Autumn Statement: UK tech sector demands growth

The Autumn issue of Think Global People magazine is out now

The Chancellor wants to turn Britain into the world’s “next Silicon Valley”. However, to deliver on this and the benefits it will bring for the UK's prosperity the government must move at lightning speed to foster growth.

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Can the UK be the next 'Silicon Valley' success?

The Chancellor’s Autumn Statement aimed to reassure financial markets while at the same time setting out a plan to support public services and lay the groundwork for plans to kickstart economic growth.For the tech sector, the Chancellor made bold claims "to turn Britain into the world’s next Silicon Valley" and while the sector will welcome some of the measures introduced, the most significant announcements took the form of a range of policy reviews that will take place over the coming year.However, while many of these announcements were positive, significant spending cuts pencilled in for 2025 and beyond as well as predictions from the Office for Budget Responsibility of a major slowdown in economic growth and declining living standards highlight the risks of not moving fast enough to boost the UK’s underlying economic growth rate.

Huge growth potential rests on speed of policy delivery

The tech sector has a hugely important role to play here with DCMS figures showing that if well supported the sector could add £41.5bn to the UK economy by 2025. The government must therefore move at speed to deliver new policy agendas to drive up the skills base, innovation and financial incentives to enable the tech-led growth that will be vital for the UK’s economic revival.  Responding to the Autumn Statement, techUK CEO Julian David said: "techUK members will welcome the significant increase in the generosity of the R&D tax credit which will be applied to data and cloud computing costs for the first time from April 2023. This will help companies embrace the digital tools they need to improve productivity.  It is also welcome that the government will not proceed with damaging proposals for an Online Sales Tax."However, the Autumn Statement predicts a difficult time ahead, with implications for public spending and living standards. techUK members are ready to help with the relentless focus on growth which is now needed. We welcome the commitments to future reform through important reviews on skills, potential new incentives for innovation, and a regulatory reform agenda for a ‘big bang’ in high-tech investment to be led by Sir Patrick Vallance."These measures offer the greatest opportunities for our sector to contribute to the UK’s economic revival and must be addressed at pace."Below, techUK sets out the key decisions for the tech sector in the Autumn Statement; the major policy reviews announced; and what this means for the long term.

Key Autumn Statement decisions

In the Autumn Statement, the Chancellor made a number of decisions that will be implemented in the near term. These included:

• The government will drop proposals for an Online Sales Tax: the government will not proceed with plans for an Online Sales Tax (OST) after considering the evidence and arguments from digital businesses and retailers alike. techUK opposed an OST which would have resulted in significant extra costs to businesses and consumers.
• Vehicle Excise Duty (VED) will be applied to Electric Vehicles: in order to try and better equalise the taxes paid by different vehicle types electric cars will become eligible for the lowest rate of VED while electric vans, motorcycles and other vehicles will also become eligible for new taxes. The measures will be legislated for in the Autumn Finance Bill 2022.
• Reforms to R&D incentives: for expenditure on or after 1 April 2023, the Research and Development Expenditure Credit (RDEC) rate will increase from 13% to 20%. This is a welcome announcement as the increased rate will come alongside the expansion of the credit to cover cloud computing and data costs and will ensure R&D tax credits keep pace with the increase in corporation tax. However, the small and medium-sized enterprises (SME) additional deduction will decrease from 130% to 86%, and the SME credit rate will decrease from 14.5% to 10%. The government will also consult on the design of a single scheme, and ahead of the Budget (in the spring) work with industry groups such as techUK to examine this. Further, the government is seeking to build upon the success of the audio-visual creative industry tax reliefs, covering film, animation, high-end TV, children’s TV and video games. The government will consult on a series of proposals that will go further to support the growth of the audio-visual sectors. You can find this consultation here.
• Public R&D spending: the government will maintain it’s plans to increase public R&D spending to £20bn per year by 2024-25 as well as increasing funding for the UK’s 9 Catapults by 35%.
• Solvency II Reform: the government has published its plans to reform the Solvency II regulation which aims to unlock additional financial capital from the insurance sector to be invested in infrastructure and growth. The government’s consultation response can be found here.
• Bringing forward the Digital Markets, Competition and Consumer Bill: the Digital Markets, Competition and Consumer Bill will be brought forward to provide new powers to the ‘Digital Markets Unit’ (DMU) in the CMA to increase competition in digital markets; and introduce measures to tackle ‘subscription traps’ and fake reviews online. techUK supports the delivery of a Digital Markets, Competition and Consumer Bill that boosts competition and consumer choice but also contains the right checks and balances needed for in-scope firms to make the regime work for the whole of the digital economy.

