.
Businesses facing rising costs following the revaluation of properties will benefit from the reforms to transitional relief measures which will bring in lower bills and the government said these businesses will “benefit from that decrease, in full, straight away, by abolishing downwards transitional relief caps”.
A £1.6 billion scheme will also be introduced to cap bill increases for businesses that end up receiving larger bills following the revaluations.
Plans for an online sales tax (OST), which would have introduced extra costs for businesses, have also been shelved following a consultation with members of the industry.
“The government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models,” the statement read.
The UK’s technology trade association, techUK, has fought against a planned OST and was one of the industry members to contribute to the government’s consultation in the matter.
The trade body’s submission to the consultation highlighted the potential for increased costs for both business and consumers, the potential to discourage digital adoption among SMBs, and ultimately would not address the core problems impacting Britain’s high street retailers.
