UPDATED: The 2023 Spring Budget is being seen as the most pro technology and science Budget to be announced probably since the early Sixties and Harold Wilson’s famous “white heat of the technological revolution” speech.
Chancellor Jeremy Hunt announced enhanced R&D tax credits for tech companies that spend heavily on research, as well as investment in a £900m supercomputer, support for artificial intelligence and £2.5bn to be spent on quantum computing research, as well as the establishment of a £1m annual prize for the most ground-breaking work in AI.
What the Budget means for tech
Here is what Spring Budget for 2023 will mean for the UK tech industry, going forward.
R&D tax credits
The Chancellor announced enhanced R&D tax credits for tech start-ups working specifically in fintech and artificial intelligence in a package worth £1.8bn.
Businesses in the most high tech sectors, including fintech and artificial intelligence, which invest up to 40 per cent of their spending in R&D, will continue to receive an enhanced tax credit worth an extra £27 for every £100 spent.
The Government estimates about 8,000 businesses could benefit, which is about 10 per cent of current R&D tax credit claimants, turning Britain “into a science superpower”.
This is good news for the thousand companies in the pharmaceuticals and life sciences sectors and 4,000 in sectors such as AI, machine learning and computer programming.
Commenting on today’s Budget, Yoko Spirig, co-founder and CEO of Swiss-based tech firm Ledgy, which has an office and clients in London, said: “Today’s announcement of an enhanced R&D tax credit scheme for SMEs is positive for the tech ecosystem.
“This reversal, coupled with the UK government’s intervention to support tech businesses through the weekend’s Silicon Valley Bank crisis, shows the UK is still an attractive place for tech firms and will help ensure it stays out in front as a positive example for other European markets.”
The Treasury restricted R&D tax credits for SMEs in the Autumn Statement partly to clamp down on fraud – 5 per cent of last year’s claims worth nearly £500m were fraudulent – and partly to cut down on cost.
However, Aman Behzad of fintech advisor Royal Park Partners, said that restoring R&D support to the wider SME sector is paramount to encouraging the development of new technologies and the long-term success of innovative businesses. “The Government is cutting support in the wrong places,” he said.
While eligible lossmaking tech businesses will be able to claim £27 from HMRC for every £100 of R&D investment, non R&D-intensive lossmaking companies will receive £18.60 from April 1, far below the roughly 33 per cent rebate now offered to small businesses.
Sarah Barber, CEO of Jenson Funding Partners, said: “This will have a significant impact on early-stage tech businesses and Britain’s research capabilities, especially those that cannot devote 40 per cent of their total expenditure to R&D investment.”
Meanwhile, Ekaterina Almasque, general partner at VC OpenOcean called today’s announcements a “muddled budget that underdelivers for the UK tech sector”.
Almaesque said that although the introduction of new R&D tax support was certainly welcome, many SMEs in the tech sector will be left out in the cold. “Whilst billions in funding for quantum computing and AI will certainly boost research in this area, many SMEs may still struggle to compete with large corporates for the lion’s share of the benefits.”
New tech hubs
Meanwhile, the Treasury has announced a dozen “investment zones”, which will enable businesses operating inside them to benefit from enhanced tax relief and lighter-touch regulations. including the West Midlands, Greater Manchester, the North-East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.
The location of these investment zones must show a partnership “between local government and a university or research institute in a way that catalyses new innovation clusters,” Mr Hunt said.
“The Chancellor’s move to create new tech hubs around universities in England can help turbo-charge innovation and be a catalyst for more equal economic regional growth across the country,” said Clay Van Doren, CEO of Northern and Central Europe and APAC at Atos.
“Digitally driven progress has the potential to transform the delivery of public and private organisations, bringing with it skilled jobs and other positive societal benefits. Each region faces its own unique barriers to growth.”
The Intellectual Property Office will clarify rules to help artificial intelligence developers access copyrighted work for their modelling, while digital regulators will test ideas which could smooth the path to market for AI through what Mr Hunt called an “AI sandbox”.
Karl Barnfather, partner and patent attorney at European intellectual property firm Wither & Rogers, said: “The new AI sandbox is a positive step that will help to secure Britain’s leading role in AI-enabled R&D programmes and support the development of new algorithms.”
Meanwhile, Mr Hunt launched a £1m annual prize over the next decade to reward the most ground-breaking British AI research. It will be called the Manchester Prize in honour of the world’s first stored programme computer built at the University of Manchester 75 years ago.
The Government is to spend nearly a billion pounds building a new supercomputer to carry out a billion billion operations per second — several times faster than the UK’s existing top supercomputers.
But the Government has not yet decided where it will be built, when it will be finished or details of technology to be used.
Charles Russell Speechlys partner Nick White pointed out that the Government’s decision to spend £900m on a world-class exascale computer will still leave the UK behind the US, EU and probably China in building an exascale machine.
White said: “However, it should be a huge boost to the UK’s ability to support cutting edge research in areas requiring complex modelling and simulations, such as climate change, pharmaceutical development and hi-tech engineering.”
The Chancellor also committed to spend £2.5bn over 10 years on quantum computing in his 2023 Spring Budget.
“The UK is becoming a low risk place to undertake high risk ventures, largely as a result of world leading research supported by government and successfully spun out of universities,” said James Palles-Dimmock, CEO of Quantum Motion.
“The next phase, with an increased budget of £2.5bn, will put us at the forefront globally for governmental investment into quantum technologies, after some significant support from the US, Germany and China to their respective national programs. It is a big signal that the UK wants to build on the ‘unfair advantage’ that we have thanks to the work of the NQTP and our world leading universities and that we have a desire to see quantum technologies through to commercialisation.
“While the UK does have a large advantage in this area it is important that we still have the capacity to work collaboratively across borders. Manufacturing and talent are two key areas where the gains to be made from collaborative working significantly outweigh the risks and I will be keen to see how we can continue to welcome the best of world’s talent to the UK to allow us to continue to accelerate the realisation of these enabling technologies.”