With Brexit negotiations due to begin in a matter of weeks, and hot of the heels of the publication of the Government’s Digital Strategy and Industrial Strategy Green Paper, the 2017 Budget comes at a significant time for UK tech. Our Policy Director Charlotte Holloway reflects on the situation facing the Chancellor on Wednesday, and outlines a number of areas where the Government can make a start in unlocking a new wave of tech-powered growth.
Many of the big macroeconomic questions on Budget day will rightly be focused on the UK's spending power, boosting national productivity, and reducing public debt. The Budget comes at a time when it looks likely that better receipts will give Chancellor more headroom in short term, but there are a number of questions that will remain on long term growth due to Brexit. What remains clear is that Government needs to understand impact of rising prices, in part due to devaluation of the pound, especially on businesses with import needs. That’s why we'd like to see a number of changes on increasing costs to tech businesses, such as on the new immigration skills levy and on business rates.
Wider commentary suggests that the Chancellor is rightly holding back increased revenue to deal with potential Brexit shocks. The key question here is whether there are areas that the Government can look at investing in now to lessen that shock and prop up confidence in the tech sector and the business community more broadly. That's why we've outlined a number of areas below, including in smart infrastructure and digital education, which are all the more important for addressing sooner rather than later.
Tackling the big challenges and realising the opportunities facing the country will mean that the Chancellor must harness the dynamism and vibrancy of the UK tech market. Here are a number of areas where the Chancellor can make a start on Wednesday:
1. Boosting robotics, artificial intelligence and battery innovators. The Chancellor is reportedly set to announce a new fund to help scientists deliver revolutionary technologies. To deliver real impact and sustainable growth, these must have a strong link to commercialisation opportunities, helping the UK’s world leading universities create high-value spinoffs.
2. Boosting national commitment to R&D. techUK is looking for the Chancellor to commit to national R&D spend to 3% of GDP, matched by an uplift in R&D tax credits for start-ups and SMEs. The business enterprise component of R&D expenditure in the UK is low by international standards, so we urge the Chancellor to make bold commitments to match our ambitious R&D credentials. The UK needs to punch above our weight in a post-Brexit world.
3. Technical skills reforms. This weekend saw reports of a series of anticipated announcement on “T-levels”. Broadly understood to represent a “transformation in technical education”, substantial investment may be announced on Wednesday alongside the aim to create 15 new world class routes of similar value to A Levels to prepare school and college leavers for the jobs of the future. techUK is keen to ensure T-Level are joined up with the skills ambitions as laid out in last week’s Digital Strategy.
4. Support for teachers in delivery of the new Computing Curriculum. techUK believes the Government should prioritise an additional £50m to support continual professional development for teachers in the delivery of the computing curriculum. This builds on our Autumn Statement recommendations last year and will ensure the next generation of young people are equipped for the high-skilled, high-value jobs in tomorrow’s economy.
5. Digital inclusion and incentives for upskilling. Building on the ambition of the UK Digital Strategy, this year’s Budget should look at additional support for the scaling of local digital inclusion initiatives to ensure that all citizens across the UK are able to reap the benefits of digital. Similarly, techUK repeats its calls for the Government to look again at the Apprenticeship Levy by introducing greater flexibility and bold incentives for levy players to use funds for existing training initiatives and for lifelong learning to adapt to the new world of work.
6. Think again on Tier 2 migration changes. Uncertainty on access to international talent means the Government should scrap plans the new Tier 2 immigration skills charge (being brought in from April 2017). Additionally it should postpone planned increases to Tier 2 minimum salary thresholds until a new smart migration strategy has been developed. Leaving the EU is likely to change the tech sector’s access to international talent so companies shouldn’t be penalised for making hiring decisions that drive growth.
7. The Business Rate Bête Noir. Perhaps one of the hardest issues for the Government in recent weeks, the ongoing debate on business rates also has several direct impacts on UK's tech ecosystem. We welcomes the announcement in the Autumn Statement that there would be 100% business rates relief for five years on new 5G Mobile and Full Fibre infrastructure. However, this benefit of around £60m pales in comparison to the estimated £1.3bn hike as a result of the recent VOA re-evaluation that will hit the sector over the next couple of years. It has been estimated that this would be equivalent to upgrading more than two million homes to superfast broadband. techUK questions whether this rates hike is wise at a time when we need to increase our competitive advantage by developing world class connectivity. Similarly, the Chancellor might consider additional rates relief for incubator and accelerator spaces, to ensure that startups are not adversely effected through costs that are likely to be passed on.
8. Think smart for major new infrastructure projects. New announcements on major national infrastructure projects, such as Crossrail 2, should have mandatory ringfences for Smart infrastructure integration, ensuring these major spends are tied to a vision for world-leading smart communities in the era of global digitisation.
9. Boost the UK’s capital credentials. Improved access to long-term or ‘patient’ capital can help encourage firms to scale up. Patient capital has long been a primary source of investment for the UK tech industry. We’ll be looking for more detail from the Chancellor to incentivise the adoption of new funding opportunities such as crowdfunding. Given uncertainty around access of capital flowing from the European Investment Fund, boosting UK-led initiatives is all the more critical.
10. Recognise Digital Devolution as a National Opportunity. Digital transformation should be directly linked to devolution deals, as techUK called for ahead of last year’s Autumn Statement. We want a unified approach to build smart cities and smart communities, and as part of techUK’s Digital Devolution work, the tech industry will be encouraged by support for local government digital transformation and new forms of market stimulation into the local government market.
11. Balancing short term stabilisation vs digital transformation in health and social care. Funding for the NHS and social care has been a battleground for the Government in recent months, with little from the Chancellor in the Autumn Statement. While NHS Chief Executive Simon Stevens has indicated additional funds should be prioritised on social care, the Government should consider its broader ambitions on digital transformation – from capacity and leadership planning to better data sharing.
12. Lay out new spending commitments relating to announcements made in last week’s Digital Strategy. We’ll be looking for more detail on the scale of the ambition for new initiatives launched last week, such as the new network of UK international tech hubs in key strategic markets for the UK.
13. Boost the UK’s capacity to deal with emerging data issues. The UK's environment for data utilisation and legislation has a busy period ahead, and the UK's regulation environment is set for a challenging environment. We'd like to see increased funding for the Information Commissioner’s Office to help UK businesses to both prepare for implementation of the General Data Protection Regulation (GDPR) which will come into force before the UK leaves the European Union. This will also enhance the ICO’s reputation as a leading independent regulatory voice on how data will underpin the new wave of international trade deals with key markets, including the EU.
Keep your eyes posted on our website and the techUK twitter feed for all the latest on #Budget2017 on Wednesday. For further details, contact Charlotte Holloway and Tom Morrison-Bell.