The March 2023 Budget, what is in it for UK tech?

The March 2023 Budget puts the UK back on the pitch when it comes to the global race for science and tech, however significant work is still needed on the detail and how to put these plans into action.

Read below techUK’s reaction and analysis of the March 2023 Budget as well as finding further deep dives on the key strategies and funding announced for UK tech.

You can find the full March 2023 Budget documents on the Treasury website here.

 

techUK reaction, March Budget 2023:

After unhelpful decisions from the UK Government on R&D and digital adoption at the end of 2022 Chancellor Jeremy Hunt aimed to correct this with a plan to put science and technology at the heart of the UK’s plan for economic growth in his March Budget.

Tech is a key part of the UK economy, between 2010 and 2019 the tech sector’s contribution to the UK grew by 25%, with UK tech now adding over £150 billion to the economy every year and employing over 1.7 million people. Figures from the Government suggest that if well supported the sector could create a further 678,000 jobs by 2025 and add an additional £41.5bn to the UK economy.

The Chancellor’s budget unveiled a new drive to research, develop and deploy technology aimed at turning around the UK’s lacklustre economic growth. Announcements included a new quantum strategy, investing £900 million in new UK computing capabilities, and accepting the recommendations of the Sir Patrick Vallance Review.

However, while these announcements are welcome, some key strategies remain missing such as a UK semiconductor strategy and many tech SMEs will be disappointed by the only partial reversal of the R&D tax credit cut.

 

Responding to the March Budget, techUK CEO Julian David said:

“Despite setbacks in the past year from Government, the Chancellor has today put the UK back on the pitch when it comes to the global competition for science and technology. However, the job is not done.”

“By introducing a strategy on quantum, putting £900 million into new UK computing capacity, accepting the recommendations of Sir Patrick Vallance on emerging technologies, and providing new business incentives, the government has taken steps to advance the UK’s science and tech capabilities.

“The devil will be in the detail of these announcements. techUK and our members will work closely with the Government to build on these announcements and work to further progress the UK’s science and tech ambitions.”

"There is more work to do, including the publication of the UK’s semiconductor strategy and ensuring that as the Government continues to review its R&D tax credit policy we support the broadest range of tech SMEs who invest in science and technology”.

 

techUK summary and analysis of key budget decisions for techUK members:

The budget contained a range of announcements aiming to boost the UK economy, below we summarise the economic outlook presented by the Office for Budget Responsibility as well as key announcements for the tech sector.

The economic outlook:

The March2023 Budget aimed to restart UK economic growth with support targeted to key economic sectors, infrastructure, and the domestic labour market while at the same time trying to stick to the Chancellor’s fiscal rules to bring down the national debt.

Taking the budget announcements into account the Office for Budget Responsibility (OBR) expects the UK will avoid a technical recession. The OBR stated that the nation’s economy is expected to only contract by 0.2% in 2023, much less than the previously forecasted 1.4%.

In the future, growth is estimated at 1.8% in 2024; 2.5% in 2025; 2.1% in 2026; and 1.9% in 2027. Notably while a recession has been avoided, medium term growth has been downgraded.

The OBR also estimates that UK inflation will more than halve, falling to 2.9% before the end of 2023. Additionally, the OBR said national debt will fall as a percentage of GDP. National debt as a percentage of GDP will peak in 2023/24 and then will continue to fall until the end of the forecast in 2027-2028.

Though forecasts have been revised upwards following the Autumn Statement 2022’s gloomy outlook, the UK is still on track for very low growth in the medium to long term and squeezed living standards.

 

Key budget decisions:

The budget contained a number of key decisions for the tech sector, with the Chancellor accepting a number of techUK’s suggestions through the Sir Patrick Vallance Review, Future of Compute Review and in the Quantum Strategy.

 

Sir Patrick Vallance Review: The Government announced that it will accept all recommendations found in the Digital Technologies section of the Sir Patrick Vallance review. Interim recommendations for Life Sciences have also been released, and the Green Industries portion of the review will come in the future.

Overall the recommendations of the review are welcome, with Sir Patrick identifying some key areas where Government policy is not clear and progress is needed to unlock private investment into the UK.

The review also highlights the tensions and tradeoffs, particularly around AI policy. The onus is now on the Government to engage with the industry on these potential reforms.

The four main recommendations for the Digital Technologies section of the review were:

  • Recommendation 1: Government should work with regulators to develop a multi regulator sandbox for AI to be in operation within the next six months
  • Recommendation 2: Government should announce a clear policy position on the relationship between intellectual property law and generative AI to provide confidence to innovators and investors.
  • Recommendation 3: Facilitate greater industry access to public data, and prioritise wider data sharing and linkage across the public sector, to help deliver the government’s public services transformation programme.
  • Recommendation 4: The government should bring forward the Future of Transport Bill to unlock innovation across automated transport applications.

