The Autumn Statement 2023: what does it mean for the tech sector?
In his Autumn Statement Jeremy Hunt outlined a significant package of incentives to boost business investment and grow the economy.
However, against a backdrop of revised down economic forecasts from the Office for Budget Responsibility (OBR) the Chancellor will need to move at pace to implement his plans.
The package announced was bigger than many expected and the Chancellor has backed many of techUK’s calls.
Welcome announcements included specific interventions to boost a range of industries from AI and Quantum to green technologies and advanced manufacturing.
Major business incentives were also delivered with the Chancellor backing cross industry calls to make full expensing permanent as well as improvements to the R&D tax credit, allowing more companies to become eligible for an enhanced rate for innovation intensive firms.
Supply side reforms were also another major feature with a determined effort to reduce the time it takes for businesses to get new projects connected to the national grid, something that will be welcomed by AI, telecoms and semiconductor companies. An innovative new planning process was also unveiled allowing businesses to pay for faster decisions on their applications and get their money back if deadlines are missed.
The Statement also continued a number of welcome initiatives such as the Government’s Smarter and pro-innovation policy reviews which will see the Growth Duty extended to Ofcom, Ofwat and Ofgem. An important Digital Adoption Taskforce was also announced that try to encourage the uptake of digital and AI technologies across SMEs.
What does it mean for growth?
The Chancellor’s announcements are aimed at boosting growth in the wider economy however their success is predicated on estimates which could significantly vary.
For example reforms to the energy grid and delivery of pension and capital market reforms are estimated to deliver £165bn together. This is a large chunk of the total increase in investment predicted by the Statement, but these figures are not certain and may fall short.
Further the statement builds in a significant squeeze to public spending when inflation is taken into account. The Chancellor has announced plans to boost public sector productivity, that while welcome, may not make up for the impact on public services and tight budgets could harm plans to invest in digital transformation.
However, if the Chancellor can meaningfully lift UK growth many of these problems will be addressed. Therefore, to deliver on its ambitions for growth the Treasury will need to work at speed and alongside the tech sector to implement its announcements.
There will be no room for mistakes and little time if the Chancellor is to get growth going ahead of an expected election next year.
You can find the full Autumn Statement documents here and a summary of key announcements affecting the tech sector below.
techUK's submission to the Treasury ahead of the Autumn Statememt can be found here.
Summary of announcements for techUK members:
Apprenticeship Growth Sector Pilot: the government has announced a £50 million to pilot ways to increase a number of apprenticeships in key growth sectors.
Faster processing of business planning applications: from next year, local authorities will be able to charge businesses for faster application processing times. If they fail to meet the guaranteed timelines, fees will be refunded to businesses automatically. TechUK welcomes this measure, and we expect that the new system will help to boost economic growth by creating a more efficient and business-friendly planning system.
Clean energy business access to energy grid: the government has published its full response to the Winser Review and Connections Action Plan, setting out its plans to cut grid access delays by 90% and offer up to £10,000 off electricity bills over 10 years for those living closest to new transmission infrastructure. The new measures are expected to significantly reduce grid access delays, making it easier for clean energy businesses to connect to the grid and contribute to the UK's transition to a low-carbon economy. techUK views access to the national grid as key for boosting UK’s green tech competitiveness and welcomes this announcement. However, we are of the view that it will be equally important to prioritise those connections for strategically important projects such as data centres, semiconductor fabrication plants, supercomputers and future telcoms networks.
More stringent payment time requirements for firms bidding for large government contracts: from April 2024, firms bidding for government contracts over £5 million will have to demonstrate they pay their own invoices within an average of 55 days, tightening to 45 days in April 2025, and to 30 days in the coming years. Late payments can be detrimental on small businesses, hindering their capacity for investment and innovation.
Research and development (R&D) tax reliefs: the government plans to merge the current R&D Expenditure Credit (RDEC) and SME schemes starting April 2024. Within this merged scheme, the tax rate for loss-making companies will decrease from 25% to 19%, and the intensity threshold in the R&D intensives scheme will be lowered from 40% to 30% for accounting periods starting April 1, 2024. This adjustment is expected to enable around 5,000 additional SMEs to qualify for an enhanced rate of relief.
Lord Harrington Review into Foreign Direct Investment : the government has accepted the principles of Lord Harrington's recommendations to increase foreign direct investment in the UK. This includes setting up a concierge service for large international investors, modeled after services offered by the UK's competitors. In addition, funding for the Office for Investment will be increased to support the new service. techUK welcomes this move as a significant step towards making the UK a more attractive destination for FDI and has called for it in our Autumn Statement submission.
