What does Jeremy Hunt’s “budget for growth” mean for tech and life sciences investors?

Jeremy Hunt, the UK’s Chancellor of the Exchequer, has released a “Budget for growth”. The political messaging continues Rishi Sunak’s push for the UK to be seen as a “science superpower”. 

Amid the rhetoric there are some announcements that investors in UK tech and life sciences companies should be aware of. In his speech, the Chancellor sought to specifically highlight the UK as an ideal destination for investment and the strength of the UK in tech and life sciences.

Tax on capital investment

The Government will go ahead with its planned rise in corporation tax from 19% to 25% from April 2023. However, the Government is still trying to strike a pro-investment tone by promising a full expensing for capital investment on plant and machinery, with the aim of encouraging further inbound investment.

R&D tax credit

As we recently noted, the Government has been undertaking a consultation on changing the UK R&D tax credits regime, principally by consolidating the two different forms of credit currently available for SMEs and larger companies into a single R&D tax credit. This consultation follows cuts to the more generous SME tax credit announced last year to more closely align the rates of the two credits, which have attracted criticism particularly from the life sciences industry.

Perhaps in response to this feedback, the Chancellor has now announced a partial reversal of these cuts in the form of an enhanced credit for loss-making R&D intensive SMEs, specifically calling out life sciences companies as the intended beneficiaries. 

Under the terms of the new policy, eligible SMEs will be able to claim an enhanced credit (including by way of a cash tax credit) if they spend 40% or more of their total expenditure on research and development. This is welcome support for the UK life sciences industry, and the changes will take effect from 1 April 2023 (with eligible companies able to claim once legislation is put in place).

Following closure of the initial consultation on a merged scheme on Monday 13 March, the Government has also provided an update on the process of these reforms. It intends to keep open the option of implementing a merged scheme from April 2024, and will publish draft legislation for technical consultation this summer alongside a summary of responses to the first consultation. HMRC will also provide the Public Accounts Committee with a more accurate estimate of the error and fraud encountered operating the R&D scheme by summer 2023, accompanied by an action plan to combat error and fraud in future.

MHRA reform

Although the Budget is primarily a fiscal event, the Chancellor took the opportunity to announce two changes to the UK’s medicines regulations. Again, the intended goal of these changes is to make the UK a more competitive destination for life sciences innovation.

• First was an announcement that the Medicines and Healthcare products Regulatory Agency (MHRA) is exploring partnerships with trusted countries such as the US, Europe and Japan to ensure more rapid cross-jurisdictional approvals from 2024.
• Second was a promise that the MHRA will have a swift approval process from 2024 for the most impactful new medicines and technologies. The specific details of these policies is still to be provided.

Artificial intelligence 

Arguably no trend in technology has captured the public and business consciousness in recent months like artificial intelligence, but uneven and fast-moving approaches to AI regulation in the EU, UK and US make this a particularly challenging area for policymakers and businesses alike.

Unsurprisingly, the Government is looking to ride the AI wave – and the Budget seeks to address the UK’s perceived poor standing internationally when it comes to computing power. In doing so, the Government will:

• Invest around £900 million to establish a new AI Research Resource and exascale supercomputer.
• Spend £2.5 billion over ten years to ensure that the UK is a world-leading venue for quantum science and engineering.
• Award a £1 million prize every year for the next decade to researchers that are driving progress in AI.

(For those interested in artificial intelligence issues as they apply to the recruitment and retention of employees, Edward Machin will be moderating a panel on AI in the workplace at the Privacy + Security Forum in Washington DC on 11 May.)

Incentivising early-stage investment

One proposal that had been trailed in last week’s science framework (and builds on recent calls by the new Lord Mayor), were reforms to the rules governing defined contribution pension funds. The expectation had been changes to make it easier to allow them to invest into the most innovative companies, for example through venture capital funds.

However, the budget did not contain any specific announcement on this changes. Instead, this remains under review with an announcement now expected in the autumn statement, together with plans to make the UK public markets more attractive as a place to list.

Conclusion

Whether these measures will be enough to boost the UK’s productivity and growth problem remains to be seen. However, this week’s budget represents a clear attempt to put the UK’s science and technology sector at the heart of the Government’s growth strategy.