The new Chancellor unveiled the first budget of the new Government, promising to accelerate growth, level up the UK, and take on the climate emergency. Digital technologies will be crucial to this.
The budget addressed these challenges in several ways:
- Boosting investment in research and development (R&D)
- Supporting science and technology
- Stimulating investment in green tech
- Reviewing the regulation and competitiveness of the digital economy
- Providing support for capital investment in tech
- Implementing Government’s digital infrastructure plans
While this budget was largely positive, there were some drawbacks for the tech industry. Plans to implement a digital services tax (DST) continued and support for businesses seeking to adopt digital tech was lacking.
Research & Development
The budget provided a comprehensive package of R&D support and an ambitious plan to boost R&D spending to £22 billion annually by 2024-25. This is a significant uplift taking direct R&D support to 0.8% of GDP, ahead of the US, Japan, France, and China.
While much of this new funding will be designated in the spending review, techUK is encouraged by the initial allocations which are aimed at science and technological development. £800 million is going to set up a new high-risk high-reward research agency modelled on the American Defense Advanced Research Projects Agency (DARPA), and £900 million to supporting nuclear fusion technology, the National Space Strategy and Space Innovation Fund, and the e-vehicle supply chain.
The creation of a high-risk, high-reward research agency is extremely welcome. A UK ARPA offers an opportunity to fundamentally change the way R&D is done in this country. To succeed, it must be challenge-focused, agile, and ambitious. For long-term success, it requires cross-party support that stands by it through failure as well as success. techUK has a unique insight into ARPA through our membership and we look forward to working with Government to ensure that a UK ARPA is a long-term success.
techUK also welcomes the commitment to increase R&D tax credits from 12% to 13%. The emphasis must be on taking a user-friendly approach, enabling businesses of all sizes to confidently utilise these reliefs.
The increase in funding, creation of a UK ARPA, and reforms to the R&D tax credit will ensure the UK can meet the target of 2.4% GDP spending on R&D by 2027.
Supporting the Green Tech Revolution
Addressing the climate emergency is an important challenge for this Government. The tech industry has much to offer, as a recent study by BT and Accenture shows reductions in carbon emissions up to 50% are possible with the right policy framework.
The re-opening and extension of the Climate Change Agreement (CCA) scheme is a major victory for the data centre sector. The premature closure of the sector’s CCA in 2018 prevented new entrants from joining the scheme, and the re-opening means new data centres are better able to work towards the 2050 net-zero target.
Data centres are a huge success and underpin an internet economy that contributes over 16% of domestic output, 10% of employment, and 24% of total UK exports, and one that is growing faster than any other in the G-20. Each new data centre contributes between £397 - £436 million GVA annually, while existing centres add between £291 - £320 million each year.
Supporting this sector is vital. Government should continue the scheme beyond the two-year extension and support the sector to make the UK a global champion for green data.
Regulating the Digital Economy and Boosting Competitiveness
Uncoordinated regulation and the future of competition policy for the digital economy are of great concern for UK tech companies. This is not just a challenge for the UK, but is a global one as governments and regulators adapt regulatory practices and competition policy for the modern digital economy.
Therefore, it is excellent the UK Government is addressing these issues with a new cross-regulator taskforce, based in the Competition and Markets Authority (CMA), which will report to Government within six months on a new pro-competitive regime for digital platform markets. This has accompanied a Reforming Regulation Initiative, spearheaded by the Department for Business, Energy & Industrial Strategy (BEIS) to gather ideas from business and the public for regulatory reforms to ensure any changes are sensible and proportionate. The £10 million expansion of investment in a second round of the Regulators’ Pioneer Fund will also help build on the success achieved in the UK’s sandboxing initiatives.
The announced aim to create market for digital identity and set up a Digital Identity Unit are also hugely welcome. To best develop an effective market for digital ID, industry urgently needs specific proposals and timelines from Government.
While the budget took some good steps to ensure coherence across Government when it comes to digital, the failure to reconsider the DST stands out like a sore thumb. As previously highlighted, the tax is disproportionate, disincentivises investment, and could create serious trade tensions with the US.
Supporting Capital Investment in Tech
Ensuring the UK remains one of the best places to invest in tech is vital. This means replacing funds lost from the European Investment Fund. Government has made a good start by making up to £200 million of additional investment in UK venture capital and growth finance available through the British Business Bank in 2020-21.
Accompanying this is £200 million in equity commitments to support the UK’s most innovative health and life sciences firms over the next five years.
Alongside private sector capital investment, this will enable £600 million of finance to create high-quality jobs and help UK patients benefit from ground-breaking treatments.
However, Government needs to take a root and branch approach to reviewing the UK’s investment structures now that we have left the EU, to ensure that investors are aware of the talent the UK has to offer. This can be done by creating regular road shows to highlight innovative hubs across England as well as partnering with the Scottish, Welsh, and Northern Irish governments to level up the country.
Building Digital Infrastructure
Digital connectivity is crucial to levelling up the UK. The government’s investments in the rollout of gigabit-capable broadband and 4G infill are welcome. To ensure effective deployment, Government must set out a comprehensive road map to provide confidence to investors to truly get gigabit-capable broadband done by 2025.
Government needs to also look at supporting long-term investment, by matching the fibre rates relief exemption that exists in Scotland until 2029 in England.
Overall, the Government’s first budget produced several positive initiatives for the UK tech sector, and this budget is the first in a trilogy of fiscal statements this year, to be followed by the spending review before the summer and another budget in the autumn.
techUK hopes this trilogy of fiscal events positions this Government as the most pro-tech, pro-innovation government in the world. We look forward to building on this largely successful opening budget to lay the groundwork for future generations of UK tech success.
Next week the techUK team will be deep-diving into some of the issues raised in the Budget – exploring how the Chancellor and Government/Whitehall as a whole can best support the digital economy, create an innovation nation, and provide growth and prosperity for all.