Rishi Sunak鈥檚 mini-Budget was delivered against the backdrop of war in Ukraine and a growing cost-of-living crisis, with inflation at 6.2% due to rising energy prices and fuel costs.
The Chancellor revealed plans to immediately cut fuel duty, announced a tax reform for research and development, increased the threshold for National Insurance and brought forward two planned business rates reliefs.
Yet in a stark departure from the rhetoric of recent months, there was no mention of ‘levelling up’ the country.
What did the technology sector and wider business community make of the government鈥檚 Spring Statement?聽
Levelling up?
The government has blown the trumpet of its ‘levelling up’ agenda for some time now – but there was no mention of it in today’s statement.
鈥淚nflation is impacting every household across the UK and if anything, the country is being levelled down, rather than up, with inequality continuing to grow,” said Jatin Ondhia, co-founder and CEO of Shojin Property Partners.
“Following the publication of the government鈥檚 levelling up whitepaper, why was there no update from the Chancellor on how this important agenda is progressing?”
Jamie Holmes, CEO at VU.CITY, also called for an update on this agenda.
“The cost-of-living crisis and the war in Ukraine have, understandably, meant that 鈥榣evelling up鈥� and planning reform have slipped down the priority list. However, it鈥檚 vital that the Chancellor demonstrates material support for 鈥榣evelling up鈥� between now and May when the Levelling Up Bill is expected to come into force,” he said.
鈥淔ull throated support from all government departments and the industry as a whole will be necessary to drive the Bill鈥檚 success and bring to life the change laid out in February鈥檚 whitepaper. Now is the time for action rather than rhetoric. The next step will be to properly set out how the government aims to 鈥榣evel up鈥� communities across the country.
鈥淲e know that driving digitisation by embracing the latest technology is vital to stimulate investment and development to close the gap between our cities and regions. Investing in tools and upskilling the planning industry with the right technology will be vital to ensure the agenda is a meaningful and long-lasting success.鈥�
R&D tax reform
It was recently announced that 拢39.8 billion would be made available for research and development as part of the government鈥檚 Innovation Strategy. Today tax cuts were announced for R&D, which will also be extended to data science and cloud computing from April 2023.
HM Treasury said this will allow companies to claim for costs related to the storage of vital data, supporting data-heavy research such as genomic sequencing, and also support nascent sectors such as artificial intelligence, quantum computing and robotics, as well as manufacturing and design.
In the Autumn Sunak will decide whether to make R&D credits – a government incentive designed to reward UK companies for investing in innovation – more generous.
鈥淎gainst a backdrop of global instability and rising inflation at home, the Chancellor鈥檚 Spring Statement offers some welcome measures for the UK software sector,鈥� said Civica CEO Wayne Story.
鈥�The decision to extend tax reliefs to all cloud computing costs associated with R&D will ensure the UK can build on its position as a global leader in science and technology. Coupled with this, I strongly welcome the Chancellor鈥檚 鈥業nnovation Challenge鈥� to crowdsource ideas for how central government can operate more effectively.
鈥淒igital technologies are already helping to transform public services from Whitehall to city hall, but there is still enormous untapped potential.鈥�
Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, commented: 鈥淎lthough we welcome the pledge to reform R&D tax reliefs, to keep up with rivals like Israel – where R&D spending is closer to 5% – the government must go further than its commitment to increasing total R&D investment to 2.4% of GDP by 2027.
鈥淗ere, the private sector, which historically has consistently underdelivered in leveraging R&D investment, must also be ready to step up and play its part.鈥�
Fuel duty
With the price of petrol and diesel continuing to spiral the headline news was that from 6pm today, fuel duty will be cut by 5% until March 2023.
鈥淭he Chancellor鈥檚 cut on fuel duty and a cash boost for the government’s existing Household Support Fund will help ease the pressure on households during this cost-of-living crisis,鈥� said Stephen Page of SFC Capital.
鈥淗owever, amid talk of the importance of innovation to economic recovery, he should have gone further in his support for startups, as the ramifications of inflation can be just as damaging for them as for individuals and households. He says he wants to 鈥榮peak to business鈥� but this is yet to happen in any meaningful way鈥� at least for early-stage businesses that are big drivers of growth.
