Budgets, being as much about politics as they are about the nation’s finances, are always contentious. Rachel Reeves’ first budget, and the first Labour budget since 2010, has certainly not been an exception, with criticism from both the left and right of politics. But what has the tech sector’s response been?
The UK government has, for decades, sought to highlight its tech credentials, highlighting the sector as the key to economic growth. Unfortunately, the tech sector response to this budget suggests the Chancellor is not off to a good start.
While there was a cautious welcome to some announcements, other parts of the budget have sparked fears that the UK may lose its competitive edge.
The tax impact on UK entrepreneurs
The tech sector, of course, shares many of the concerns any business will have. But some of the more general changes to taxation raised concerns about impacts that would particularly impact tech startups.
Although the increase in Capital Gains Tax was not as high as many feared, the accompanying tightening of Business Asset Disposal Relief, has led to concern of a troubling trend that sees businesses in a pincer. It might especially affect tech businesses, which often include stock options as part of their compensation packages.
Jack Land, Head of UK Growth at MetaWealth, commented, “this increase in Capital Gains Tax and reduction in Business Asset Disposal Relief sends a concerning message to UK innovators and investors.” He continued, “entrepreneurs drive the UK’s economic growth by taking risks to build businesses and create jobs. With these changes, they’re now facing diminished rewards, making the UK less competitive compared to tax and innovation-friendly global hubs.”
The sentiment was echoed by Philip Salter, Founder of The Entrepreneurs Network. “Britain will become an increasingly unattractive place to both start and exit a company.”
The Entrepreneurs Network’s Research Director, Eamonn Ives, also highlighted the impact that increased employer National Insurance Contributions will have. Expected to raise £25 billion a year, the increase will impact employer on-costs. However, he suggested employers might not be the one paying the price. “While it is true that it is employers who will bear the ‘legal incidence’ of the tax rise, economic evidence makes clear that increases like this are ultimately factored into lower wages for workers,” he said.
Supporting innovative entrepreneurs
Announcements about supporting innovation were, however, received more positively. Important for fostering long-term growth, the tech sector often needs support as it develops new solutions to the world’s problems.
“We are glad to see the government funding the types of new technologies that will be essential components of a broader strategy to tackle the climate crisis,” said Nicholas Chadwick, co-founder and CEO of Mission Zero Technologies. “This funding announcement, and the subsequent private investment it brings will support the jobs and skills vital to a future green economy.”
Ryta Zasiekina, Co-Founder of Fintech Company CONCRYT, commented on previous Chancellor Jeremy Hunt’s comment that the UK was on track to be the ‘next Silicon Valley’. However, she feels the current Chancellor has not paid attention to industry concerns. “Despite investment in technology and fintech, the UK continues to face barriers that hinder its ability to compete with global innovation hubs,” she said. “For the UK to become the next tech superpower, we need to see investment in the infrastructure required to support industry growth.”
Positive commitments, although more is needed
There was also some cautious positivity about some underlying themes in the budget.
One such area was the need to balance economic growth with sustainability. The confirmation of £22 billion funding for two carbon capture projects was welcomed, but Mission Zero Technologies’ Chadwick warned this was not enough. “CCS is not a silver bullet. Unless this comes as one part of a much broader move to transition away from fossil fuels completely, as well as tackling other sources of emissions, we risk extending the useful life of what are essentially second-rate industrial solutions,” he said. “We need the moonshot technologies alongside the obvious, easy wins which should be the foundation to British climate and sustainability policy — such as insulating our old and inefficient housing stock.”
The acknowledgement of the importance of data innovation was also welcomed, with the government’s commitment to open data schemes opening the way to a smart data economy.
Marion King, Chair and Trustee of Open Banking Ltd, said, “we are encouraged to see the importance of data threaded throughout the Budget, with SME access to finance, an open data scheme for road fuel prices, and the reaffirmed role of DSIT as the digital centre of government.”
Will the budget fuel economic growth?
The Labour government has been clear they feel they inherited a dire situation, and that, as they term it, ‘fixing the foundations’ would not be a painless process
However, the response from the tech sector suggests that while this budget might have some positives, it also carries the risk of disincentivising the very people they are relying on to create economic growth. While policies to support the tech sector are welcome, they are worthless if the UK is no longer considered business friendly. As Richard Mabey, CEO and Co-Founder at Juro, commented, “the Budget contained little good news for the tech sector, right at a time when the Government tries to position itself as an internationally competitive hub for talent in AI.”
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