Spring Budget 2023: A New Era for UK Tech?

Chancellor Jeremy Hunt has unveiled the UK government’s 2023 Spring budget, which included R&D tax support, new investment in quantum, and a £1 million annual prize for AI research. 

The budget, delivered on the same day that teachers, transportation workers, civil servants and others were on strike across the country, sought to spread optimism in a country predicted to narrowly avoid a recession this year and next. 

Hunt used the speech to announce multiple industry injections, including, targeted tech investment into 12 regions in the UK, an AI technology sandbox that aims to boost investment in startups, and the introduction of a new £900M “exascale supercomputer”

Other notable announcements were the introduction of a new £1 million annual prize, dubbed the “Manchester Prize” for AI research; and £3 billion in investments in “high growth” business for the next 10 years.

The budget arrive in the aftermath of the Silicon Valley Bank (SVB) crisis – which saw UK bank HSBC snap up SVB in a £1 government deal – and demonstrates the potential role government plays to complement and defend the technology sector in the UK. 

It also aligns with Prime Minister Rishi Sunak’s promise to promote the development of the UK’s tech sector as a driving force for the growth economy and make the UK a global leader in science and technology by 2030. 

“This investment underlines how seriously the government is taking its commitment to ensuring the UK is a global science and technology superpower by 2030” Nick White, Partner at Charles Russell Speechlys, said in response to the plan. 

“There is perhaps a sense that having recently left the EU, now is the time for the UK to invest significantly in an attempt to build up its credentials as a global tech leader in its own right.”

Whether the UK government sticks to the plans laid out by Hunt and whether the funding its committing will make a dent in the global tech economy remains unclear. 

A quantum leap

One of the budget's focal points was quantum technology – an area of promise due to the potential jump that it could offer in terms of computing power; but also of risk since a lot of its best ideas are still largely theoretical.  

The chancellor set out a £2.5 billion investment target into quantum research within the next ten years – a programme that replaces the current £1 billion National Quantum Technologies Programme. 

This programme will introduce a new training scheme for scientists, engineers and technicians, as well as focus on boosting the number of quantum firms based in the UK to attract talent from abroad. 

.@Jeremy_Hunt @hmtreasury sets out big ambitious plans for AI and quantam. Important to also focus on adoption and diffusion and ensure every manufacturer can reap the benefit of digital technologies and not lag behind our international competitors #Budget2023

— Verity Davidge (@DavidgeVerity) March 15, 2023

The government is also acting on all of Sir Patrick Vallance’s recommendations in the independent Future of Compute Review, includING establishing an AI sandbox for innovators to try out products before they go to market, as well as clarifying intellectual property rules and introducing its “Manchester Prize” for AI research.

To read more about AI innovation, visit our dedicated AI in the Enterprise Page. 

It also plans to inject £900 million into the building of what it described as an “exascale supercomputer” to work on research and run projects. This initiative was largely welcomed by leaders within the industry. 

“The UK will be behind the US, the EU and probably China too, in building an exascale machine. However, it should be a huge boost to the UK’s ability to support cutting-edge research in areas requiring complex modelling and simulations, such as climate change, pharmaceutical development and hi-tech engineering," Mr White noted.

Other industry leaders agree. Michael Green, VP of Northern Europe, Databricks, said the initiatives laid out by hunt were a step in the right direction and would promote technological innovation.

“It’s encouraging to see that a continued focus this year will be on bolstering the UK’s position as a global tech leader, as demonstrated by the Chancellor’s announcement of the ‘’AI Sandbox’’ to increase support for AI businesses in the UK,” said Michael Green, VP Northern Europe at Databricks.

“This will be a step in the right direction for enabling tech startups to remain competitive and at the forefront of tech and AI innovation.”

Tax credits for “R&D intensive” SMEs 

One of the most notable of Hunt’s Spring plan was the government’s partial reversal of cuts to Research and Development (R&D) tax credits from last autumn. 

The R&D Tax scheme was first introduced by the U.K. government back in 2000, designed to entice SMEs to invest in technological innovation. Under the scheme, firms can apply for an R&D claim of 33 per cent, or 33p for every £1 they spend on R&D,  

With the changes announced last November, however, that figure was set to drop to 18.6 per cent, or 18.6p for every £1 spent on in-house R&D — effectively a 40% decrease.

The change sparked criticism from across the business and technology landscape, with the Coalition for a Digital Economy (COADEC) concluding that the average startup could stand to lose around  £100,000 per year.

In his budget today, Hunt didn’t reserve the notion as such – given that the previously announced reduction will remain in place. 

Instead, he said that loss-making “R&D-intensive” startups out there will receive an R&D top-up. Those that spend 40 per cent or more of their total outgoings on R&D (which is a lot) will be able to claim a tax credit of 27 per cent, or £27 for every £100 spent.

“That means an eligible cancer drug company spending £2 million on research and development will receive over £500,000 to help them develop breakthrough treatments,” Hunt said, adding that the total package amounts to around £1.8 billion.

Fantastic to see the Government backing life science start-ups and scale-ups with a higher rate of R&D tax relief in the Spring Budget. The UK has the best and most innovative companies in the world developing vital medicines and vaccines for the future

— kate bingham (@katebingham2) March 15, 2023

Business leaders and industry experts have welcomed the move, but many still believe that more want to be done if Hunt wants to achieve his much-trumpeted mantra of making the UK the next Silicon Valley. 

“The Government’s new funding for R&D-intensive businesses will allow the U.K.’s most innovative companies to do what they do best,” Mark Smith, partner at Ayming, said in a statement seen by TechCrunch. 

“The structure the Chancellor ran through sounds sensible and clear, with 40 per cent of spend being a straightforward figure and goal for others to work to. However, it is a lot more targeted and therefore not as accessible. Forty per cent of spending on R&D is very high, so only a very small portion of U.K. businesses will be eligible.”

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