A UK Plan for Chips

If the UK Government is to fulfil its ambition to become a science and technology superpower, we need to be a global player in the semiconductor industry.

Also known as chips,' semiconductors are present in every day-to-day consumer electronic device and underpin the key technologies shaping today's world and tomorrow's possibilities.

Global competition over chips is fierce-the semiconductor industry is projected to value $1 Trillion by 2030, and other jurisdictions, such as the USA, the European Union andChina are launching significant investments to guarantee their stake in that growth.

For the UK to effectively compete and achieve its aspirations of being a technology superpower, we need a UK Plan for Chips that not only builds on our strengths but also fosters new opportunities for the UK's Chips industry.

Achieving the UK's fullest potential in this technology will require us to nurture advantages in areas where we already lead, such as in design and research into new and advanced materials. However, this will not be enough. Ensuring UK chip designers and builders have access to markets, effective protection for their intellectual property, access to the talent they need, incentives to invest in cutting edge R&D, as well as facilitating growth in new fabrication plants and machinery will be essential to the future of UK chips.

A UK Plan for Chips:

techUK represents over 900 technology companies with operations in the UK, including the designers and manufacturers of semiconductors and their customers, manufacturers, consumer electronics companies and innovators in emerging technologies such as AI and Quantum technologies.

The UK needs to think strategically. The semiconductor industry is a value chain incorporating highly specialist and complex companies across intellectual property (IP), design, licensing, wafer fabrication and the combination of assembly, testing and packaging.

It is impossible for a single country or trading bloc to onshore the entirety of this process, so it is vital that the UK recognise its existing strengths and future potential to build a comprehensive and effective strategy that ensures the success of its industry in a competitive global value chain.

techUK and our members suggest a five-point UK Plan for Chips to help the Government achieve this through its forthcoming Semiconductor Strategy.

1. Retain our position as global leader on chip intellectual property and design:

Although the UK has a relatively low share of the global semiconductor manufacturing base (with 23 fabrication plants spread across the UK) the UK's great strength is in semiconductor design and IP where we are world leading. The UK is host to 110 design firms including among them several of world's leading companies making the UK the clear leader in Europe as well as a significant player in the global value chain.

To secure and advance this on this the UK needs to:

• Modernise the UK'sR&Dincentives through reform of thePatentBox (PB) scheme to more closely align with the Dutch innovation box, helping incentivise a wider range of IP rights.
• Create a taskforce on licensing and IP protection, working between industry, Government, and the Intellectual Property Office (IPO) to monitor how the UK's IP regime is supporting UK exports, protecting against IP theft and seeking to increase exports. This initiative should also seek to prevent the development of counterfeit chips and promote UK cyber resilience among UK companies and institutions.
• Actively support links between the UK's world-leading universities and semiconductor industry leaders to increase access to commercial opportunities, talent matching, and the incubation of new emerging chip designs and manufacturing techniques through research groups and spinouts.

2. Incentivise investment in advanced designs, new materials, and new fabrication plants:

In order to increase the UK's semiconductor industry's strength in R&D and new materials the Government must revisit existing incentives that support design, material acquisition, and the construction of fabrication plants in the UK. This will be particularly important as we seek to increase our resilience in traditional chips as well as capturing market share in non-silicon-based semiconductors which have an increasing range of applications in growing sectors, from renewable energy and electric vehicles to satellites and advanced telecoms equipment.

Any reduction in research and development (R&D) support will induce chilling effects that will reduce investor and market confidence in current and future UK semiconductors. A better understanding of the UK Chips landscape will also help the Government target support better via its research agencies.

• Government cuts to the R&D tax credit for SMEs threatens the future of the industry in the UK. The Government should consider maintaining the level of R&D tax credit support for semiconductor SMEs and expanding the coverage of the R&D tax credit to include capital expenditure, supporting investments in new plants and machinery.

