Across the Budget and Spending Review the Chancellor's budget makes some major interventions to support the UK tech sector.
The Autumn 2021 Budget and Spending review was the Chancellor's opportunity to set out how the Government plans to support the UK's recovery from the harshest economic impacts of the pandemic.
At the beginning of his Speech the Chancellor said that this Budget is about what this Government is about, with the first item he listed being Investment in a more innovative, high-skilled economy. This was a welcome statement of intent and purpose.
Overall, the 2021 Budget and the Spending Review is a mixed but positive set of announcements for the tech sector with the highlights being an innovative expansion in the R&D tax credit and continued support from the Treasury for skills, retraining and new visa routes.
However the Government could go further in support for skills and retraining through a Digital Skills Tax Credit suggested by techUK, increasing the funding for high speed broadband through Project Gigabit and abandoning proposals for an online sales tax.
Below techUK provides a summary of the state of the UK tech sector in 2021 and key announcements from the 2021 Budget and Spending Review.
You can read the full budget documents here and well as techUK's submission to the 2021 Budget and Spending Review here.
The UK tech sector in 2021:
Provisional data published by DCMS shows that the Digital Sector contributed 150.6bn to the UK in gross value add (GVA) to the economy in 2019, accounting for 7.6% of all UK GVA. Estimates by techUK's Digital Jobs Taskforces show that jobs requiring tech skills account for 10% of total jobs in the UK, with the Government's own projections estimating that the UK could add another 678,000 tech jobs by 2025.
Investment in UK tech showed strong growth in the first half of 2021, with startups and scaleups raising 13.5bn, almost three times what was invested in the first six months of 2020. This investment helped creating 20 new tech unicorns' in the process.
However, the sector faces a number of challenges with input costs including raw materials, IT equipment and a scarcity of labour acting as a brake on growth. The expansion of the digital sector is being driven by a strong demand from UK businesses for investment in digital transformation and environmental, social and governance, both of which rely heavily on digital services and IT. However, shortages in skilled labour for tech companies is constraining growth, with some tech companies unable to hire enough staff to meet demand. Coupled with the increased energy and input costs due to supply chain disruption there is a pressure to increase prices with possible knock effects on inflation.
Key announcements from the 2021 Budget:
- An Expansion of the UK's R&D tax credit to cover cloud computing and data: acting on a long standing ask from techUK and our members the Government has expanded the coverage of the UK's Research and Development (R&D) Tax Credit. This will allow businesses to claim the credit back against cloud computing and data input costs for R&D, allowing the R&D system to meet the expectations of modern businesses. Read more here.
- Support for Quantum Computing and Artificial intelligence: The budget will focus investment in key technologies agreed by the Prime Minister's new National Science and Technology Council. This includes important technologies for techUK members such as quantum computing and artificial intelligence as well as bioinformatics and space technologies.
- Support for digital skills: the Budget announced that it will quadruple of the scale of its Skills Bootcamps, create a new Scale-up Visa and establish a new Global Talent network. This comes alongside a commitment to invest a total of 3.8 billion in skills provision between 2019 and 2024. Further detail on the skills announcements can be found here.
- A consultation on an Online Sales Tax: The government announced a consultation on a potential Online Sales Tax. TechUK is opposed to an Online Sales Tax with concerns that such a tax have the largest impacts on smaller firm. The proposal also contradicts existing Government policy such as Help to Grow: Digital which seeks to incetivise digital adoption, such as the use fo e-commerce platforms.
- Removal of the UK's Digital Services Tax: following a final political agreement at the OECD's and an implementation date for a new multilateral tax settlement set for 2023 the Government has said the UK is now in a position to be plan the removal of its Digital Services Tax. A move techUK has long called for.
The 2021 Spending Review:
Overall, the Spending Review will see total departmental spending grow, with every department seeing their overall spending increase. Key funding announcements from the Department for Digital, Culture, Media and Sport and Department for Business, Energy and Industrial Strategy include:
Department for Digital, Culture, Media and Sport: new money will be committed to a doubling of AI and data scholarships, and funding an ambitious agenda on data policy and digital identities. A total support package of 50 million has been annouced for these initiatives.
The Government also annouced that over 110 million will be invested in the Government's new online safety regime, however, the Department will not bring forward additional money from the 5 billion allocated to Project Gigabit with the 1.2 billion (from 2021-22 to 2024-25) earmarked in the 2021 spending review making no advance on what was announced in the last spending round in 2020.
Department for Business, Energy and Industrial Strategy: to help address regional finance gaps, such as those highlighted in techUK's Local Digital Capital Index the government will build on its 484 million investment into the British Business Bank (BBB) and Help to Grow Schemes. This includes an additional 1.4 billion across the 2021 Spending Review period to further support small and medium sized enterprises (SMEs). This will be delivered through BBB programmes such as the Start-Up Loans scheme and the Regional Angels Programme.
The 2021 Spending Review 2021 will also provide additional funding to the BBB to set up new Regional Funds in Scotland and Wales, and to build on its existing programmes in Northern Ireland. The Spending review will also see a 1.4 billion Global Britain Investment Fund established to support investment in life sciences, offshore wind and the automotive manufacturing sectors.