Chancellor Rishi Sunak’s Spring Statement rightly focused on initiatives to alleviate the growing cost-of-living crisis. But behind those headlines, changes to the research and development (R&D) tax credit and consultations on new business incentives point to a potentially significant Autumn Budget, which could help boost UK productivity, growth and, importantly, wages.
In a recent survey of TechUK members, UK tech companies again highlighted that increasing support for R&D and innovation would help the industry continue to invest in the UK.
While the government has done good work here so far, particularly through the expansion of the R&D tax credit to cover cloud computing and data costs, and the introduction of the super-deduction – a scheme that allows companies to cut their tax bill by up to 25p for every £1 they invest – our members think there is still more to do.
Tech companies cited several barriers that are hindering them from meeting their R&D objectives. Among these are difficulties in finding the relevant skills and talent to conduct R&D in the UK, a lack of options for financing R&D activities, and further demand for tax reliefs or subsidies. Members surveyed also highlighted the attractiveness of competitor countries, particularly in terms of costs, as a barrier to locating more R&D activity in the UK.
The Treasury accepts this assessment. In the Spring Statement, Sunak pointed out how business investment has been a longstanding weakness in the UK. In 2019, business investment accounted for 10% of GDP in the UK, compared with 14% on average across our OECD peers. This has been a key driver of the UK’s lower productivity compared with Germany and France, and hems in some of the regional disparities in the UK which are less pronounced in other parts of Europe.
Addressing this is a vital task, and in his statement, the chancellor has signalled how he might do this.
Alongside the Spring Statement, the chancellor published a new tax plan. This focuses on how the government will reduce taxes over the course of this Parliament, as well as provide incentives to boost business investment around three key pillars of capital, people, and ideas – themes the chancellor laid out as important to his vision for the economy in his Mais Lecture in February.
Through this plan, he signals reforms to the super-deduction, the apprenticeship levy and, more broadly, how we tax skills and training, as well as possible further reforms to R&D tax credits.
Working with our members, TechUK has been putting forward ideas on how to make changes to boost this kind of business investment, such as extending the super-deduction or replacing it with a similar, permanent 100% tax deduction for investment in machinery and productivity-boosting capital projects.
We also back reforming the apprenticeship levy to ensure companies and people can use it more fully and give flexibility and support to SMEs through a tax credit on retraining and digital skills.
The Spring Statement confirmed that the UK is in a difficult economic place, like much of the rest of the world – inflation, high energy costs and supply chain disruptions are downgrading growth, pushing up inflation and threatening living standards. To turn this around, we need bold thinking and a plan to drive up business investment, creating more high-skilled and better-paid jobs.
The payoffs for this are clear. The tech sector is the UK’s modern economic success story – between 2010 and 2019, the sector’s contribution to the UK economy grew by 26.5%, with the latest government figures showing the digital sector adds £150.6bn to the UK economy. If supported, the UK’s growing regional tech ecosystems could add £41.5bn to the economy, creating a further 678,000 jobs by 2025.
The initiatives outlined above would also support other sectors, likely making these economic gains even greater.
As we look ahead to the Autumn Budget, we are urging the chancellor to be bold and seize the opportunity for ambitious reforms to boost business investment, increase UK growth and help contribute to tackling the cost-of-living crisis. Businesses across the economy are calling out for this and in us, the chancellor will find a willing partner to work together to deliver.
Tech businesses are invited to share their thoughts with us over the coming months, as we work together to build a better and stronger economy.