Future policy reviews

As well as making some immediate decisions the Autumn Statement also set out a number of policy reviews. These reviews cover fundamental areas for the tech sector and could be hugely significant.

Regulatory reform for growth

The government will create a taskforce to review EU law to identify changes that can be made over the next year with the greatest potential to unlock growth in key growth industries. These include digital technology, life sciences, green industries, financial services, and advanced manufacturing.This initiative will be led by the government Chief Scientific Adviser and National Technology Officer (Sir Patrick Vallance) and will consider how the UK can better regulate emerging technologies, enabling their rapid and safe introduction to boost productivity and growth.techUK has long called for focused action to deliver better regulation that supports emerging technology innovation and deployment. We have worked with Sir Patrick in the past and will be engaging with his team as a matter of priority to unlock new opportunities for the UK tech sector.

Appointment of Sir Michael Barber as an advisor on skills reform

Sir Michael Barber has been appointed to advise the Chancellor of the Exchequer and the Secretary of State for Education on the implementation of reforms set out in the Skills for Jobs White Paper such as delivering T Levels, approving Higher Technical Qualifications, rolling out skills boot camps, and introducing the Lifelong Learning Entitlement from 2025.Addressing the UK’s digital skills gap and developing an effective regime for retraining is vital with techUK members highlighting a lack of skills as major reason for a drop in business confidence and cost increases in our latest Digital Economy Monitor.

Review of the Energy Bill Relief Scheme (EBRS)

A HM Treasury-led review of the EBRS will determine support for non-domestic energy consumers, excluding public sector organisations, beyond 31 March 2023. The government has published the terms of reference for the review with the outcome due on 31 December 2022.The government however is clear the overall scale of support that will be provided by the scheme will be significantly lower, and targeted at the most at-risk companies. techUK will be working closely with the Government to ensure critical digital infrastructure remains supported and we can keep our economy and public services online throughout the winter and beyond.

Investment zones

Plans for investment zones will be refocused to a limited number of high-potential clusters based around UK universities. These will be to be announced in the coming months.

What this means for the long term

While the government has made some important announcements today and set out some vital policy reviews to conclude over the next year, the fiscal forecast provided today by the OBR is bleak about the UK’s economic prospects.Economic disruption, high-interest rates and energy costs caused by the pandemic and the Russian invasion of Ukraine have meant the OBR has significantly downgraded its forecasts for the UK economy and predicts the largest fall in living standards since the 1940s.The government has also delayed many public spending decisions until 2025/26 pencilling in billions of pounds of spending cuts from 2025 onwards unless the UK’s economic growth increases.The Autumn Statement therefore underscores the urgent need for government to work with industry to undertake a relentless focus on growth or face unenviable choices come 2025.The tech sector has a hugely important role to play here with DCMS figures showing that if supported the sector could add £41.5bn to the UK economy by 2025.While our most recent survey highlighted a drop in confidence members signalled that focused support to incentivise innovation and R&D, improve access to talent, rollout key digital infrastructure and deliver coherent, business-friendly regulation could turn this around helping deliver tech-led growth.

Subscribe now to Think Global People magazine and read David Sapsted's insights into the global tech sector this autumn issue

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