UK chancellor banks on tech investment to spur economic growth
The UK Chancellor of the Exchequer placed tech at the forefront of the UK’s growth strategy this week, as he revealed his Spring Budget on Wednesday, although like all budgets, there were some winners and some losers.
Jeremy Hunt, as part of his yearly financial statement, said that the UK would narrowly avoid a recession this year and next, despite the inflationary crisis caused by Russia’s invasion of Ukraine and the hangover from the Covid-19 pandemic.
However, UK growth will remain stagnant, Hunt acknowledged, and to combat this he announced a string of funding plans aimed at the UK tech sector placing the industry central to his plans to get growth back into the UK economy.
Measures included a new quantum computing hub; an annual £1 million prize called the “Manchester Prize” for AI research; and £3 billion in investments in “high growth” businesses over the next 10 years.
These initiatives were broadly welcomed by tech industry leaders.
“In a budget focused on delivering growth and boosting the UK’s competitiveness, it’s reassuring that technology featured prominently,” said Jason Tooley, vice president, North EMEA, at data management software provider, Informatica.
“Technology has a huge role to play in our future. Businesses becoming data-driven and government using data to enhance services are major trends that will drive productivity and ensure the UK is a market leading digital economy,” he added
One industry concern, prior to the budget, was around plans to scrap tax relief for all SMEs in November. To combat this, Hunt announced new funding for R&D-intensive businesses which will allow the UK’s most innovative companies to do what they do best – another move that’s been praised by industry figures.
Karl Barnfather, partner and patent attorney at European intellectual property firm, Withers & Rogers, said: “In addition to extending an enhanced tax credit for smaller, innovation-led businesses that are spending 40% of their total expenditure on R&D activities, the chancellor has announced some exciting measures for sectors of the economy where there’s significant growth potential.”
Mark Smith, partner R&D Incentives and Grants Ayming UK, also praised the R&D incentives. “The structure the chancellor ran through sounds sensible and clear, with 40% of spend being a straightforward figure and goal for others to work to.”
However, Smith expressed concern over accessibility for the relief, saying it is a lot more targeted, which could exclude some firms, with the 40% threshold being too high for some. He pointed out that only 10% of businesses are set to benefit, with many small businesses failing to meet the threshold “…which will most certainly have an impact on the UK’s innovation as a result”, he added.
Leaping into quantum
The government also announced a big investment in quantum computing, with up to £2.5 billion set aside over the next decade to research and develop the nascent technology.
That funding will cover not just engineering and research investments, but businesses that are investing in quantum technologies and pilot projects, as well as investment into the first steps of what quantum technology regulation might look like.
It also plans to put £900m into the building of what it described as an “exascale supercomputer” to work on research and run projects.
It’s notable that this wasn’t described as a quantum computer, and it may well not be. Likely, there will be debates and bids for different approaches when and if this project takes shape.
“The greatly increased investment into quantum computing is very much welcomed, as it will help to build on the world-leading ecosystem that is already established here,” said Ben Clark, director of Future Worlds, a startup accelerator at the University of Southampton.
“However, we must ensure that it not only funds early-stage research, but also has the political engagement of stakeholders across the product and funding life cycles – from venture capital to private equity to IPO – to ensure we can drive world-leading companies at scale.”
Another area discussed by Hunt during the budget was AI, with the chancellor revealing plans to launch a new annual £1m award called the Manchester Prize.
Hunt said it will be given to researchers who “drive progress in critical areas of AI”.
While £1m feels like small change in the world of startups, it’s a massive sum for most (but not all) academics and researchers.
It’s notable that the idea of the prize is focused on AI rather than other technologies and signals what a hold AI has on public discourse right now – and comes as ChatGPT currently dominates the news.
Barnfather praised the new AI sandbox as “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”.
“The chancellor also confirmed he is working closely with the UK Intellectual Property Office (UKIPO) to adapt IP rules to ensure that companies investing in AI-enabled R&D activity get what they need in terms of commercial protection for their innovations.
“Ultimately, this will help to maintain a healthy flow of investment into this dynamic area of scientific research,” he added.
The final key focus for Hunt was driving investment into tech accelerator projects, with the chancellor unveiling plans to invest £100m to grow three “innovation clusters” in Manchester, Birmingham and Glasgow. These will specifically aim to support 26 R&D projects across AI, health and medicine and quantum.
This week’s budget also promised to create 12 investment zones around the UK, with £80m of funding earmarked for each over five years – building on a plan from short-lived Chancellor Kwasi Kwarteng.
These ‘12 potential Canary Wharves’ will be centred around university tech hubs in England, Scotland, Wales and Northern Ireland – with none south of Birmingham – and offer lower national insurance contributions for employers, lower business rates and capital allowances on the purchase of new machinery and equipment.
However, the investment into accelerators comes the same month that the UK’s biggest tech accelerator, Tech Nation, is set to close after the government cut its funding, favouring a project from Barclays bank instead.
Others were critical of the lack of investment in R&D for environmental technologies – a field in which, figures like Smith argue, the UK could become a world leader.
“To drive forward the sustainable transition, specific tax incentives must be considered around green R&D. If they can include that in definitions, it could provide a boost both to our innovation and net-zero objectives,” he added.
There was also no offer of support in the budget for EV development and Britain’s car battery industry – in the wake of Britishvolt’s collapse.
Britain’s semiconductor industry also appears to have been overlooked, as chip bosses continue to feel frustrated in the government’s lack of strategy as others in Europe, China and the US soar ahead.
Despite the delay in chips threatening UK business, little more has been proposed than the formation of UK chip body and another research project.
The UK’s official opposition, Labour, criticised the budget, saying it didn’t go far enough to get Britain’s economy growing again.
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