• Government should complete the mapping of the UK semiconductor industry currently already in process as part of the upcoming Semiconductor Strategy to ensure it has a throughout understanding of the industry and key growth opportunities. This mapping should include an inclusive approach that addresses the full range of needs in the UK's current ICT ecosystem as well as future opportunities.
• Ensure key public bodies are investing in the semiconductor sector. For example, institutions like ARIA could help drive the most cutting-edge areas of design R&D for semiconductors, while the creation of specific funds under the oversight of the British Business Bank or through UKRI could help plug investment gaps for early stage research to be commercialised in the UK. This may be vital if the UK is to capture market share in non-silicon based chips or the integration of both compound and silicon chips.

3. Partner with our global allies on supply and monitor the UK's access to chips:

Key partners of the UK, including the members of the G7, are also facing the challenges with semiconductor supply. The UK should welcome investments being made in the US and EU and should build upon its partnerships with these nations to secure our place in the global semiconductor value chain. A strategy that prioritises strategic and sustainable access to vital inputs to UK chips will reduce risks in the domestic market.

• Through the G7, the UK Government should work with its partners to develop a G7-wide common strategy to secure the semiconductor supply chain of all relevant categories of semiconductors, including chips currently in high demand, semiconductor equipment, materials, and raw materials by identifying bottlenecks in the value chain and working towards a more balanced global supply.
• Tailor an internationally competitive R&D strategy that invites multinational participation and co-investment in areas of UK comparative advantage in while preserving multinational cooperation on supply and shared R&D projects.
• The Government should also consider creating or identifying a minister or body, such as a cabinet committee with responsibility for semiconductor coordination across Government to prevent supply shortages.

4. Nurture the skills we need for the chips industry:

To lead the UK needs access to the best global talent as well as opportunities for skilled workers to come to the UK and fill gaps in the labour supply needed for the immediate growth of the semiconductor industry. To achieve this, the Government should seek to:

• Promote talent attraction for short-term skills shortages by ensuring semiconductor companies are supported via the immigration system, shortage occupation lists, and university talent matching partnerships, helping to boost access to talent for design and new manufacturing techniques.
• Replicate AI Masters conversion courses to other digital sectors especially in those that support design skills and manufacturing.
• Identify semiconductor clusters for additional support, this will be vital to create global centres of excellence in the UK. Examples already exist in compound semiconductors in Wales, around Bristol and in the Cambridge cluster. Clusters must also be supported to tackle other barriers to expansion such as through additional R&D support and reduce planning permission to build critical facilities such as fabrication plants.

5. Ensure access to markets and private capital:

Though industry-tailored policies will develop the attractiveness of the industry, access to markets and funding challenges are essential for the scalability and overall viability of the UK semiconductor industry. The Government should seek, through domestic and international mechanisms, to allow the industry to access the resources it needs for success. To achieve this, the Government should:

• The UK has a major scale-up gap estimated at around 15bn a year. This hurts chips companies with the potential to grow. The problem with domestic funding is both regulatory and cultural. To address this the Government will need to address both. Regulatory changes to increase investment can be found by continuing at pace with planned reforms to the pension charge cap, while also retaining the funding for the Long-Term Investment for Technology & Science (LIFTS) competition. However, as well as these regulatory changes the Government will need to use its convening power to bring investors and tech leaders together and encourage the market to design new investment vehicles to further boost UK tech.
• The application of the National Security and Investment Act (NSIA) has been non-transparent and difficult for companies caught in the regime. The NSIA has also unnerved investors and created a more cautionary approach to investment in UK chips. The Government should seek to provide increased transparency around the implementation and scope of the National Security and Investment Act to ensure that low risk investments are not held up.
• Ensure continued access to a diverse range of customers and markets: while the Government should take steps to protect UK national security, we must develop a workable framework that does not inadvertently cut the UK off from large and growing markets for investment, IP and components, for example with China.

For more information on techUK's plans to support the UK semiconductor industry please read our submission to the House of Commons Business, Environment and Industrial Strategy Select Committee's inquiry into the UK Semiconductor industry here.