鈥淪tartups are very different beasts these days, the market for investment has changed, and the funding cap of 拢150,000 for the Seed Enterprise Investment Scheme, set at its launch in 2012, is no longer a viable amount as that spending power has been eroded over the past 10 years.
鈥淚t simply does not provide a large enough runway at the early stage. I call on the Chancellor not to wait until the Autumn Budget to take action, and to increase this cap to 拢250,000 – at least – to offset the impact of inflation and to bring this fantastic scheme up to date.”
National Insurance changes
The government is raising the level at which people start to pay National Insurance contributions by 拢3,000. The limit will be set at 拢12,570 from July 2022, which it claims is an annual tax cut worth over 拢330 for a typical employee.聽
鈥淭he Spring Statement has gone some way to address the concerns of the UK鈥檚 5.6 million SMEs – but recovery for many will be extremely hard to navigate,鈥� said Jonathan Andrew, CEO of Bibby Financial Services.
鈥淚t is still the case, that while praised for being the beating heart of the economy, SMEs face being starved of the lifeblood they need to survive.聽
鈥淚n particular, National Insurance increases will come directly from the bottom line, and for many businesses this will be a step too far. And although a cut in fuel prices, and increase to Employment Allowances will provide some relief, this may not go far enough to offset other significant price hikes.
鈥淥ur customers, made up of 7,000 SMEs across the UK, tell us they are worried. Worried about going under at a time when we need small businesses to prosper. Amid a global pandemic, an international emergency in Ukraine, Brexit regulations and bureaucracy, SMEs are being forced to make tough decisions to survive.鈥�
Lorna Davidson, CEO of Redwigwam, said: 鈥淟ike a lot of business owners, I was waiting with bated breath for the Chancellor鈥檚 statement. Several of the measures announced demonstrate that he has listened to the concerns of businesses and workers and recognises the additional pressures caused by the Ukraine situation.
鈥淚 welcome the announcements regarding the cut in the basic rate of income tax to 19p in the pound and the equalising of the thresholds for National Insurance and income tax.”
Shojin Property Partners鈥� Ondhia added: 鈥淲hile the future reduction in income tax is welcome, the immediate increase in National Insurance will go ahead. Giveth with one hand and take away with the other! I applaud the help this will provide for lower earners, but this is another classic middle-class squeeze. Compounded with inflation, national wealth will continue to decline.聽聽
鈥淕iven the backdrop of Ukraine, inflation and growing inequality, now is the time to stimulate the economy through support for small and medium business, which in turn would create more jobs and improve productivity, increasing overall national wealth. 老九品茶es are facing pressures across the board. Rishi could and should have provided further support for business, but we got very little.
鈥淲hile the Chancellor is in a difficult position fiscally, today鈥檚 statement was a missed opportunity to prepare the UK for the tough times ahead.鈥澛�
Personal allowance income tax
Plans to freeze personal allowance income tax until 2026 were also announced by the Chancellor.
鈥淭his will have far-stretching repercussions that the government has simply not considered,鈥� said James Petter, general manager international at Pure Storage. 鈥淔reezing tax while income increases will create fiscal drag. What this means is that we will see higher earners being pulled into higher rates of tax while others at the lower end are taxed sooner.聽
鈥淯nnaturally forcing people into higher rates of tax will cause those individuals to go searching for more income. Add that to the higher rates of national insurance and inflation, and you鈥檝e got a complete package that will end in higher attrition further fuelling the great resignation.聽
鈥淐ombating the great resignation is not just about reducing inflation; the government needs to incentivise businesses to invest in young talent. Companies that incubate young talent not only have lower attrition rates, but they also secure their future. Introducing more apprenticeship schemes is one way to give these youngsters valuable first-hand experience that empowers them with relevant skills and knowledge, but there is so much more that can be done on a much broader scale.鈥澛�
鈥淭he government should be building tech hubs in all the major cities in the UK and investing serious money in rebranding the UK as a supportive environment for tech entrepreneurialism.鈥�
Green technology
The Chancellor said two new business rates reliefs will be brought forward by a year to come into effect in April 2022.
There will be no business rates due on a range of green technology used to decarbonise buildings, including solar panels and batteries, whilst eligible heat networks will also receive 100% relief.
The government says that together, these will save businesses more than 拢200m over the next five years.