The Chancellor delivered a bigger budget than expected yesterday, which aims to ease uncertainty around the UK’s economy and provide some reassurance to entrepreneurs that the UK remains an attractive place to start and scale a business. He backed entrepreneurship and innovation and delivered a budget that ‘paves the way for a brighter future’ as the UK prepares to leave the EU.
Solving the UK’s productivity challenge
The Chancellor championed the importance of science and technology in solving the country’s productivity challenge. With a £1.6bn commitment to support the Industrial Strategy & R&D funding, technologies from AI, future manufacturing, nuclear fusion to quantum computing will be bolstered, ensuring that the UK remains at the forefront of new technological change. £115m was also extended for the Digital Catapult, another measure which encourages innovation.
Fellowships also received £150m to attract overseas talent, which is great news for research and science bodies looking to retain the best and brightest.
Taxing the tech giants
Arguably one of biggest measures announced was the new Digital Services Tax targeted at the big tech giants with the aim of generating £400m a year for public services, which is lower than recent estimates on how much this tax would generate.
The Chancellor was very clear that this would not impact smaller digital platforms and this would not be a tax on online sales, but he did not set out any details on how the tax would work in practice. All we know at this stage is it will be a narrow tax carefully designed for tech giants, which Treasury will be consulting on over the next few months.
Does this tax risk stifling entrepreneurialism and innovation?
Commenting on the new tax, Tech Nation CEO Gerard Grech said: “As more and more businesses digitise, the way we levy taxes on companies must evolve and the UK is well-placed, with the strongest tech sector in Europe, to be a leader in this area. However, today’s announcement by the Chancellor, Philip Hammond, of a 2% tax on revenues of multinational technology companies risks stifling entrepreneurialism and innovation, which recent governments have done much to encourage. We have heard assurances that the new tax, designed to raise more than £400m, will not be a crude digital sales tax and will not impact smaller digital platforms. But tech startups and entrepreneurs can be forgiven for feeling that they could still end up in the sights of future Chancellors. We do not want to risk being left behind in a global race by moving out of step with other countries in this area.”
Boosting business investment
Encouraging business and investment was a strong theme in the budget with the following announcements:
- Increasing annual investment allowance from £200,000 to £1 million over 2 years
- Increasing the UK Export Finance’s lending facility to stimulate investment and boost exports
- Extending the new enterprise allowance to help the support the unemployed back to work by helping them set up their own business
- Targeted relief for the cost of IP-rich acquisitions by UK companies
- Entrepreneurs relief’s minimum qualifying period will be extended from 12 months to 24 months.
- £900 million in business rates relief for small businesses
The Chancellor also announced a further £200m to the British Business Bank in order to replace any shortfall from EU funds.
Skills and training
Recognising that the apprenticeship levy may not have been fit for purpose for smaller firms, the Chancellor has announced that smaller firms will only need to contribute 5% instead of 10%.
The government also announced that it will work with employers to give workers the opportunity to upskill or retrain with £100 million being allocated for the first phase of the National Retraining Scheme.
In addition to sending a strong signal for tech businesses, the budget was ambitious when it comes to investing in public services and infrastructure. With £20.5bn for the NHS over the next 5 years, an increase in defence spending and investment in Universal Credit, this budget was a lot more substantial than was anticipated. There were also some changes to taxation with the Chancellor raising the rate at which people will start paying income tax from £11,800 to £12,500 and a higher rate income tax threshold, which will rise from £46,350 to £50,000
A few months away from leaving the EU, the Chancellor’s positive view on the UK’s economy is reassuring, however, we shouldn’t be complacent as a no deal scenario would mean the Chancellor would need to revisit his red book.