The government has delivered an expansive budget designed to fuel an investment-led economic recovery. But what will this ambitious plan mean for Britain’s innovators, in whom the Chancellor has entrusted so much of the country’s long-term prosperity?
Twelve long months ago, freshman Chancellor Rishi Sunak delivered one of the most important budgets in modern memory.
The UK was racing towards a once-in-a-generation crisis, and persistent uncertainties around Brexit were wreaking havoc for companies and consumers alike.
One year on, Sunak returned to the dispatch box with the country at another critical juncture.
While the successful vaccine rollout will see the economy gradually reopen, Britain’s businesses and finances remain fragile.
The corporate community and society at large called for policies that could help companies back to their feet while protecting livelihoods from the lasting effects of social restrictions.
Thankfully, this is the budget we received. For the most part.
Investment-led recovery
In yesterday’s announcement, the Chancellor unveiled plans for an ambitious, investment-led recovery. One that would be fueled by Britain’s high-growth startups and scaleups, which the treasury rightly commended for their innovation, job creation and prolific economic output.
The budget will empower these businesses with a suite of initiatives designed to provide inexpensive capital, promote investment and supercharge innovation. At the same time, vital safeguards like the furlough scheme have been extended, providing extra buoyancy to faltering firms.
We applaud these initiatives and the chancellor’s faith in the UK’s startup ecosystem, which has demonstrated characteristic robustness and determination during this difficult time.
Still, we believe the government could have done more to help Britain’s SMEs, which have borne the brunt of the largest-ever peacetime contraction. Increasing broad-spectrum tax reliefs like the SME R&D Tax Relief scheme and expanding private equity incentives like the VCT scheme, are just two of the tools the government decided to forgo.
Nevertheless, the Budget 2021 is packed with exciting policy, much of which will benefit Britain’s innovators.
Here are the most significant points from yesterday’s announcement and what they mean for your businesses.
Furlough Scheme Extended
The government is extending the widely popular Coronavirus Job Retention Scheme – AKA Furlough scheme – until the end of September.
The treasury will continue to provide 80% of salaries for furloughed workers, up to a monthly cap of £2,500, until 30 June. It will then ask employers to contribute 10% of wages in July, and 20% in August and September.
The furlough scheme extension will be a huge relief to thousands of companies that rely on the CJRS to retain talent while reducing their personnel costs to sustainable levels.
While the vaccine rollout is going exceedingly well, we have a long way to go before the economy recovers to pre-pandemic levels. It is vital that the government expands or replaces schemes like the CJRS to keep otherwise viable businesses afloat.
Recovery Loan Scheme
Speaking of business support, the treasury is launching the Recovery Loan Scheme, which will provide 80% guarantees on loans and other funding facilities worth between £25,000 and £10 million.
Recovery Loans will be open to businesses of any size, including those that have already financing from the Bounce Back, CBIL or CLBIL schemes. The programme will go live on 6 April and stay open until 31 December.
The Recovery Loan Scheme is also extremely welcome news. With applications for the three major Coronavirus loan schemes closing at the end of this month, many businesses were concerned that they would be cut off from essential sources of capital. As we wrote in our analysis of how the pandemic has reshaped the funding landscape, Bounce Back Loans have proven particularly useful for startups.
Recovery Loans will help to fill this financial void, providing more liquidity to startups and scaleups as they look to surge back from a dour 12 months.
Future Fund: Breakthrough
It seems the government has developed a taste for investing in tech companies.
Following the largely successful Future Fund, which delivered more than £1 billion to nearly 1,200 ailing innovators, the exchequer is launching the new Future Fund: Breakthrough, a comparable scheme that will once again see the treasury taking equity in high-growth, R&D-intensive companies.
Through British Patient Capital, a subsidiary of the British Business Bank and the UK’s largest domestic investor, the treasury will participate in investment rounds worth over £30 million and provide up to 30% of the required capital, with the remainder coming from traditional equity investors.
This means that Breakthrough’s funding will be going to mature scaleups with lofty development plans, rather than startups in need of working capital. Breakthrough will also favour companies that align with the government’s long-term goals, such as carbon neutrality by 2050 and advancements in AI.
While Future Fund: Breakthrough will be more particular in its support than some of the other schemes in yesterday’s announcement, the government’s continued appetite for investment augurs well for UK innovators.
Super-Deduction Tax Incentive
A ‘Super-Deduction Tax Incentive’ will offer a 130% tax relief on qualifying capital investments, like plant equipment and machinery.
This relief will effectively cut corporation tax by as much as 25p per £1 of eligible expenditure. According to treasury projections, this relief could simulate as much as £20 billion in extra investment over the next year.
The Super-Deduction will especially benefit capital intensive industries like manufacturing and engineering, which account for the lion’s share of Britain’s R&D investment.
While the deduction will undoubtedly help manufacturers ramp up production as the economy recovers, we feel it would have been more prudent for the government to offer relief to a wider range of innovators and investments. By expanding the R&D Tax Credits scheme, for example.
However, there was some good news on the R&D Tax Credit front. The government announced it would consider making cloud and data costs eligible for R&D Tax Relief.
GrantTree has long supported this change. For many businesses, cloud and data investments are vital and expensive components of their research and development work. It is only right that they should qualify for a scheme that rewards R&D investment.
High-Skilled Visas
The government is launching and modernising a range of high-skilled visas that will help UK startups and scaleups attract top global talent.
An elite, points-based visa will allow recruits with job offers from a ‘recognised scaleup’ to acquire a fast-track visa.
The government is also promising to offer practical support for companies applying for a visa for the first time and a reform to the Global Talent Visa that would allow international prize holders, and winners of scholarships and “programmes for early promise”, to qualify automatically.
Streamlined and accessible talent visas are crucial to the UK’s international competitiveness and primacy as a global centre for ideas and innovation. We will have to see how well these visas take before we can truly judge them. But at first glance, these new documents seem a helpful tonic to the labour disruption caused by Brexit.
Help to Grow
Lastly, the government has announced two ‘Help to Grow’ schemes that will boost SMEs’ digital and management capabilities.
Help to Grow: Digital will offer sizable discounts on approved productivity software, while Help to Grow: Management will provide 300,000 companies with heavily subsidised training on management skills.
Both schemes seem like sensible solutions to an apparent lack of tools and training in the startup ecosystem. But again, we will have to see how this policy unfolds and how popular it proves with the business community.
Stay up to date
That’s it for our day-one analysis of what the budget means for UK innovators.
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