Autumn Statement: UK tech reacts to Hunt’s ‘next Silicon Valley’ goal
Chancellor Jeremy Hunt has unveiled a slew of measures affecting the UK tech industry in today’s Autumn Statement and outlined a goal to “turn Britain into the world’s next Silicon Valley”.
The chancellor announced £55bn in tax rises and cuts to public spending in an Autumn Statement partially focused on restoring economic credibility following his predecessor’s disastrous mini-budget.
For businesses, Hunt outlined measures relating to corporation tax, R&D budget, startup tax relief and plans to rein in Big Tech.
“We need to be better at turning world-class innovation into world-class companies,” said Hunt.
The Autumn Statement, which comes as the chancellor conceded the UK is already in a recession, has been met with mixed reactions from the UK tech industry.
“It is disappointing to see little emphasis on immediate measures that will cushion the blow for the UK’s tech and fintech firms dealing with current economic headwinds,” said Aman Behzad, managing partner and founder of fintech advisory Royal Park Partners. “As inflation continues to bite, it is eating into existing R&D budgets, with companies facing real-term cuts and pressure to cut costs.”
Damian Routley, chief commercial officer of startup accelerator and investor Founders Factory, said the budget “did not go far enough to support British business and investing in the future of business creation”.
However, Russ Shaw CBE, founder of Tech London Advocates & Global Tech Advocates, said Hunt’s Silicon Valley vision was “music to the ears of the UK tech sector” and that the Autumn Statement “set out the right framework and mindset”.
Costa Yiannoulis, co-founder and managing partner at Synthesis Capital, said the Autumn Statement is “another missed opportunity” to support private sector innovation, while Jatin Ondhia, CEO of proptech Shojin, described it as a “Dickensian Autumn Statement”.
Here’s a summary of the key Autumn Statement measures affecting UK tech.
SEIS and EIS
Launched in 2012, Seed Enterprise Investment Scheme (SEIS) aims to encourage investments in early-stage startups by providing tax breaks for ventures deemed as riskier bets.
The mini-budget outlined an extension to this scheme, which is popular among startups and investors, and early reports suggested it had survived Hunt’s reversals.
The Treasury confirmed it is “increasing the generosity and availability of the Seed Enterprise Investment Scheme and Company Share Option Plan”.
However, there wasn’t a specific commitment to the Enterprise Investment Scheme and Venture Capital Trusts, with the Treasury stating that it “remains supportive” of them and “sees the value of extending them in future”.
“Keeping EIS in place supports the innovative, high-growth companies that will help boost our economic recovery when it comes,” said Tim Mills, managing partner, ACF Investors.
R&D spared and cut
It had been speculated that the government would cut public R&D spending. However, Hunt said this would be a “profound mistake” and said the funding will be protected and increase to £20bn by 2024-25.
There will be reforms to R&D tax relief to cut down the “significant error and fraud in the small and medium-sized enterprises (SME) scheme”.
“It’s really positive that the chancellor has protected the entire R&D budget today at a time when the UK should be doubling down on its position as a global tech superpower and attracting the brightest business minds,” said Katy Wigdahl, CEO of artificial intelligence scaleup Speechmatics.
Seb Wallace, investment director, Triple Point Ventures, added: “This capital is essential for so many innovative tech businesses in the UK. If we want to stimulate economic growth, we need a positive approach to R&D spending that recognises its contribution to the wider economy.”
However, the R&D tax relief for small businesses will decreased from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10% .
Meanwhile, the Research and Development Expenditure Credit rate will increase from 13% to 20%.
“R&D tax credits for SMEs, which can be claimed as a cash repayment provide crucial cash injections for startups who often have limited access to alternative funding,” said Penny Simmons, legal director at law firm Pinsent Masons. “By making R&D tax credits less generous for the UK’s most innovative small businesses, the government risks damaging the UK’s future growth prospects.”
EU law reforms in digital technology
There will be reform of some retained EU laws in areas including digital technology and financial services in a bid to drive growth.
This will be overseen by the government’s chief scientific adviser and national technology officer, Sir Patrick Vallance, and will explore how emerging technologies can be regulated.
The government has published a consultation response for reforms of Solvency II – EU rules that stipulate the amount that insurance companies must keep on their balance sheet. It is hoped that this will release more capital into the British economy.
“The announcement of reforms to Solvency II are welcomed, as they have been a sticking point when trying to secure a successful post-Brexit existence and unlocking billions of pounds and cutting EU red tape,” Philip Letts, chairman of incubator LettsGroup.
Powers to rein in Big Tech
The government will bring forward legislative plans for the delayed Digital Markets bill, which would give regulators more powers to break up monopolies.
The bill will enshrine the Competition and Markets Authority’s (CMA) Digital Markets Unit (DMU) into law and provide it with powers to curb the dominance of Big Tech.
The UK’s headline corporation tax rate will increase to 25% from April 2023. Smaller businesses – companies with less than £50,000 profit – will continue to pay a 19% tax rate.
There will also be £13.6bn of support for businesses over next five years
From 31 December 2023 the government will introduce the OECD’s global tax reforms, aimed at creating a minimum tax rate to ensure Big Tech companies pay the full tax they owe in the countries they operate.
“The government may be tightening its belt, but we don’t need to cut off the circulation,” said Tom Warren, managing director UK&I at Pyramid Analytics. “It’s vital that the government works closely with businesses to ensure continued co-operation, funding, partnerships, and dialogue – all in service of driving national growth.”