At the Budget the Chancellor is expected to prioritise tax cuts for the public, however techUK members will still want to see progress on the Government's science and tech ambitions.
As Chancellor Jeremy Hunt prepares to present his Spring Budget on 6 March 2024, he and the Treasury will have been hoping for a better economic backdrop.
With an election expected later in the year the Chancellor will have hoped to present his Budget against the backdrop of an economy visibly on the up. Giving him the space to take significant action to cut personal taxes.
Instead, the economy has entered a technical recession, and the Office for Budget Responsibility (OBR) is reportedly unlikely to give the Chancellor much in the way of the fiscal headroom he needs.
Against this backdrop the Spring Budget is likely to be a delicate balancing act for the Treasury. With a Chancellor who has one eye on the coming election while also seeking to take measures to boost economic growth and business confidence.
The outlook for the tech sector ahead of the Budget:
As the Budget approaches the UK tech sector finds itself cautiously optimistic about its prospects for growth. However, the end of 2022 and 2023 were difficult for UK tech, and we are now in an uncertain investment climate.
The Budget therefore provides a needed opportunity to capitalise on this cautious optimism, boost tech sector growth and confidence as well as spreading the benefits of digital technology to the wider economy and public services.
After record highs in VC investment and demand for digital products and services at the tail end of the pandemic, the sector saw a knock in business confidence at the end of 2022 driven by growing staff costs and high energy prices.
2023 saw a modest recovery in business confidence supported by continued demand for tech sector products and services. Some sub-sectors have performed better against the trend with investment in AI remaining resilient despite a difficult investment climate across the industry.
Many tech companies, despite making redundancies, have also pivoted their internal teams to focus on AI products and services with some companies reporting increased sales.
However, concerns over access to infrastructure, such as compute power, good digital connectivity and cloud services entered techUK's surveys as significant concern for the industry in 2023, alongside ongoing demands from the industry for greater support on R&D and access to talent.
The Spring Budget 2024 can provide a confidence boost as well as clarity on existing policy:
The Autumn Statement 2023 included some significant wins for the tech sector, with the Treasury acting on techUK's calls for greater investment in compute, reforms to the R&D tax credit and taking steps to support digital adoption and encouraging a more pro-growth approach to regulation.
Further since the last Budget we have seen updates on the Government's National Semiconductor Strategy and the Government updating on its plans for AI regulation in its response to the AI Whitepaper consultation.
However, despite these announcements there has been limited detail about how these policies will be put into practice, for example over how money will be allocated to support semiconductor manufacturing and delivering nine new AI research hubs.
At the upcoming Budget techUK members will not only want to see the Government take action to support the the tech sectors ambitions for growth but also deliver the detail on many of the policy proposals already announced, encouraging the adoption of digital and AI technologies across the economy.
What techUK members will hope to see in the Spring Budget 2024:
Digital Adoption Taskforce: announced at the Autumn Statement the taskforce is due to report at the end of 2024, however no details have been given on its workplan or the appointment of a potential chair. To ensure that this work picks up at pace the Spring Budget should include further details of the taskforce's plans as well as details on what exactly it will aim to deliver.
Investment in AI Research Hubs: In its response to the AI Whitepaper the Government announced the allocation of £80m to establish nine new AI research hubs. However limited details have been published on where these hubs will be located and what role they will play in supporting R&D in AI technologies.
The Government should also provide further updates on how it plans to implement the AI Whitepaper following the consultation response last month.
R&D tax credits: the Autumn Statement included reforms to the R&D tax credit regime to better support innovation intensive SMEs. However, since these reforms were announced techUK and others have seen a worrying uptick in HRMC clawing back tax credit deductions from SMEs. These concerns have been raised directly with Government, and the Chancellor should set out how the Treasury will work with HMRC to improve the process where tax credits are claimed and reduce claw backs, which can undermine confidence in the system.
Additionally, the Treasury should respond to calls from across the economy for the qualifying expenditures of the R&D tax credit to be expanded to cover investment in capital.
Regulation for growth: the Government has embarked on an ambitious plan to reform our regulatory climate to encourage regulators to better support economic growth and innovation. techUK has warmly welcomed the expansion of the Growth Duty to Ofcom, Ofgem and Ofwat as well as reforms to the statutory guidance that supports the growth duty.
The Government should go further and act on the recommendations of techUK and the House of Lords Industry and Regulators Committee to further improve our regulatory climate including better mapping and regular reviews of the regulatory system, a mechanism for Government to provide a policy steer and continuing to assess the resourcing, expertise and pooling of capabilities of the UK's regulators.
Public Sector Productivity Review: The Government should set out further details of the ongoing Public Sector Productivity review and where resource is available identify potential pilots for deploying technologies such as AI across the public sector to improve efficiencies.
Further the Government should respond to cross industry demands to improve the use of social value clauses in procurement contracts. techUK has set out our solutions here.
Semiconductors: the Government still as of yet has not provided details on how the £1bn National Semiconductor Strategy will support semiconductor manufacturing. At the Budget the Chancellor should publicly share the findings and recommendations from the recent UK Semiconductor Infrastructure Initiative Feasibility Study as well as provide an update on how the UK will support semiconductor manufacturing.
InvestHER: the Treasury should respond to concerns raised by the Start-up community around the income and net asset threshold for becoming an angel investor. The changes will disproportionally impact potential female angel investors and women run start-ups. techUK has signed a letter by investHER.uk and encourages the Chancellor to respond the concerns raised in the letter at the Budget.
Department for Science Innovation and Technology (DSIT) business case review: at the Budget the Government should respond to and accept the conclusions of the Willetts Review of the DSIT Business Case and approvals process. Allowing the Department to more easily make the case for investment in Science and Technology and increasing the risk appetite for public spending in the technologies that will ultimately shape out future economy.
Mansion house reforms: the Mansion House reforms are crucial to building a more competitive investment landscape, in particular by unlocking much-needed patient capital for a range of key strategic technologies and high growth sectors. techUK encourages the Chancellor to provide an update on the progress of the Mansion House Reforms and where the Treasury is encouraging greater investment into science and technology via pension funds and other institutional investors.
Additionally, the Treasury should set out details of how it plans to support DSIT's Scale-up support and policy sprint programme. For more details and to read about techUK's work with DSIT to support UK tech scale-ups click here.