Chancellor Jeremy Hunt has announced a slew of measures aimed at supporting the UK’s tech sector in the 2023 Autumn Statement, ranging from R&D tax credits to additional AI computing resources.
Many of the announcements were trailed ahead of Wednesday’s fiscal event, including a new investment zone and quantum computing commitments.
Hunt claimed that the Autumn Statement is “the biggest ever boost for businesses in modern times”. The Office for Budget Responsibility, the independent watchdog, said that growth is better than expected this year but has downgraded its forecasts.
Headline announcements affecting businesses across all sectors include a freeze on the small business rates multiplier and tax breaks to offset investments in machinery and IT equipment against corporation tax.
Here are the key policies affecting UK tech businesses from the 2023 Autumn Statement.
R&D tax credits
A surprising inclusion is a revamp of the R&D tax credits scheme. The chancellor announced a “simplified” system that merges the R&D Expenditure Credit (RDEC) and SME schemes.
The rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%. The “intensity threshold” will be lowered from 40% to 30%, which the Treasury said would make an additional 5,000 SMEs eligible for R&D tax relief. Additionally, there will be a one-year grace period for companies that fall below the 30% threshold.
The UK’s tech sector has widely criticised the government for previously slashing the effective rate of tax relief that companies can claim to offset some of the costs for research and development.
The government said the changes would be worth £280m per year by 2029 and will take effect from April 2024.
The government has committed a further £500m over the next two years for access to artificial intelligence compute. This brings the total planned investment into compute to more than £1.5bn.
“When it comes to tech, we know that AI will be at the heart of any growth,” said Hunt. “I want to make sure our universities and startups have access to the compute they need.”
Earlier this month the government said it will triple the funding available for supercomputers supporting AI research to £300m.
SEIS and VCT extension
The government said it will legislate to extend the Venture Capital Trusts (VCT) and Enterprise Investment Scheme (EIS) to 2035.
Both are government-backed schemes that give tax breaks to startups and investors during the early stages of a venture. They are popular support mechanisms among the UK’s tech ecosystem. The so-called ‘sunset clause’ had been due to expire in 2025, following a small extension during Liz Truss’s ill-fated mini-budget.
Pension and investment reform
The Treasury has committed £250m to two successful bidders under the long-term investment for technology and science (LIFTS) initiative.
LIFTS, announced on Tuesday, aims to encourage the establishment of new funds and investment structures to support UK institutional investment into tech firms.
It follows the chancellor’s Mansion House reforms that aim to channel more cash from pension funds into high-growth UK businesses.
The government also confirmed that it will establish a Growth Fund within the state-owned British Business Bank, equipped with a capital base of over £7bn.
A new US-inspired Venture Capital Fellowship will look to equip the investment community with science and tech expertise.
The Treasury will issue new guidance for the Local Government Pension Scheme (LGPS) in England and Wales to implement a 10% “allocation ambition” for investments in private equity. This is estimated to channel around £30bn into private equity investments.
Increasing foreign investment has also been named as a priority. Following the publication of Lord Harrington’s review of incentives to make the UK attractive for investment, the government has announced a new ministerial investment group tasked with boosting the flow of foreign capital.
The West Midlands, East Midlands and Greater Manchester have been confirmed as investment zones focusing on green industries and advanced manufacturing.
The “mini Canary Wharfs” provide tax relief and other incentives to companies located in the zone. Hunt added that there will be an additional investment zone in Wrexham and Flintshire.
It follows the chancellor naming West Yorkshire as the UK’s third investment zone on Monday, which will focus on health tech and life sciences.
A series of quantum computing projects was expected to be unveiled by the chancellor ahead of the statement.
Hunt made no mention of quantum in his speech, however, a series of “quantum missions” have been published as part of government ambitions to lead in the sector.
Among the quantum missions announced is a goal to have accessible, UK-based quantum computers capable of running one trillion operations by 2035. Other missions focus on quantum networks, medical applications, navigation, and sensors for infrastructure.
This follows the announcement of the £2.5bn National Quantum Strategy in the Spring Statement.
As part of a £4.5bn funding package for British manufacturers, the government announced a £960m accelerator for the clean energy sectors. The accelerator fund will target areas such as carbon capture, hydrogen, and offshore wind.
The government said the Green Industries Growth Accelerator would unlock private investment and support the transition to net zero.
The government expressed its intention to introduce legislation next year for a regulatory framework expanding the reach of open banking, a set of programming standards designed to open up financial services.
The new framework would require firms beyond the largest banks to “participate in a sustainable and equitable commercial model through which the technology and necessary consumer protections will be developed”.
The Treasury will publish a National Payments Vision next year that will include consideration of priorities for UK payments and payment regulation.