In addition to the above recommendations, the review adopted a number of recommendations including recommendations on drones, space and satellite tech and cyber security submitted by techUK:

  • Drones: Increasing collaboration with the Civil Aviation Authority (CAA) to establish an operating standard for drones, empower the CAA to regulate beyond visual line of sight, and amend Ocfom/CAA regulation to allow the use of UAVs/Drones/High-altitude platform station (HAPS) systems to act as radio repeaters. The Government will also work with industry to establish publicly-owned test sites regarding the operating standard recommendation.
  • Data: Encouraging the ICO to update guidance to clarify organisation’s status relating to AI as a Service (AIaaS).
  • Space and Satellite Tech: Implementing a variable liability approach to granting licenses by June 2023.
  • Cyber Security: Amending the Computer Misuse Act (1990) to include a statutory public interest defence.

 

£900 million for computing power and AI research:  – in line with two of the key recommendations of the Future of Compute Review, the government will invest, £900 million to establish a new AI Research Resource and to develop an exascale supercomputer, with initial investments starting this year. These investments will provide scientists with access to vital computing power and bring a significant uplift in computing capacity to the AI community. The Government will also establish the Manchester prize, an AI Challenge Prize that will award a £1 million prize every year for the next 10 years to researchers that drive progress in critical areas of AI. techUK played a key role in supporting the Future of Compute review strong welcomes this funding being delivered.

 

Medicines and Healthcare products Regulatory Agency (MHRA) recognition framework: the government is providing £10 million extra funding in 2023-24 to 2024-25 to the MHRA, allowing the regulator to accelerate patient access to treatments. From 2024, MHRA will have a fully operational swift approval process for the most impactful new medicines and technologies. The MHRA is also exploring partnerships with trusted international agencies, such as the U.S., Europe and Japan to provide simple, rapid approvals for medicines and technologies from 2024.

 

Quantum strategy: The Government announced their new National Quantum Strategy, with a ten-year £2.5 billion package for quantum research and innovation programme. The announced Quantum Strategy also established 4 goals: ensuring the UK is home to world-leading quantum science and engineering; supporting businesses through innovation funding opportunities and by providing access to world-leading R&D facilities; driving the use of quantum technologies in the UK; and creating a national and international regulatory framework. techUK has long campaigned for the Government to commit to UK quantum leadership and the announcement of this strategy is welcome news to techUK members and the UK quantum sector.

 

R&D tax credit - partial reversal of cuts to the R&D small company scheme: though the Government maintained its cuts to the overall generosity of the SME R&D tax credit scheme, a higher rate will be added for innovation intensive SMEs. From 1 April 2023, loss-making SMEs with at least 40% R&D expenditure will be eligible for a higher payable credit rate of 14.5% for qualifying R&D expenditure. The Government did not announce any definition updates or additions to what HMRC considers R&D.

The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024 instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief. You can find details of the changes made at the March Budget here.

 

Full expensing: the Super Deduction will be replaced with a new full expensing tax incentive.  From 1 April 2023 investments made by companies in qualifying plant and machinery (a range of tangible assets from machines such as computers and some vehicles through to construction and office equipment), will receive a 100% first-year allowance. This means companies across the UK will be able to write off the full cost in the year of investment, known as full expensing. Under full expensing, for every pound a company invests, their taxes can be cut by up to 25p. Plant or machinery that is leased is excluded from first-year capital allowances and operational costs such as software subscriptions and cloud computing is not covered. This incentive will last until 31 March 2026, however the Government will aim to make this incentive permanent if conditions are right.

 

New rules for tech investment to support industry’s access to scale-up funding and close the so called 'scale-up gap' the Government made a number of annoucments aiming to boost investment into high growth industries such as tech:

  • Extending the British Patient Capital programme for 10 years and increasing focus on R&D-intensive industry, providing at least £3 billion in investment.
  • Launching a Long-term Investment for Technology and Science (LIFTS) initiative to create new vehicle for investment into science and technology, tailored to the needs of UK DC pension schemes. The Government will invite feedback on the design of this.
  • Accelerating the transfer of the £364 billion Local Government Pension Scheme assets into pools for increased investment in innovative companies and other productive assets.

The Government will also consult on further reforms to financial markets to boost investment in high growth industries and will return with new proposals in the Autumn Statement.

