UK Chancellor of the Exchequer Jeremy Hunt used his Spring Statement Wednesday to announce a range of new measures targeting the technology sector.
Along with additional support to help R&D-intensive small and midsize enterprises (SMEs), a policy that was first introduced last year and was expected to be renewed in this year’s budget, the chancellor also announced a number of new tax relief schemes in addition to money and incentives for AI and quantum computing.
During his speech in the House of Commons, Hunt said that the country has a “newfound strength in the innovation industries that will shape this century,” adding that “over the last 13 years we have become the world’s third trillion-dollar tech economy after the US and China.”
New tax incentives for businesses
While the corporation tax rate is still set to increase to 25% from April 2023, Hunt sought to placate businesses with other measures that would help offset their tax bill.
During his Autumn Statement last year, the chancellor detailed a number of reforms to the R&D tax relief scheme. While the Research and Development Expenditure Credit rate was increased, both the R&D tax relief for small businesses and the SME credit rate was decreased, a move that was criticized at the time by some industry experts who believed it would punish some of the UK’s most innovative startups.
In the Spring Statement, Hunt sought to reverse some of these previous reforms by introducing additional tax support to help R&D-intensive SMEs. Moving forward, for businesses that spend more than 40% of expenditure on R&D, £27 can be claimed back for every £100 spent on research and development.
This new tax incentive is clearly a recognition by the government that its decision to cut tax relief for all SMEs in November undermines its ambition to make Britain the next Silicon Valley, said Mark Smith, partner for R&D incentives and grants at tac and business consultancy Ayming UK, who welcomed the “sensible and clear” approach the chancellor outlined Wednesday when announcing the new funding model for R&D-intensive businesses.
However, Smith warned that the more targeted nature of the scheme could make it less accessible, as 40% of spend on R&D is very high, meaning only a very small portion of UK businesses will be eligible.
“The government estimates about 11,000 businesses could benefit, which is about 14% of current claimants. All other small businesses that don’t meet the threshold will still see a cliff edge in funding, which will most certainly have an impact on the UK’s innovation as a result,” Smith said.
In addition to the new R&D tax relief scheme, the chancellor also launched a three-year program that allows every £1 invested by businesses in IT equipment, plant or machinery to be deducted in full from taxable profits. For every year this policy is in place, Hunt said the cut would be worth £9 billion.
UK gov’t to fund AI, quantum developments
Hunt has frequently said that he wants to turn the UK into the next Silicon Valley so it’s unsurprising that the budget contains financial support to help future-proof the UK’s tech sector and aid the development of quantum computing and artificial intelligence.
In his speech, Hunt officially launched a new research award dubbed the “Manchester Prize,” which will offer £1 million per year to the company that has achieved the “most groundbreaking British AI research,” with additional funding to be provided for computing power.
Furthermore, as part of the UK’s quantum strategy, launched in February 2022 by former Prime Minister Boris Johnson, the chancellor announced that £2.5 billion of government funding would be made available to support the 10-year plan.
Hunt also said he would be accepting all nine of the digital technology recommendations made by Sir Patrick Vallance in the review he was asked to undertake last year.
As a result, the chancellor said the UK government would launch an AI sandbox to help innovators get cutting edge products to market and work with the Intellectual Property Office to provide clarity on IP rules so Generative AI companies can access the material they need.
Hunt also said he would “commit around £900 million of funding to implement the recommendations in the independent Future of Compute Review for an Exascale supercomputer.”
Closing the skills gap with childcare and reskilling reforms
In addition to the pledges specifically aimed at the tech sector, the industry could also benefit from a number of other initiatives announced Wednesday. While the number of women working in the technology sector continues to grow, the industry is not immune to the issue that some women who leave work to start a family don’t return, in part due to the high cost of childcare in the UK.
Hunt announced that parents of children aged nine months to three years will be offered 30 hours a week of free childcare in term time, providing both parents are working at least 16 hours a week. To allow for new provisions to be made available, the changes will be gradually phased in, with the scheme fully up and running by September 2025.
At the other end of the spectrum, older workers who lack the skills to work in industries such as technology will be eligible to apply for what the chancellor labelled a “new kind of apprenticeship,” called “returnerships.”
According to the government, these programs will offer skills training that focuses on flexibility and aims to shorten the time needed for training. Skills bootcamps will also be expanded to 64,000 places per year starting in 2024, an increase of 8,000 places, to help reskill people in sectors such as technology and construction.
The chancellor’s intention to get more Britons back to work is positive, particularly plans to encourage workers that are over 50 to return to the workplace through expanding skills bootcamps and the introduction of returnerships said Alexia Pedersen, vice president of EMEA at business education company O’Reilly.
Pedersen added that while there’s significant potential for people in these age groups to find suitable roles that will encourage them to re-enter the workforce, the government also needs to support businesses in identifying the skills and knowledge gaps that are most lacking within our current workforce to ensure education and training programs are aligned with industry needs.
“Greater focus on learning and development that’s tailored to both industry and generational needs will be a key step forward in reducing the UK’s growing skills shortage,” she said.
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