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Budget 2017: IT skills, 5G, broadband, and R&D receive funding boost

Chancellor of the exchequer Philip Hammond targeted improvements in innovation, connectivity and education in his latest financial update

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Chancellor of the exchequer Philip Hammond has announced the 2017 Budget, with a range of measures likely to affect individuals and companies in the technology sector.

Hammond said he wants to “enhance the UK’s position as a world leader in science and innovation”, and revealed measures intended to improve the UK’s standing in technical skills and research and development (R&D). He also allocated funding for 5G mobile networks and full-fibre broadband roll-out.

“The only sustainable way to raise living standards is to improve our productivity growth. Simply put, higher productivity means higher pay. The stats are well known. We are 35% behind Germany and 18% behind the G7 average. And the gap is not closing,” he said.

“Investment in training and infrastructure will start to close this gap, and this government places addressing the UK’s productivity challenge at the very heart of its economic plan.”

The highlights of the chancellor’s 2017 Budget, as they affect the IT sector, are as follows:

Education and skills

The government will introduce a new qualification for technical education, called T-levels. Hammond said the aim is to overcome “a lingering doubt about the parity of esteem attaching to technical education pursued through the further education route”.

This will see an increase in the number of hours of training for 16-19-year-olds on technical courses by more than 50%, to over 900 hours a year on average, including the completion of a high-quality industry work placement during the programme. The measures will be introduced from 2019, with over £500m of additional funding to be invested per year.

“Students need a much clearer system of qualifications – one that is designed and recognised by employers with clear routes into work, more time in the classroom, and good quality work placements; one that replaces the 13,000 or so, different qualifications, with just 15 clear, career-focused routes. We will invest to deliver, in full, these game-changing reforms,” said Hammond.

In addition, to encourage students to continue their training at “high-quality institutions” such as the new £170m institutes of technology proposed as part of the government’s industrial strategy announced in January 2017.

Digital infrastructure

In his autumn statement last year, Hammond announced a £23bn national productivity investment fund (NPIF), and during the budget, he allocated £740m of that money towards improvements to the UK’s digital infrastructure by 2020-21. The money is intended to “to support the next generation of fast and reliable mobile and broadband communications for consumers and businesses”.

To speed up the roll-out of fibre to the premise (FTTP) – what the government calls “full-fibre” – broadband networks, £200m will go towards local projects that will test ways of accelerating delivery of superfast connectivity.

The funds are downpayment from the £740m previously announced in the autumn statement for improvements to digital networks, but separate to the £400m Digital Infrastructure Investment Fund which was announced at the same time to support financing for alternative network providers.

Likely areas for the £200m spending include aggregating local demand from the public sector – schools, hospitals, councils, libraries and so on – to make fibre roll-out more cost-effective; offering vouchers for business that want full-fibre connections, resurrecting a previous scheme used to stimulate demand from small business and opening up publicly owned assets such as underground ducts that can be used to lay fibre cables.

The government has also published a new 5G strategy, which aims to “set out steps for the UK to become a world leader in the next wave of mobile technology and services”.

As part of this, £16m will go to creating a National 5G Innovation Network to trial and demonstrate 5G applications. Further work will also look at commercial options for improving mobile coverage on roads and rail, and working with Ofcom to ensure the UK has a suitable regulatory environment for 5G.

The government will also introduce VAT on mobile roaming charges outside the EU.

Research and innovation

The previously announced Industrial Strategy Challenge Fund (ISCF) will invest an initial £270m in 2017-18 on projects to speed up development of “disruptive technologies that have the potential to transform the UK economy”.

The first initiatives will target electric vehicle batteries, artificial intelligence and robotics, driverless vehicles, and new manufacturing technologies for medicines.

Some £250m from the NPIF will go towards improving the UK’s research skills base, with £90m allocated to provide an additional 1,000 PhD places, of which 85% will be in Stem (science, technology, engineering, mathematics) subjects. A further £160m will support new research fellowships.

The government will invest over £100m over the next four years to attract overseas research expertise, with £50m for fellowship programmes to attract global talent, and a further £50m from specifically to target researchers from emerging research centres such as India, China, Brazil and Mexico.