 

Investment zones: The Government announced a refocused approach to the Investment Zones programme to catalyse 12 high-potential knowledge-intensive growth clusters across the UK, including four in Scotland, Wales, and Northern Ireland. English Investment Zones will have access to interventions worth £80b over five years, including a single five-year tax package for businesses in Investment Zones and grant funding to address local productivity barriers. The government has invited local partners in eight areas in England to begin discussions on establishing Investment Zones. DLUHC is working closely with the devolved administrations to establish how Investment Zones in Scotland, Wales and Northern Ireland will be delivered. More details on the revised investment zone policy can be found here

 

Innovation accelerators £100 million will also be made available to support 26 transformative R&D projects across the country. The programme will aim to enable city regions to become major centres for research and innovation. Helping to drive regional economic growth.

 

UK tech and the integrated review (IR23): announced ahead of the Budget the refresh of the UK’s integrated review announced an uplift of £5bn in UK defence spending and raised the importance of science and technology when it comes to the UK’s defence and foreign policy. The IR23 included a range of technology and digital commitments including endorsing the Department for Science Technology and Innovation’s Science and Technology framework, committing to the publication of a UK semiconductor strategy and announcing the creating of a new Government-Industry Taskforce that will be established to build the UK’s capability in AI foundation models.

 

Two-Year extension of the Climate Change Agreement scheme: The government will extend the Climate Change Agreement scheme by two years. Participants that meet agreed energy efficiency targets will be entitled to reduced rates of Climate Change Levy in 2025-26 and 2026-27. This is good news for data centres and something techUK has consistently campaigned for.

 

Health and Disability White Paper: the Government will seek to reform health and disability benefits. This will see the Work Capability Assessment abolished in Great Britain and eligibility for the health top-up in Universal Credit will be passported via the Personal Independence Payment benefit. Work search requirements will be set through tailored conversations with Work Coaches. These reforms are being made to recogise the various new pathways into work following the uptake of remote working. Changing the scheme in this way may help reduce barriers to access and encourage more people to rejoin the labour market. 

 

The March 2023 Budget, in-depth:

The March 2023 Budget contained a large range of announcements for the tech sector. To help our members understand these announcements in more detail see some additional insights below in our Budget in-depth section.


Julian David

Julian David

CEO, techUK

Julian David is the CEO of techUK, the leading technology trade association that aims to realise the positive outcomes that digital technology can achieve for people, society, the economy and the planet.

Julian led the transformation of techUK from its predecessor Intellect in 2014, putting an increased focus on the growth and jobs the technology industry offers in a global economy. He has since led its impressive expansion driving forward the tech agenda in key areas such as skills, innovation, business success and public sector transformation.  He leads techUK’s 90-strong team representing a thousand British based tech companies, comprising global and national champions and 600 SMEs. In 2020, techUK joined forces with TechSkills, the employer-led organisation that aims to improve the flow of talent into the digital workforce and open up access for all to high value tech jobs.

Julian represents techUK on a number of external bodies including the Digital Economy Council, the National Cyber Security Advisory Council and the Department of Business and Trade’s Strategic Trade Advisory Group. He is member of the NTA Advisory Board of DIGITALEUROPE and is a member of the Board of the Health Innovation Network the South London Academic Health Science Network.

Julian has over thirty years of experience in the technology industry. Prior to joining techUK, he had a series of leadership roles at IBM including Vice President for Small and Medium Business and Public Sector.  After leaving IBM he worked as a consultant helping tech SMEs establish successful operations in the U.K. His personal interests include Football (West Ham, Balham FC and Real Madrid) and Art.

Email:
[email protected]
Twitter:
@techUKCEO

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Neil Ross

Neil Ross

Associate Director, Policy, techUK

As Associate Director for Policy Neil leads on techUK's public policy work in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments aiming to make the UK the best place to start, scale and develop a tech business.

Neil joined techUK in 2019 to lead on techUK’s input into the UK-EU Brexit trade deal negotiations and economic policy. Alongside his role leading techUK's public policy work Neil also acts as a spokesperson for techUK often appearing in the media and providing evidence to a range of Parliamentary committees.

In 2023 Neil was listed by the Politico newspaper as one of the '20 people who matter in UK tech' and has regularly been cited as a key industry figure shaping UK tech policy. 

Email:
[email protected]
Twitter:
@neil13r
Website:
www.techuk.org/
LinkedIn:
https://www.linkedin.com/in/neilross13/

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Margherita Certo

Margherita Certo

Head of Press and Media, techUK

Margherita is the Head of Press and Media at techUK, working across all communications and marketing activities and acting as the point of contact for media enquiries.

Margherita works closely with the staff at techUK to communicate the issues that matter most to our members with the media.

Prior to joining techUK, Margherita worked in public relations across technology, public affairs, and charity, designing evidence-based strategic campaigns and building meaningful ties with key stakeholders.

Email:
[email protected]
Phone:
07462 107214

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