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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 new technologies aimed at turning around the UK’s lacklustre economic growth. Announcements including 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 yesterday 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 Spring 2023 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 of 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 it maintained its cuts to the overall generosity of the SME R&D tax credit scheme, will include a higher rate of 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.

The Government closed its consultation on R&D tax credit simplification on March 13 but has not made a decision on the creation of a new, simplified scheme. It is still considering implementing this scheme for a start date of 1 April, 2024, but has not announced which portions of the RDEC or SME schemes would be included in that scheme. Further details will be announced at a future fiscal event.

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 2023, however the Government will aim to make this incentive permanent if conditions are right.

Pension fund investment policy design by autumn statement: to support industry’s access to scale-up funding and close the venture capital financing gap, the Government announced increased support for industry by channelling Defined Contribution (DC) pension schemes in the following ways:

  • 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 consult on further reforms to financial markets and 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

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.

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.

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