Chancellor Jeremy Hunt announced policy during his Spring Budget Statement that the government hopes will make the UK a more attractive place for technology businesses. Businesses will be able to claim full expenses on machinery, which includes IT equipment, and get tax relief on research and development (R&D). The measures equate to a corporation tax cut worth £27bn over three years, Hunt told the House of Commons.
Addressing MPs earlier today, Hunt said that the British economy had “proved the doubters wrong”, speaking of the progress he said was made in cutting inflation, which reached 10.1% in January. High levels of inflation have caused a cost of living crisis in the UK and caused problems for businesses large and small but Hunt said that the Office for Budget Responsibility had predicted inflation to fall to 2.9% by the end of 2023, meaning the country will avoid a technical recession.
The Spring Budget also set up Hunt to announce the government’s vision to make the UK the best place for companies to locate, invest and grow in Europe. He announced the four pillars of his industrial strategy – economy, enterprise, employment and education – which covered policies such as tax cuts for businesses through so-called “full expensing”, and tax reliefs for R&D for technology and life sciences.
Hunt also announced the extension of British Patient Capital’s mandate until 2033 – continuing investment in innovative businesses – and funding for quantum computing research.
‘Radical’ full expensing is a £27bn tax cut for businesses in the UK announced in Spring Budget
The new full expensing policy will be introduced for the next three years – from 1 April 2023 until 31 March 2026 – to help boost business investment, with the UK government saying that they are the only major European economy to do so. It means that companies that purchase new equipment will not have to pay tax on the value of the purchases.
According to the Treasury, the Office for Budget Responsibility has forecast that this policy will increase business investment by 3% for every year it is in place. The Chancellor has also made it his intention to make the scheme permanent when “it is responsible to do so”.
The scheme includes plants and machinery, which includes equipment for factories, IT equipment such as computers and printers, and other machinery.
In his speech to the House of Commons, Hunt said: “Since 2010 we have one million more businesses in the UK, a bigger increase than in Germany, France or Italy.
“But I want another million and another million after that.
So today I bring forward enterprise measures in these three areas: to lower business taxes, reduce energy costs and support our growth industries.”
The full expenses policy will replace the “super deduction” which was introduced by Prime Minister Rishi Sunak when he was chancellor. Hunt says his new policy acts as a corporation tax cut worth an average of £9bn a year.
“This decision makes us the only major European country with full expensing and gives us the joint most generous capital allowance regime of any advanced economy,” Hunt told the Commons.
£500m per year to support 20,000 R&D-intensive businesses
The Chancellor introduced an ‘enhanced credit’ during his Spring Budget Statement, which enables a qualifying small or medium-sized business to claim a credit worth £27 for every £100 they spend. Their total expenditure on R&D needs to be 40% or more to recoup the credit.
“That means an eligible cancer drug company spending £2m on research and development will receive more than £500,000 to help them develop breakthrough treatments,” explained Hunt.
“It is a £1.8bn package of support helping 20,000 cutting-edge companies,” he continued, saying that it is these companies who are helping the UK become a tech and science superpower. Last month, Prime Minister Rishi Sunak announced that he wanted the UK to achieve this goal by 2030.
The government cut R&D tax credits last year. But Haakon Overli, general partner and co-founder of VC fund Dawn Capital, told Tech Monitor that the new measures would provide a lifeline to small and medium-sized tech businesses as the tax relief would mean they could attract institutional support from venture capitalists and other funding sources.
“While not as generous as the previous scheme, and how well they work in practice is yet to be seen, the partial reversal indicates that the government has listened to the start-up community on this issue – many of our portfolio companies have benefited from the tax credits in support of the necessary R&D to drive genuine innovation here in the UK,” Overli says,
UK government accepts pro-innovation recommendations in Spring Budget
Hunt also announced that all the recommendations from Sir Patrick Vallance’s review into pro-innovation regulation of digital technologies would be accepted.
Published as part of the Spring Budget, Vallance requested that the UK government should work with regulators such as Ofcom, Information Commissioner’s Office (ICO), the Competition and Markets Authority (CMA) and the Financial Conduct Authority to develop a sandbox for testing new AI systems.
He also said that the UK government needed to have a clear policy position on the relationship between intellectual property law and generative AI to provide confidence to innovators and investors and facilitate greater industry access to public data.
Andrew Roughan, CEO of Plexal, told Tech Monitor that he was pleased by the government’s response to the recommendations: “I was particularly pleased to see the introduction of the AI sandbox – a key piece in ensuring the UK can stay ahead of the curve in developing and scaling emerging technologies,” he said.
Spring Budget adds complexity for small businesses
However, the Spring Budget seems to make the funding and tax landscape more complex, according to one policy head.
Jenny Tragner, director and head of policy at R&D tax relief consultancy, ForrestBrown, told Tech Monitor that while there were positive policies to encourage innovation, she felt that the Budget lacked a “coherent narrative to help businesses,” especially to navigate the complex tax landscape.
“While enhanced support for SMEs is welcome, the qualifying criteria introduce further complexity for businesses already struggling to make sense of the raft of reforms announced at previous fiscal events and set to come into force this April,” she explains.
“A higher tax credit will be available for R&D intensive SMEs – those whose R&D expenditure equals at least 40% of total expenditure,” she continues, explaining that the new measure will ease the “blow” of last Autumn’s rate decrease for some businesses.
“As well as the complexity added, applying the more generous rate only to loss makers risks penalising businesses once they become successful,” Tragner adds. “All of this for a change which the government proposes is superseded by the introduction of a new single scheme for R&D tax relief next year.”
Tragner also says that the super deduction’s successor is “welcome” but that the UK still lacks a tangible incentive for capital investment in R&D facilities and assets.
Julian David, of tech vendor trade organisation techUK, warns that the government’s “job is not done” in putting the UK in the race to be a tech superpower.
“There were notable omissions and frustrations, such as the lack of a UK semiconductor strategy and the only partial reversal of cuts to the R&D tax credit. This will disappoint many tech SMEs,” he told Tech Monitor. “The devil will be in the detail of these announcements.”