Kwasi Kwarteng “won’t apologise” for focusing on growth, but tech sector stakeholders still only gave his mini-budget a cautious welcome while some lamented that it included “precious little” to protect small businesses.
The new chancellor of the Exchequer has had two tough first weeks on the job. First he came under fire after a video emerged of him appearing to laugh during the Queen’s funeral. Then he had to deal with the sorry state of the country’s financial affairs following Covid-19, Brexit, Vladimir Putin’s unjust war on Ukraine and more than a decade of Tory rule.
If the new chancellor hoped that his mini-budget would strengthen faith in Blighty’s ability to remain a tech powerhouse, the industry stakeholders Verdict has been in contact with may slightly dissuade him of that notion.
So this is what happened. Just before lunch on Friday, the man in charge of the UK’s public finances unveiled a smattering of new economic initiatives in an attempt to calm voters worried about the cost of living crisis.
The financial announcements included plans to scrap the additional rate 45% band for income tax, the bankers’ bonus cap and next year’s increase in corporation tax from 19% to 25%.
Kwarteng also confirmed that almost 40 investment zones will be created with tax breaks for businesses.
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“If we really want to level up, we have to unleash the power of the private sector,” the chancellor said.
Tech wonks across the UK particularly salivated over the chancellor’s plans to extend the Seed Enterprise Investment Scheme (SEIS). Similarly, entrepreneurs and investors surely pricked up their ears on hearing the government’s plan to change regulations so pensions funds can increase UK investments.
The prospect of more money to grow startups was one that the tech industry gladly welcomed. However, even the optimism about these new initiatives was hedged by reminders that the rhetoric is one that we’ve heard before.
Stephen Page, founder and CEO of investment fund manager SFC Capital, said: “The devil, of course, will be in the detail and the execution – we have heard rhetoric about making the UK ‘a nation of entrepreneurs’ before – but proposed measures such as reform to SEIS, an extension to EIS, making £500m in new funds available for investment in high-tech innovation and fast-growth tech businesses, and unlocking pension funds to invest more in higher-risk asset classes such as venture capital are all very encouraging.”
Britain needs more tech talent
Russ Shaw, founder of tech advocacy groups Tech London Advocates and Global Tech Advocates, similarly said several of the moves in the mini-budget could help unlock the tech industry’s potential across Britain, but warned that other huge problems remain.
“[It] would be a mistake to gloss over the downbeat economic situation – the government will need to listen to and collaborate with the private sector to make this truly work,” Shaw said, urging the government and the private sector to “invest in the digital skills necessary to kickstart true economic growth.”
“As a nation, the UK urgently needs diverse talent to fill vacancies in the digital sector to cultivate an ecosystem that can be at the forefront of our economic recovery,” Shaw said.
Boris Johnson’s government pledged to shake up the tech visa regime last year in order for the tech community to attract international talent to the UK.
While government-backed organisations like Tech Nation have argued that the tech visas have enabled both founders and employees to migrate to Britain, others have suggested that this shake-up has so far done little to negate the fallout from closing the borders to European talent after Brexit.
A “gamble” with the nation’s finances
Few of the announcements in the mini-budget were really news to anyone. Most of them had either been leaked or promised earlier on.
So it’s unsurprising that Kwarteng’s mini-budget had faced a fair amount of detractors even before the fiscal event on Friday.
For instance, senior economists told the House of Commons’ Treasury select committee on Thursday that the mini-budget amounts to a “gamble” with the nation’s finances that were unlikely to lead to significant boosts to GDP, the New Statesman reported.
They argued that the new fiscal policies will leave public debt on an “unsustainable” path as the chancellor didn’t seem concerned about having cash for public services at hand or seeing debt falling.
“Precious little” for SMEs
A big concern for tech companies and their clients is the cost of living crisis caused by successive governments’ failure to invest in renewable energy over the past decade, and that has since been exacerbated by Russia’s invasion of Ukraine. The mini-budget did little to ease those concerns of the tech community, experts told us.
The government has announced that an estimated £150bn will also be used to subsidise energy bills and keep them within a new £2,500-a-year price cap. Without the cap, a rise in global wholesale prices would have seen households paying up to £7,000 in bills next year.
New prime minister Liz Truss, who took over after Johnson was defenestrated this summer, has refused to pay for the energy package by implementing further windfall taxes on the now record profits of energy generators.
Rajeev Shaunak, partner at MHA, said the battery of tax cuts and growth measures don’t mean much to businesses struggling to survive the winter and left uncertain and underwhelmed by the energy price guarantee:
“The energy crisis dwarfs all other concerns for the hospitality trade,” he said. “The tax cuts are all well and good but the benefits won’t help pubs, restaurants, cinemas, theatres and others get through the winter.
Alternative SME funding company Nucleus Commercial Finance’s CEO Chirag Shah, added: “Despite much hope, and even with the reversal of the planned hike to corporation tax, real substantive and comprehensive financial support for SME businesses slipped off the agenda in today’s budget.
“While the government’s £60bn energy package will go some way to ease business cost pressures at supply level, there was precious little else delivered that would guarantee support for the SME economy.”
Matt Parker, CEO of cloud communications solutions provider Babble, echoed the sentiment that the energy plans would help, but added that “plenty of worries still need addressing” by the government.
“Meanwhile, Brexit, a looming recession and insufficient support for digital connectivity are still big concerns that the government must respond to,” Parker said. “SMEs are the backbone of the UK economy and it is therefore vital that the government are listening to the needs of business leaders, ensuring they’re aware of the mounting challenges they face, and providing support for both the short and long term.”
Others were more bullish about the mini-budget and its impact on the tech sector.
Simon Cureton, CEO at fintech startup Funding Options, also welcomed the initiatives to raise the limit on the SEIS, introduce new low-tax investment zones and to remove the EU sunset clause on EIS and VCT, which was slotted for 2025.
“Together with the support package to address the energy crisis, these policies give SMEs the support they desperately need to be ambitious and thrive rather than just focus on survival,” Cureton said.
“Beyond this, these policies will only strengthen and promote the growth of the UK fintech sector, already recognised as world leading. In turn, fintechs and the wider UK tech industry have been empowered to grow and invest further, designing innovative products that will benefit SMEs across the country by offering them competition and choice. This mini-budget recognises the importance of the private sector, innovative technology businesses and entrepreneurs in creating long term economic growth and jobs in the UK.”
GlobalData is the parent company of Verdict and its sister publications.