BUDGET 2023: R&D, AI, tax relief, energy and skills loom large
15 Mar 2023
While the focus of news headlines has been on the plight of taxpayers and consumers, with child care and energy support looming large, Chancellor Jeremy Hunt’s Budget provided key initiatives for industry – and cash support to underwrite part of them.
Carbon capture and storage attracted £20 billion, with industries in the Liverpool region and Wales among the key beneficiaries. Meanwhile, nuclear power – seen as essential to the development of domestic energy – is reclassified as sustainable and thus eligible for environmental investment.
R&D, long seen as a driver for the UK economy, receives tax incentives and a so-called ‘AI sandbox’, emulating Silicon Valley with its focus on quantum physics and artificial intelligence, as well as a faster process for bringing innovative ideas to market.
Make UK chief executive Stephen Phipson maintained his stance of broadly welcoming Government initiatives seen as supporting manufacturing growth but had criticism too.
“Companies will be disappointed, however, that there is no extension of support for energy with the rapidly approaching cliff edge of the current scheme ending, while the planned changes to R&D tax credits remain and will be unwelcome for SMEs in particular as they are implemented in April,” he stated.
Equipping UK economy for the future could, Phipson insisted, only be done through building on the Chancellors’ five key areas of growth with a radical, ambitious modern industrial strategy and policy agenda that has science, technology and innovation at its heart.
“Industry will welcome his reference to ‘Industrial Strategy’ and stands ready to work with and, support him, to reshape our economy and boost growth.”
And, as the Chancellor’s Budget was announced, key industry bodies and commentators offered their pronouncement on its details:
R&D
Verity Davidge, Make UK Director of Policy:“While the Chancellor set out big and ambitious plans for AI and quantum, the focus on diffusion and adoption of digital adoption overall is lacking. R&D tax credit policy keeps chopping and changing and many businesses will struggle to keep up. Large swathes of small and medium sized manufacturers will find themselves out of pocket when the new changes come in in April this year and we were looking to the Chancellor to delay, or even better, reverse these changes to boost R&D across all of manufacturing.”
Karl Barnfather, partner and patent attorney at Withers & Rogers: “In addition to extending an enhanced tax credit for smaller, innovation-led businesses that are spending 40% of their total expenditure on R&D activities, the Chancellor has announced some exciting measures for sectors of the economy where there is significant growth potential.
“The new AI sandbox is a positive step that will help to secure Britain’s leading role in AI-enabled R&D programmes and support the development of new algorithms. The Chancellor also confirmed he is working closely with the UK Intellectual Property Office (UKIPO) to adapt IP rules to ensure that companies investing in AI-enabled R&D activity get what they need in terms of commercial protection for their innovations. Ultimately, this will help to maintain a healthy flow of investment into this dynamic area of scientific research.”
Chris Barlow, Partner at MHA: “Whilst companies which invest most heavily in R&D expenditure will be eligible for further relief the majority of SME’s will be disappointed that previously announced cuts will remain.
Kognitiv Spark CEO Yan Simard: “Using innovative technology such as mixed reality (MR) means retraining is now much less cumbersome on the individual as the time to competency is being significantly shortened via this approach. The common learning methodology of 70/20/10 indicates that 70% of the way humans learn best is through experiential learning (which is where MR provides the best solution), whereas only 20% is collaborative, and 10% is through formal retraining."
SKILLS & TRAINING
Engineering UK head of policy & public affairs Beatrice Barleon: “Measures on childcare as well as the focus on those over 50 will not, on their own, solve the wider skills and workforce shortages in the engineering and technology sector in the long-term. We urgently need greater investment in and focus on STEM education, STEM teachers, careers provision and vocational pathways for young people.”
TAX RELIEF
Gregory Taylor, MHA head of banking & finance: “As expected, the Chancellor announced a replacement for the Super Deduction, which concludes at the end of this month (March 2023). The successor is Full Capital Expensing which is a 100% tax relief on plant, machinery and IT equipment purchased after 1 April 2023.
“The problem is Full Capital Expensing isn’t funded after the next election. It’s only an aspiration to make it permanent, when conditions allow. We need to make Full Capital Expensing permanent for it to actually impact long-term growth. Investments are long-term decisions so you need long-term frameworks in place to permanently drive up investment. As capital expensing is just a temporary measure it doesn’t quite cut it.”
Chris Barlow, Partner, MHA: “The full expensing of IT, plant and machinery from taxable profits will provide welcome relief alongside the £1 million annual investment allowance to help manufacturers plan with some level of confidence for the first time in a while. The 6% rise in corporation tax … is a missed opportunity to release the tax burden felt by manufacturers. More importantly, the failure to reduce the tax does nothing to make the UK more attractive compared to our European counterparts.”
ENERGY SECURITY
Brigitte Amoruso, Make UK energy & climate change adviser, said: “The Chancellor’s focus on energy security with the extension of Climate Change Agreements, and prioritising of nuclear and SMRs is welcome. However, this does little to tackle the real and immediate threat manufacturers face with rocketing energy bills.
We now need to see further action from Government to turbo-charge industrial energy efficiency with competitive tax incentives and reliefs to invest in green technologies.”
James Earl, Energy Networks Association director: “Today’s clean energy funding represents a significant step forward for carbon capture and storage (CCS) in the UK. The support announced for the first tranche of projects will move CCS from ambition into action, starting the journey of creating the infrastructure that’s essential to the decarbonisation of the UK’s industrial clusters, which are fundamental both to our economy and to the UK meeting our net zero goals.
“This also represents a major milestone for the development of low carbon hydrogen in the UK. The first production sites will get the hydrogen economy up and running, providing clean energy to industrial sites and taking the first steps towards hydrogen becoming a real-life choice for consumers. It is important that we build on this platform now to accelerate the growth of hydrogen production, transport and storage infrastructure, as well as by setting out a process for the second tranche of CCS clusters as soon as possible."
Professor Joe Howe, chair, North West Hydrogen Alliance and executive director Thornton Research Institute at the University of Chester: “The commitment to investing billions in carbon capture and storage is hugely welcomed and will support the North West becoming the UK’s first hydrogen economy. With our long industrial heritage and highly skilled workforce we can drive the low carbon transition.
“However, to deliver at the pace required we need the Energy Bill to come forward to provide policy certainty and a national approach to net zero skills to ensure we can capitalise on the vast job opportunities on offer.”