To support business innovation, the government will look to reduce the administrative burden around claiming R&D tax credits.

Self-employed IT contractors

Self-employed IT professionals, or those who set up personal service companies through which they sell their time as contractors or interim IT executives, will be hit by changes to national insurance contributions (NICs).

Hammond said that from April 2018, when the Class 2 NIC is abolished, the main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019.

IT contractors who work in the public sector already face a potential tax increase from changes to the IR35 scheme that come into place in April this year.

Other areas

A forthcoming green paper will examine a number of areas where markets are not working efficiently or fairly. Among the likely areas to be considered are terms and conditions of contracts, which could have a significant effect on internet and mobile companies, which have faced criticism over the complex, lengthy and difficult to understand conditions they expect customers to sign up to.

A review of the business rates regime will also look to “find a better way of taxing the digital part of the economy”, said Hammond. This will affect firms such as Amazon, Google and eBay, which compete with high-street retailers but don’t have to pay the business rates associated with owning bricks-and-mortar stores.

Following criticism from small businesses and MPs, HM Revenue & Customs’ Making Tax Digital programme will be amended so firms that fall below the threshold for paying VAT will have an extra year, until 2019, to prepare for a new regime that requires quarterly instead of annual reporting of their accounts.

Industry reaction

Louise Haigh, Labour's shadow minister for the digital economy, said she was disappointed at the limited scope of the chancellor's announcements.

“The announcements in today’s budget do not even come close to matching the ambitions of the digital sector or the expectations of consumers," she said.

"Many will raise a wry smile that the government are looking towards a limited roll-out of fibre broadband, which they are now announcing for the fifth time and benefitting a precious few, when the protracted patchy roll-out of both 4G and superfast rumbles on without an end in sight," added Haigh.

"Millions are being left behind for years on end and the government has today accepted that other countries will have an inbuilt advantage in the development of 5G. That advantage has only been caused because a lack of vision from our government has left our digital infrastructure in the slow-lane. It will require serious ambition for us to catch-up and today’s budget doesn’t even come close."

IT industry bodies also offered their responses to the 2017 Budget:

“Today’s Budget will provide tech companies with reassurance that the chancellor understands that their success is critical for a truly global Britain,” said Charlotte Holloway, policy director at technology trade association TechUK.

“There were a number of welcome new funding announcements to ensure Britain is at the forefront of the global technology revolution. The chancellor deserves particular praise for his efforts to create a culture of retraining in the UK. The new £40m for the Department for Education for lifelong learning pilots will help the UK’s workers retrain for the jobs of the future. The UK has long had a chronic problem developing home-grown experts in Stem subjects, so the £300m for 1,000 new PhDs and fellowships is vitally important,” she said.

Addressing the tax increases for the self-employed, Chris Bryce, chief executive at the Association of Independent Professionals and the Self Employed, said: “If you are one of the hardworking self-employed people who face a significant increase on your tax bill, you might feel that the chancellor has it in for you. When you look at the additional support offered for business rates, it appears as if the chancellor is supporting SMEs by hitting entrepreneurs and the smallest of businesses.”

Charles Senabulya, UK & Ireland vice-president at software supplier SAS, welcomed moves to boost tech skills and training.

“The chancellor has made it very clear with today’s Budget that education, infrastructure and industry are the foundations on which UK economic growth will be built as we head towards 2020,” he said.

“To boost regional development and productivity, investment in skills and training is essential. With many businesses crying out for qualified staff, addressing the UK’s well-documented skills gap remains one of the largest obstacles to overcome. We must do more to support the national workforce in unlocking its own potential.”

Read more about government digital policy

Dan Adams, lead UK partner for telecommunications at Deloitte, highlighted the importance of investment in 5G mobile networking.

“5G technology will cost billions of pounds to develop, and will create tens of billions of pounds for the UK economy. A small investment now can go a long way to positioning the UK at the very centre of global 5G investment,” he said.

“With each wave of technology, new and immediately essential services for productivity and entertainment are created. 5G is an amazing technology that will put the UK at the front of the race to the digital future.” 

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