Chancellor Kwasi Kwarteng has unveiled a raft of measures in today’s ‘mini-budget’ aimed at stimulating growth in the UK economy that have been broadly welcomed by the UK’s tech and investor community.
The mini-budget is the first major fiscal event for Prime Minister Liz Truss’s government and comes at a time when individuals and businesses are grappling with soaring energy costs, rising inflation and a looming recession.
A survey of UK SMEs, conducted by Funding Options and Censuswide, found that four out of five business owners are considering a return to employment due to the soaring costs of energy, supplier costs and the cost of living.
Truss has said her priority is to stimulate growth through tax cuts for individuals and businesses and deregulation.
Economists have warned that the personal tax cuts disproportionately benefit the rich and raised concerns that the chancellor did not ask the OBR to conduct an independant assessment of the mini-budget’s cost and impact.
Despite this, the business community has welcomed many of the measures outlined in the mini-budget, such as scrapping the planned rise in corporation tax to 25% next year.
“It’s bold, it’s agile and it’s speedy. Economists will be arguing for months to come, but small businesses will be waiting for the impact of this budget trickling down into their sales tonight,” said Emma Jones, CBE, founder small business support platform Enterprise Nation.
“The new administration clearly set out its stall today and that it is firmly on the side of entrepreneurs and wealth creators. The tax cuts, both business and personal, will deliver confidence and unleash the entrepreneurial spirit that we know exists across the UK and to which the chancellor referred so often.”
Shevaun Havilland, the director general of theBritish Chambers of Commerce, said: “Businesses across the UK will enthusiastically welcome the chancellor’s pledge to focus on economic growth and speed up new infrastructure development.”
Here are the key mini-budget announcements for UK tech – and what the industry thinks of the measures.
Corporation tax rise cancelled
Previous Chancellor Rishi Sunak had planned to raise corporation tax to 25% in April next year. That move has been reversed, which means the rate will remain at 19% – the lowest level out of the G7 countries.
Startups have welcomed the move and said it will allow them to keep hold of much-needed cash during the economic downturn.
Ravi Anand, managing director of alternative lender Thincats, said the reversals on corporation tax and NI rises “release working capital at a crucial time and will encourage investment”.
Katie Gallagher, managing director of Manchester Digital and chair of the UK Tech Cluster Group, said: “The tech and digital businesses that we represent welcome the reversal of the increase in corporation tax and the National Insurance increase; as well as the reduction in income tax. In particular, this will give startups and early-stage businesses a boost to ensure they are given every chance to succeed.”
SEIS increase and EIS guarantee
Kwarteng has increased the amount that companies can raise using the Seed Enterprise Investment Scheme (SEIS) up to £250,000 – a two-thirds increase. The gross asset limit will also be increased to £350,000 and the age limit of eligible companies will be raised.
Launched in 2012, SEIS aims to encourage investments in early-stage startups by providing tax breaks for ventures deemed as too risky.
The move has been widely welcomed by the UK’s tech investors. Sarah Barber, CEO of Jenson Funding Partners, described the measures as a “huge boon for fast-growth businesses”.
Barber, who set up one of the UK’s first SEIS funds, added that “until now it’s felt like successive governments were sleepwalking” on SEIS.
Stephen Page, founder and CEO of SFC Capital, which has been campaigning for SEIS reform, said that the previous cap was “rapidly outpaced by the impact of the growth it was itself driving on early-stage companies’ funding needs”.
Similarly, the government said it “remains supportive of the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) and sees the value of extending them in the future”.
The two initiatives provide tax relief for businesses and VC firms. There had been uncertainty over the future of EIS, which has a “sunset clause” that will see it end in 2025 unless it is renewed.
“In a statement with a very welcome focus on growth and the future of UK economic success, the chancellor has given UK startups a major boost by guaranteeing the future of the EIS scheme, which provides £1.7bn a year in funding for some of the UK’s highest-growth businesses,” said Tim Mills, managing partner at ACF Investors.
“Besides funding, fast-growing companies and their investors need one thing above all else – a consistent landscape of support. By providing clarity around this vital source of funding, UK startups have a much clearer runway for growth over the coming years. At a time of economic turmoil, the impact of that assurance cannot be understated.”
Barber added: “Entrepreneurs should now have to spend less time fundraising, and more time doing what they do best – building a business. This is a fantastic commitment to British businesses from the new government.”
Pension investment reform
The mini-budget announced plans to bring forward draft regulations to reform the pension charge cap, which will give pension schemes greater flexibility to invest in innovative British businesses.
“Today’s budget was supposed to be ‘mini’, but for the UK’s high-growth technology businesses, it was a pivotal moment,” Moray Wright, CEO, Parkwalk Advisors. “After years of discussion, we welcome the government’s decision to unlock investments into UK assets and innovative high-growth businesses by accelerating pension reform.
“This will help support the UK, which is a leader in creating intellectual property in the sectors of tomorrow including AI, life sciences, cleantech, medtech and quantum computing.”
IR35 changes scrapped
IR35, the UK’s off-payroll working rules aimed at tackling tax avoidance by contractors and freelancers, has been widely criticised by businesses since it was reformed in 2021.
It is now set to be repealed entirely from April next year. From then, “workers providing their services via an intermediary will once again be responsible for determining their employment status and paying the appropriate amount of tax and National Insurance contributions”, the government said.
Runar Reistrup, CEO of YunoJuno, said that reappealing the IR35 changes will “remove friction and confusion that has held companies and the public sector back from harnessing the full value of contractors in the past years”.
Reistrup added: “With companies about to face challenging times at unprecedented speed of change, being able to easily tap into a flexible freelance work force of highly skilled specialists will be key for their ability to adapt.”
Low tax investment zones
The government is in discussion with 38 local authorities to establish investment zones. These areas will have lower taxes, looser planning rules and other tax incentives.
“We will cut taxes for businesses in designated tax sites for 10 years,” said Kwarteng. “There will be accelerated tax reliefs for structures and buildings and 100% tax relief on qualifying investments in plants and machinery, on purchases of land and buildings for commercial or new residential developments.
“There’ll be no stamp duty to pay whatsoever on newly occupied business premises. There’ll be no business rates to pay whatsoever and if a business hires a new employee in the tax site, then on the first £50,000 pounds they earn, the employer will pay no national insurance whatsoever.”
The policy could see the government target areas in need of investment in a more concrete step to the previous administration’s flagship ‘levelling up’ policy.
Manchester Digital’s Gallagher “tentatively welcomes the concept of the new low tax Investment Zones” but called on the government to “work hand in hand with the existing regional tech eco-systems which already understand the local economy and where investment is needed to really flourish”.
Russ Shaw CBE, founder of Tech London Advocates and Global Tech Advocates, said: “Proposals to liberalise planning rules, accelerate development and enhance tax relief in Special Investment Zones across the UK will hopefully provide attractive regional incentives for tech companies across the country.
“These are tangible steps towards the promised ‘levelling-up’ of regions across the country that should also have a share in the success experienced by London. However, 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.”
£500m tech and science competition
The mini-budget also unveiled a competition to provide up to £500m in support to funds backing science and tech businesses. The government said the Long-Term Investment for Technology & Science (LIFTS) competition will “unlock billions of pounds of additional investment into UK scaleups over time”.
SFC Capital’s page said: “We also very much hope that a significant portion of the new £500m in capital for high-tech and fast-growth investments is allocated to seed-stage investments rather than later-stage VC. This is where intervention is most needed, as we’ve shown in our past two annual reports on the state of seed-stage investment.”