It was an eventful 2018 Budget announcement. Chancellor Philip Hammond pledged to crack down on web giants, extra funding for Universal Credit, rolling out IR35 to the private sector and huge amounts of tech funding.
It was a tech-laden Budget announcement that promised the end of austerity is within our grasp, but what does this mean for the UK technology industry, and what happens if the UK leaves the EU without a deal?
One of the biggest financial announcements in the budget for technology was the £1.6bn the government is pumping into new technologies and innovation. In other words, this is part of the government’s increased investment in research and development (R&D). The government has currently set a target of 2.4% of GDP spend on R&D, which currently sits at 1.7%, and the funding is expected to help it reach its target.
According to the budget book, the funding will go on artificial intelligence (AI), quantum computing, future manufacturing and nuclear fusion, and most of it is coming from the Industrial Strategy Challenge Fund.
“As part of this investment in R&D, the government will increase the Industrial Strategy Challenge Fund by £1.1bn,” the budget book said.
On AI, the budget sets out the next steps for the new Office for AI and the Government Digital Service (GDS), which will review “how government can use AI, automation and data in new ways to drive public sector productivity and wider economic benefits”. Notably, this is the only mention of GDS in the entire 106-page budget book, despite GDS leading on digital services in government.
For industry, which is ramping up its work on AI and emerging technologies, the funding is good news and will drive the tech economy forward. Lewis McLean, a machine learning software engineer at Secureworks, said the funding is proof the government wants to be a world leader in emerging technologies.
However, he added that more needs to be done on skills.
“Investing in AI and developing new technologies should go hand in hand with narrowing the technology skills gap in the UK, as well as strengthening the UK’s cyber security capability to face the security challenges which accompany emerging digital technologies,” he said.
There is skills investment in the budget too, although it hasn’t been Hammond’s main focus. There will be £150m available to attract international talent through fellowship schemes, and small skills pilots will be taking place in Manchester.
“This investment in expertise is key – AI innovations call for a wide range of talent, and the UK Government must recognise it is people who will work alongside these emerging technologies. By focusing on the partnership between humans and technologies, and narrowing the technology skills gap, the UK can confidently work towards becoming a leader in science and innovation,” said Lewis.
It’s not all good news for industry, though – particularly not for those big, American internet companies. Hammond is slamming a 2% tax on web giants with revenue of more than £500m.
IR35 and Brexit
Another bit of controversial news was Hammond’s confirmation that the much-debated IR35 regulations will be rolled out to the private sector in April 2019.
This is despite warnings from the Association of Independent Professionals and the Self-Employed (IPSE) in August that the government risks destabilising the “fragile” UK economy even further if it presses ahead with using the IR35 regulations to curtail tax avoidance in the private sector, as the prospect of No Deal Brexit continues to loom large.
Of course, the topic of Brexit was skillfully skirted around by Hammond during his budget speech, but ahead of the budget, he warned that should the UK leave the EU without a deal, that end of austerity the country has been promised is a long way away.
Liberal Democrat spokesperson Tom Brake called it a “fingers-crossed Budget” that's predicated on " the Tories’ hopes that despite the mess they are making of Brexit the economy won’t suffer too severely".
Read more about the 2018 Budget
- The tech industry is not impressed with the chancellor’s plan to tax web giants, saying it can stifle innovation, while tax lawyers warn that it is a very risky move that could lead to US retaliation.
- The 2018 Budget promises £1.6bn to fund “advanced technologies” such as artificial intelligence and quantum computing, £200m for rural broadband and £150m for tech fellowships, along with plans to impose a digital services tax for web giants.
He’s not the only one concerned about a potential No Deal Brexit. Should the country leave without a deal, most of the announcements made in the budget will likely be null and void, as the funding would be desperately needed elsewhere.
Richard Green, CEO and founder of online event promotion platform Evvnt, said the government’s “somewhat muddled approach to Brexit has left many businesses in the dark, and this Budget fell short of providing the clarity entrepreneurs and SMEs were hoping for”.
“The reality is that any initiatives the Conservatives have in the pipeline all hang in the balance of Brexit, and come 29 March 2019, the government could be forced to deliver a new budget that retracts many of these proposed reforms,” he said.
“While Number 10 has tried to suggest this will not be the case, it is clearly very difficult to properly forecast how Brexit will affect the private sector once the UK leaves and the sense remains that we are merely treading water until that time.”
The government is also pumping an extra £1bn into its controversial Universal Credit programme. The scheme to introduce a fully digital service for claimants, replacing six different in-work welfare benefits with a single payment, has suffered significant delays and technology issues. Earlier this year, a National Audit Office (NAO) report found it may end up costing more than the benefits system it’s aiming to replace.
It has caused uproar among politicians, campaigners and welfare organisations, but according to Hammond, it’s a long overdue and necessary reform.
Unfortunately, the Office for Budget Responsibility (OBR) isn’t entirely sure it’s delivering the financial benefits it’s meant to.
On a pre-measures basis, the costs of Universal Credit “is now projected to be more expensive than the legacy system would have been from 2019-20 to 2022- 23”, the OBR said, adding that this is a big change to its March forecast, which predicted a net saving.
One of the reasons for the changes is that what was previously based on assumption can now be tested against real data related to Universal Credit cases.
The SNP’s Ian Blackford called the extra Universal Credit funding a “sticking plaster”, while the Directory of Social Change’s director of policy and research, Jay Kennedy, said the government’s claim of the end of austerity “rings hollow”.
One thing’s for sure: whether or not the promises in the Budget will come to fruition very much depends on the outcome of the EU negotiations.
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