On 23 March 2022, the Chancellor of the Exchequer Rishi Sunak delivered the United Kingdom’s 2022 Spring Statement. Sunak set up the ‘mini budget’ as a response to growing inflation amid the Ukraine conflict, repairing the public finances after COVID as well as positioning himself as the ‘low tax’ chancellor ahead of the next general election.
Sunak’s chosen themes were ‘people, innovation and capital’. For our clients: the tech sector saw little new funding. However, changes to National Insurance thresholds will partially offset the increase announced in the budget, which will mitigate the impact on payroll costs. Reducing taxes on green technologies will also be welcome for companies following through on their COP-26 commitments. However, rising inflation and the conflict in Ukraine remain significant headwinds on UK economic growth and few expect the Spring Statement to move the needle significantly.
Amid the various issues covered in the Spring Statement, those which will lead to the most implications for the tech sector are:
- Cloud Computing: The Statement highlighted that Research and Development (R&D) tax reliefs would be reformed to include some cloud and data costs, and support will be refocused on R&D carried out in the UK. The government confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. This will lead to an extension of data science and cloud computing.
- Support for Businesses and SMEs: The government highlighted its existing scheme to help firms to adopt new digital technologies, with Help to Grow: Digital. Under the scheme, eligible SMEs will be granted a 50% discount on approved software worth up to GBP 5,000.
- Skills and Training: The government have committed to creating 1000 new artificial intelligence (AI) PhDs in a push to increase AI research.
- Green technologies: A Court of Justice of the European Union ruling that restricted the application of VAT relief on the installation of Energy Saving Materials (ESMs) will be reversed. The relief will be increased by introducing a time-limited zero rate for the installation of ESMs. These changes will take effect from April 2022.
- Taxation: The ‘super-deduction’ was a tax incentive introduced in the March 2021 Budget that allows companies to cut their tax bill by up to 25p for every GBP 1 they invest. The scheme will run out in April 2023 and the Treasury is aiming to work with business to identify a replacement, having resisted calls to make the deduction permanent.
What was Missing?
Given the challenges that the chancellor faces, some experts suggest that Spring Statement 2022, while heavy in its tax cuts, did not go far enough in setting out provisions to deal with the cost-of-living crisis. Living standards are therefore set for a “historic fall”, according to the official economic watchdog, the Office of Budget Responsibility (OBR).
Further, the Spring Statement omitted any mention of the space sector. This is not consistent with the UK’s plan to strengthen the country’s status as a world class space nation. As a vital part of the UK economy (worth over GBP 16 billion per year), it is surprising that the sector does not feature in the budget.
Sunak’s room for manoeuvre may well diminish between now and autumn if tax receipt projections are hampered by a more tumultuous world economy. Still, this is unlikely to garner any sympathy from voters, or his Cabinet colleagues whose “levelling up” pledges now need to keep up with inflation. Business is likely to continue to press Sunak for greater reliefs for R&D and support for rising energy costs themselves, especially for strategically important manufacturing.
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