As the country is gripped by growing concerns around coronavirus, Brexit, and the spectre of a recession, the new chancellor of the exchequer, Rishi Sunak, faced a challenging backdrop to announce his first budget today.
Compounding complications, the Bank of England announced an emergency 0.25% interest rate cut on the morning of the budget, as economists, business leaders, and politicians continue to grapple with the financial fallout of the ongoing public health crisis.
Here's what the government announced – and how it is set to impact the UK technology industry.
The headline announcement of the budget was around the coronavirus outbreak, and took the form of a three-point plan.
Sunak started by pledging that “whatever extra resources our NHS needs to cope with coronavirus it will get,” covering everything from vaccine research through to thousands of additional staff. “Whether it is millions or billions of pounds we stand behind our NHS,” he said.
Step two hinges on employees, with statutory sick pay to be granted from day one rather than the usual fourth day for anyone who is advised to self isolate, even if they are not presented with symptoms.
For self-employed and gig-economy workers, the government has pledged to allow anyone receiving the contributory employment and support allowance to be able to claim from the first day instead of day eight. The chancellor is also temporarily removing the minimum income floor for universal credit, and relaxing the requirement to physically visit a job centre to claim benefits – opening all claims to phone and online communications.
Additionally, the government announced a £500 million hardship fund for local authorities to support the most vulnerable people in their local area.
“During this immediate crisis if people fall ill we must support their finances and make sure our safety net remains strong enough to fall back on,” Sunak said.
The third point was aimed at businesses, with a promise to refund the cost of up to 14 days' statutory sick pay for employees who contract the virus at businesses with fewer than 250 employees, which allows most UK startups to qualify for this relief.
Sunak also said he has asked HMRC to scale up its time-to-pay service, and to defer tax payments over an agreed amount of time, with a 2,000-person dedicated helpline on hand to field queries.
The chancellor announced a government-backed Coronavirus Interruption Loan Scheme of up to £1.2 million per loan for SMEs from banks, guaranteeing against up to 80% of losses with no fees.
Business rates will also be abolished for the rest of the year for shops, cinemas, music venues and similar businesses with a rateable value of less than £51,000. For companies in the retail, leisure and hospitality sectors not covered by this, such as museums and guest houses, all business rates have also been abolished. In addition, any business eligible for small business rate relief is also eligible for a £3,000 cash grant.
The chancellor also pledged to launch a “fundamental review” into all business rates for the Autumn Budget.
Entrepreneurs’ Relief changes
Entrepreneurs' Relief was top of mind in the lead up to the budget, with the chancellor saying that although he was strongly advised to abolish the tax break altogether, he instead is acting on the advice of the Federation of Small Businesses and reducing the limit on lifetime gains from £10 million to £1 million, leaving "80% of small business owners unaffected”.
The chancellor says this will save the economy £6 billion over five years, which will flow back to business through three measures:
- A research and development expenditure credit increase from 12% to 13%
- Increasing the structures and building allowance from 2% to 3%
- Increasing employment allowance by a third, to £4,000
“We shouldn't discourage genuine entrepreneurs who benefit from that relief,” Sunak added.
Rachel Nutt, national head of tax at accounting firm MHA MacIntyre Hudson, said prior to the announcement: “The government should think carefully before changing such a key benefit for businesses.
"Despite commentary that Entrepreneurs’ Relief only benefits the rich, it is of great benefit to small entrepreneurial business owners, many of whom have risked their houses and personal savings to build their business.”
The chancellor made several pledges to boost funding for startups and scale-ups.
These included £130 million of new funding to extend startup loans, £200 million for the British Business Bank to invest in scale-ups, £200 million for life sciences, more funding for regional growth hubs and £5 billion of new export loans for business, as well as dedicated trade envoys representing the north, midlands, west of England and Wales.
Prior to the budget, the Treasury announced that it will triple the average net investment made over the last 40 years into rail and road, affordable housing, broadband, and research and development.
The last two are the most relevant areas for the technology industry, with Sunak announcing investment of £22 billion in R&D by 2024-25, a £4 billion increase from its manifesto pledge of £18 billion.
"That is the fastest and largest increase in R&D spend ever," said Sunak, adding that the percentage of GDP for research will be the "highest in 40 years" and a greater proportion than that of China, the USA, France, or Japan.
The science institute at Weybridge, which is currently analysing coronavirus samples, will receive £1.4 billion in extra funding, while nuclear fusion, space, and electric vehicles will together receive a boost to the tune of £900 million in new investment.
Advisor Dominic Cummings' plans for a British equivalent to the US-military backed ARPA research organisation were officially announced, with Sunak committing to £800 million in a "new blue-skies funding agency" that's "modelled on the extraordinary ARPA in the US".
And £400 million will be spent on "high-quality research" to incremental funding in universities throughout Britain rather than the traditionally better funded organisations in London and the south-east.
The increases in research funding may be cautiously welcomed by Britain's science and technology institutions, which had so far been rewarded 1,997 grants to the tune of €3.6 billion since 2007, and were left with unanswered questions about how this gap would be plugged post-Brexit.
Additionally, Sunak committed to more than doubling investment into the Energy Innovation Programme to £1 billion, to fund research into cleaner alternatives to fossil fuel. He also announced that red diesel tax relief would be abolished for the majority of sectors within two years' time – excluding agriculture.
And carbon capture and storage initiatives in Britain will receive investment of £800 million to establish "two or more carbon capture storage clusters" by 2030, which Sunak promised would lead to 6,000 high-skill, high-wage, low-carbon jobs throughout the country.
In line with its 2019 manifesto pledge to bring full-fibre broadband to every home and business by 2025, the chancellor announced a £5 billion investment in the nationwide high speed broadband rollout.
Any pledge regarding broadband from the Tory government must be taken with a pinch of salt. The Conservatives promised to provide superfast broadband coverage to 95 percent of the UK by the end of 2017 in its 2015 manifesto, a revision of their previous May 2015 deadline.
Shadow chancellor John McDonnell called the figures "exaggerated claims" when they were announced, adding that the Prime Minister “has a track record of boastful claims followed by non delivery and it looks like he is running true to form".
Other techy tidbits
The chancellor also made a National Skills Fund pledge of £2.5 billion to improve the technical skills of UK adults.
VAT will be scrapped for all digital publications, including digital versions of magazines and newspapers.
A Digital Services Tax of 2% on the revenues of search engines, social media services and online marketplaces which derive value from UK users, will be rolled out from 1 April.