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Brexit deregulation will make UK next Silicon Valley, vows Hunt

Chancellor vows to revolutionise how the IT industry is regulated to spur competition, investment and innovation in a technological ‘Big Bang’

Although overshadowed by global turmoil, climate breakdown and the growing cost-of-living crisis driving inflation to 7.4%, unemployment to 4.2% and GDP down 1.4% in 2023, according to the Office for Budget Responsibility (OBR), the 2022 Autumn Statement still contained plenty to interest technologists, particularly when it comes to driving investment and innovation.

Speaking in the House of Commons, chancellor of the exchequer Jeremy Hunt vowed to bolster the UK’s science and technology sectors, saying that the 21st century economy will be defined by “new developments in artificial intelligence [AI], quantum technology and robotics”, but argued that the country needs to get much better at turning its technical expertise and world-class innovative nous into world-beating companies.

“As a former entrepreneur, I want to combine our technology and science brilliance with our formidable financial services to turn Britain into the world’s next Silicon Valley,” said Hunt.

Referring back to his predecessor, Nigel Lawson, who held the office of chancellor under Margaret Thatcher in the 1980s and was instrumental in the so-called Big Bang regulatory reform of 1986, which spurred investment in the UK from all over the world, Hunt vowed to use the UK’s Brexit “freedoms” to spur development in tech.

“By the end of next year, we will decide and announce changes to EU regulations in our five growth industries: digital technology, life sciences, green industries, financial services and advanced manufacturing,” he said.

“And I have asked the chief scientific adviser, Sir Patrick Vallance, who did such a brilliant job in the pandemic, to lead new work on how we should change regulation to better support safe and fast introduction of new emerging technologies.

“The second lesson of Nigel Lawson’s Big Bang is that the most important driver of global success is not tax subsidies, but competition. So we will legislate to give the Digital Markets Unit new powers to challenge monopolies and increase the competitive pressure to innovate.”

Rashik Parmar, group chief executive of BCS, the Chartered Institute for IT, commented: “We welcome the government’s ambition to build on our global strengths in science, technology and innovation, transforming the UK into the next Silicon Valley. In delivering on this, we have an opportunity to embed ethics, professionalism and standards to “move fast and make things, not move fast and break things”.

Parmar said: “As we face immense economic challenges, it is essential the UK government continues to drive strategic investment in digital skills to future-proof and ‘level up’ our economy, public services and industries.

“With over 60,000 vacancies in the IT sector [ONS data] alone, any disinvestment in budgets for digital technology and skills will act as a brake on growth and ambitions. Our sector needs many more competent professionals from diverse backgrounds to drive the next wave of digitisation.

“The UK government’s Innovation Strategy made it clear that the benefits of a digital Britain must be enjoyed equally by citizens across every UK nation and region. Regional investment will help areas of the UK to ‘level up’ and close the digital divide – everyone deserves to have the essential digital skills to make sure they are not left behind in the digital age.”

Parmar added: “Investment in digital skills will benefit all sectors of the economy and improve the UK’s global competitiveness. Strategic investment is essential to creating a culture of responsible computing and innovation.”

R&D spend a critical part of strategy, but SMEs disappointed

In support of its innovation goals, Hunt said the government would increase spending on R&D to £20bn a year by the middle of the decade, up by one-third on 2021-22. As part of this, Innovate UK programmes were handed £2.6bn across the Spending Review period.

Hunt also confirmed that funding for the UK’s nine Catapults will increase by 35% compared to the last five-year cycle, a £1.6bn investment, and also committed to the Project Gigabit ultrafast broadband roll-out, maintaining the target of 85% coverage by 2025, previously set down by Rishi Sunak during his tenure as chancellor.

But there will be disappointment for some, as Hunt revealed the government will press ahead with reform to R&D tax reliefs with a view to making sure public money is spent more effectively. Citing “significant error and fraud” in the SME tax relief scheme due to its “generosity”, he said the government would look to rebalance the rates of the reliefs – drawing criticism from many.

Penny Simmons, legal director at law firm Pinsent Masons, said these changes would cost SMEs £4.5bn in lost benefits between now and 2027, and the overall cost to the economy would be even greater.

“Today’s changes to R&D tax credits will punish the UK’s most innovative startups,” she said. “It’s hugely disappointing to see the government cutting R&D tax credits for small businesses, which contribute so much to economic growth.

“R&D tax credits for SMEs, which can be claimed as a cash repayment, provide crucial cash injections for startups that often have limited access to alternative funding. By making R&D tax credits less generous for the UK’s most innovative small businesses, the government risks damaging the UK’s future growth prospects.”

Simmons added: “The proposed increase to the Research & Development Expenditure Credit will predominantly help larger businesses that already have far greater access to alternative financing for R&D projects.”

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