Crucial investment into compute infrastructure needed for the UK's AI future: the government will be investing a further £500 million into compute infrastructure over the next two financial years bringing the total planned investment in compute to more than £1.5 billion. This investment will provide universities, scientists, and startups with access to the critical compute power they need to advance world-leading research and development, including in AI and life sciences. This is a very positive win as it unlocks funding to address a wide-range of recommendations within the external Future of Compute Review, all critical to building a competitive compute ecosystem in the UK.
Making full expensing permanent: this allows businesses to deduct the full cost of eligible IT equipment, plant, and machinery in the year they are purchased, ensuring businesses can invest more in their operations without having to worry about the upfront cost of new equipment. So far, this scheme has significantly improved the competitiveness of the UK’s capital investment reliefs. techUK called for the full expensing to be made permanent in its Autumn Statement representation and welcomes the announcement. We expect it will give confidence to long-term investors.
Targeted investment into key growth sectors: The government will allocate £4.5 billion over the next five years for targeted investment in strategic manufacturing sectors, including £2 billion for zero-emission automotive investments, £975 million for aerospace, £520 million for life sciences, and £960 million for the Green Industries Growth Accelerator. Additionally, financial incentives for investment zones and tax reliefs for free ports will be extended to 10 years, supported by a £150 million investment opportunity fund. New investment zones in the West Midlands, East Midlands, Greater Manchester, and Wales have been announced. techUK applauds these initiatives, emphasizing the importance of sharing the benefits of digital transformation across the UK. The government's commitment aligns with techUK's call for an accelerated investment zone rollout, reinforcing progress towards the goal of having all Investment Zones operational by January 2025.
Establishing a Growth Fund within the British Business Bank (BBB) and a new Venture Capital Fellowship: is designed to utilise the BBB's expertise and a substantial permanent capital base of over £7 billion. This initiative aims to grant pension funds access to investment opportunities in the UK's most promising businesses. The government will also introduce a new Venture Capital Fellowship program to cultivate the next generation of investors for the UK's renowned venture capital funds, supporting investment in the country's most innovative and high-growth companies.
Smart Data: the government has set out that the Smart Data schemes will focus on seven priority sectors: energy, banking, finance, retail, transport, homebuying and telecoms.
Growth Duty: The government is extending the Growth Duty to Ofgem, Ofwat, and Ofcom. techUK called for this in its Autumn Statement submission and supports this initiative. We expect it to help regulators to actively contribute to fostering growth and innovation within the sectors they regulate.
Pro-Innovation Regulation of Technologies Review: the government is publishing Professor Dame Angela McLean’s review on pro-innovation regulation of technologies for advanced manufacturing and the government response. The government’s response accepts Dame Angela’s recommendations and sets out how these will be implemented.
Launch of the Quantum Missions: the UK government has launched five Quantum Missions to accelerate the development and application of quantum technologies. These missions aim to make the UK a global leader in quantum computing, communication, sensing, navigation and situational awareness. This is a crucial milestone in the delivery of the National Quantum Strategy and techUK welcomes the announcement of these missions. techUK has previously called for the development of missions through our Quantum Commercialisation Programme, including in our response to the Science and Technology Committee Call for Evidence on Quantum Technologies. This document is available for members and if you would like to see our response please reach out directly.
Regulatory sandboxes: the government has announced that it will establish new regulatory sandboxes for spectrum sharing, engineering biology, and space to help support innovation in these areas. The regulator Ofcom had previously set out its plan to support the development of Sandboxes in its recent Spectrum Roadmap. Sandboxes will utilise field trials and the collection of real world data to explore technical solutions to improve the way spectrum is used and shared by different users. The increasing use of network function virtualization, software defined radios and ability to collect and process massive data sets have made Sandboxes a viable way to help develop new solutions for sharing.
Responding to the 2023 Autumn Statement Julian David, CEO of techUK, said:
"In his Statement, the Chancellor stressed the importance of the tech sector to the future of the British economy and has backed techUK’s calls for action to boost inward investment, announced significant regulatory reforms such as the extension of the Growth Duty and provided an additional £500 million of investments in AI and compute. Incentives to invest in green technology and reducing the time it takes for AI and semiconductor companies to get connected to the national grid are welcome as are changes to the R&D tax credit regime and the significant step to make full expensing permanent.
“Encouraging the adoption of digital and AI technologies among small businesses will be of huge importance to our future growth and productivity and therefore the newly announced Digital Adoption Taskforce needs to deliver.
“This Statement has significant potential to boost investment from the tech sector. However, with low growth forecasts, there is no room for mistakes and no time to lose. The Government needs to work at pace alongside the tech sector to put these policies into action and get growth going.”
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