Hunt pledges to make UK ‘the world’s next Silicon Valley’ in Autumn Statement

Amid increases in windfall taxes and a new 45 per cent levy on low-carbon electricity generators, the chancellor in his highly anticipated Autumn Statement also laid out the government’s plan to protect the country’s research budget. 

Hunt’s Autumn Statement saw major tax changes for energy companies, fossil fuel providers and electric vehicles, as well as R&D projects, in order to facilitate the chancellor’s goal of combining “our technology and science brilliance with our formidable financial services”.

The 2017 Tory manifesto included a commitment to investing 2.4 per cent of the UK’s GDP in research and development (R&D) initiatives by 2027, increasing from the 2018 level of 1.7 per cent of GDP invested in R&D. 

However, the cost-of-living crisis and historic inflation levels had raised questions about whether the government would change this pledge in an effort to reduce spending, which the chancellor denied.  

“I have also heard some speculation that we might cut the research and development budget today. I believe that would be a profound mistake,” Hunt added as he presented the Statement to the House of Commons. 

“In our 2017 manifesto, we announced a target to invest 2.4 per cent of our GDP in R&D and the latest ONS data suggests the UK is close to meeting that target.

“I want to go further, so today I protect our entire research budget and confirm that we will increase public funding for R&D to £20bn by 2024-25 as part of our mission to make the United Kingdom a science superpower.”

As part of the government’s investment in R&D, the Chancellor announced his ambition to develop new regulations in five growth industries: digital technology, life sciences, green industries, financial services and advanced manufacturing. 

Currently, these industries are mostly regulated by EU laws. However, following the UK’s exit from the EU, the government has asked chief scientific adviser Sir Patrick Vallance to lead new work looking at how to “change regulation to better support safe and fast introduction of new emerging technologies”.

The government is expected to announce any proposed changes to existing regulations “by the end of next year”.

Hunt also reaffirmed the government’s commitment to bring forward legislation that would hand new powers to the Digital Market’s Unit (DMU) to tackle anti-competitive behaviour from tech giants and to protect consumer rights.

Conservative former prime minister Theresa May welcomed the commitment to “innovation and R&D”, but asked whether Hunt would look at the issue of R&D tax credits.

Previously, SMEs who are making a profit could previously claim tax relief on the full amount of their qualifying research and development activities, plus an additional 130 per cent. However, it was confirmed in the Autumn Budget today that this ‘deduction rate’ will decrease to 86 per cent from April 2023.

“I think there is more that can be done to boost our economy for the future,” May said. 

The chancellor replied by saying that the government was looking at the issue, and acknowledged that there has been “a certain amount of abuse” around R&D relief.

Mark Tighe, CEO of innovation funding specialist Catax, also criticised the changes to SME R&D tax relief. 

“The change announced to SME R&D tax relief lets smaller UK businesses down at a time when they need it most and it represents a spending cut that is just as harmful as cuts to public services in the long run,” he said. “The revenues generated by businesses claiming R&D tax credits are the same pounds that end up running our hospitals and our schools. 

“At a time when companies are still yet to see any kind of dividend from Brexit, greater innovation investment is what the UK needs if GDP is to grow. No government in their right mind should be ripping the carpet out from underneath those firms still willing to embark on these kinds of projects in the face of a long recession.”

Mark Evans, the founder of R&D Tax Claims, added: “Ridding the industry of advisers encouraging misuse of the system is imperative. But it’s a truly sad day for British enterprise if – by doing so – we financially disadvantage those businesses who are undertaking legitimate R&D and are advancing industry, pioneering new ideas and leading the way.”

In response to the announcements, Rashik Parmar, group chief executive of BCS, the chartered institute for IT, said the pledge was an opportunity to also futureproof the economy.

“We welcome the government’s ambition to build on our global strengths in science, technology and innovation, transforming the UK into the next Silicon Valley,” he said. “With over 60,000 vacancies in the IT sector alone, any disinvestment in budgets for digital technology and skills will act as a brake on growth and ambitions.

“Our sector needs many more competent professionals from diverse backgrounds to drive the next wave of digitisation.”

Greg Clark, the science and technology committee chair, said: “It is very welcome that the chancellor has reaffirmed the government’s commitment to invest £20bn a year in research and development by 2024–25.

“I am pleased the government continues to recognise that R&D is the long-term engine of growth and productivity and crucial to the UK’s future prosperity. The decision is a vote of confidence in UK science and innovation and should bolster our world-class institutions.”

“We now look forward to a period of stability and getting on with the important work which needs to be delivered across the UK.”