Budget 2018: Good or bad for UK tech?

Tech entrepreneurs will on the whole be content with this year’s Budget. With the “end of austerity”, chancellor Philip Hammond (aka Spreadsheet Phil) had a bit of cash to splash, and a chunk of that largesse found its way in support of the tech industry.

Quantum leaps

The government is ploughing a further £1.6bn into R&D funding – mostly through the Industrial Strategy Challenge Fund (£1.1bn) in an attempt to secure the UK’s position as a world leader in new and emerging technologies such as artificial intelligence (AI), nuclear fusion, and quantum computing. Since 2016, the government has spent an additional £7bn on R&D ­– the largest increase in 40 years and part of the its long-term commitment to raise total R&D investment to 2.4% of GDP by 2027. Hopefully the private sector will pitch in too. Raising the Annual Investment Allowance to £1m might help to this end, although Hammond should have promised to keep it there for over a year.

Quantum technologies will get a further £235m to support the development and commercialisation, including up to £70m from the Industrial Strategy Challenge Fund, and £35m to support a new national quantum computing centre. This is on top of the recent £80m extension of the Quantum Technology Hubs. The hope, as set out in the budget, is that “these technologies will transform capabilities in computing, sensing and communications, bringing promising new approaches to solving global problems such as disease and climate change.”

The UK Atomic Energy Agency will get an additional £20m in 2019-20 to accelerate its work on the development and commercialisation of fusion technologies. The prize of carbon-free fusion power is arguably worthy of a bit of a gamble of public funds.

Up to £121m has been earmarked for Made Smarter to support the transformation of manufacturing through digitally-enabled technologies, the Internet of Things and virtual reality are specifically mentioned. And up to £78m will go into the Stephenson Challenge, which aims to support innovation in electric motor technology, with a view to making vehicles lighter and more efficient.

The Budget also announces a new £50m per year fund designed to address the most pressing challenges in areas such as public health and cyber security. The 2021-22 fund will focus on joint programmes between government and industry. There will also be an extra £120m through the Strength in Places Fund to support clusters of science and innovation excellence across the UK.

Smart government?

Building on the Industrial Strategy artificial intelligence (AI), Data Grand Challenge, and AI sector deal, the Office for AI and Government Digital Service (GDS) will review how government can use AI, automation and data in new ways to drive public sector productivity and wider economic benefits, which will then feed into the Cabinet Office-led innovation strategy.

In addition, the Data Science Campus at the ONS and the GDS will conduct an audit of data science capability across the public sector and the Budget announced that the recently created Centre for Data Ethics and Innovation has been commissioned “to study the use of data in shaping people’s online experiences, and the potential for bias in decisions made using algorithms.”

AI has clearly caught Government’s eye, with up to £50m also earmarked for new Turing AI Fellowships to bring the best global researchers in AI to the UK, and £100m in an international fellowship scheme. The government now just needs to ensure Brexit (I’m sorry, I had to mention it at some point) doesn’t shut the door to European talent.

The Tech Tax

The tech announcement that will get most of the headlines won’t actually impact any UK-based tech firms – at least, not at the moment and not directly. From April 2020, the government will institute the Digital Services Tax (DST), a new 2% tax on the revenues of search engines, social media platforms and online marketplaces to “ensure that the amount of tax paid in the UK is reflective of the value they derive from their UK users.” The tax will apply to UK revenues above a £25m per year allowance on groups generating over £500m per year in global profits.

The DST is the opposite of tax simplification and the Government should be hoping that the G20 and OECD discussions on reforms to the international corporate tax framework offer a way out of unilaterally applying this tax. One unintended consequence of the DST could see the costs of these taxes being passed onto consumers and businesses, for example, through increased costs of UK SMEs advertising on the platforms.

Under siege

An extra £115m will be used to fund the Digital Catapult, which has centres in the North East, South East and Northern Ireland, and the Medicines Discovery Catapult in Cheshire. Digital Catapult will also run a series of distributed ledger technology field labs.

This is something of a surprise. It wasn’t long ago that the Digital Catapult was being heavily criticised in a BEIS commissioned Ernst & Young review. The review found fault with the Digital Catapult’s lack of clearly articulated objectives, the poor framework for measuring impact and their operational performance. While a decent economic argument can be made that we should be putting more money into R&D – namely positive economic spillovers – we should also ensure that we are getting good value for money. Often with these things, the devil is in the implementation. Perhaps this extra money is in part to fix the apparently poor management.

On the subject of poor management… the government is obsessed with productivity. Rightly so. And as our Business Stay-Up campaign is finding – the quality of management is critical to productivity.

To this end, the Budget announces the creation of a Small Business Leadership Programme, delivered in partnership with business schools and leading businesses across England. 2,000 places will be delivered in 2019-20, with an ambition to train 10,000 people per year by 2025. In addition, £25m will go into boosting business productivity through the Knowledge Transfer Partnerships scheme, placing over 200 additional graduates and academics with relevant skills into firms to translate their research insights into business growth. And £20m in 2019-20 will go to support local peer-to-peer networks focused on business improvement, so thousands of business leaders can share expertise on leadership, business development and technology adoption.