The final Spring Budget has been met with mixed reactions from entrepreneurs and investors alike. While some welcome the government’s pledge to support innovation through research and development tax reliefs, others believe that a rise in digital business tax could slow down UK GDP by adding a barrier to starting up. It could also risk London’s position as a European hub for entrepreneurship.
Crucially, the Chancellor’s commitment to address the UK’s tech talent shortage, and to smoothen the transition for working mothers to return to work could prove revolutionary when put in effect.
Business rates and supporting start-ups
Despite Philip Hammond’s assertion that entrepreneurs are the “lifeblood of our economy”, and his assurance that business rate increases will be minimal for small businesses, his seemingly abrasive reaction to digital businesses and the tax they pay, paints them as a liability rather than an asset, says Iron Group CEO, Anne de Kerckhove.
“The UK has been experiencing a start-up boom in recent years, with 80 new companies born per hour last year complementing the 58,000 digital businesses that are currently active in the UK – so essentially by suggesting that there will be tax increases for those digital businesses that don’t have a physical shop window, is biting off the hand that feeds our GDP,” she says.
What worries her the most is that a rise in digital business tax could slow down GDP by putting up an additional financial barrier for new digital start-ups poised to launch. “Investors that are currently on hand to offer financial support to struggling entrepreneurs, attempting to get their start-up businesses off the ground, will also need to take any tax increase into consideration prior to making any financial commitment,” she explains.
Karen McCormick, chief investment officer at Beringea, one of the UK’s largest and most active growth capital investors, echoes de Kerckhove’s sentiments. “It was really disappointing that Phillip Hammond had little of any great significance to say in relation to the technology, startup, and investment scene. It’s an industry feeling the pinch of uncertainty while there is still a lack of clarity to the roadmap for Brexit. One saving grace for the community, however, was the announcement of concessions on the widely-protested increase to business rates.”
The introduction of a ’transitional cap’ on business rates for companies coming out of small business relief will benefit fast-growing businesses, according to McCormick, and represents a solid step towards safeguarding London’s reputation as the pre-eminent European location for starting up and scaling a business.
This is especially important at a time when spiralling property prices and commercial rents are causing uncertainty and competing cities such as Berlin and Amsterdam are making concerted efforts to woo UK entrepreneurs.
“But stronger action may be needed to maintain the stability that nascent and growing businesses need. In an open letter to the government earlier this week, Central Working proposed a three-year exemption to business rates for new businesses. In such a competitive environment, it may be that such radical measures are required to keep the brightest and best in the capital.”
Changes to R&D tax relief
The Chancellor set out plans for a further £500 million to boost science and innovation with support for electric vehicles, robotics and artificial intelligence. Dominic Keen, founder of Britbots, the network of UK-based robotics start-ups, believes this could herald a boom in innovative technologies. “Some of the great robotics companies of the future are being launched by British entrepreneurs and the support announced in today’s budget will to strengthen their impact and global competitiveness,” he says.
“We’re currently seeing strong appetite from private investors to back locally-grown robotics businesses and this money will help bring even more interest in this space. It was encouraging to hear the Chancellor outline measures to simplify the existing programme of R&D tax relief.”
Innovation is the key driver of success for technology companies, but too many technology companies — in particular start-ups — have been missing out on this vital support, and the breathing room it gives them to pursue research and development, because they lack the resources and expertise to handle the significant administrative burden and complex processes involved, he explains.
For Beringea’s McCormick, it is high time the R&D tax relief programme more explicitly supported digital innovation as well as things you can physically touch. Oxford Economics figures suggest that 46,000 jobs and £12 billion of economic value will be generated by London’s digital businesses, she says. “The UK R&D tax relief system may, in the Chancellor’s estimation, remain globally competitive, but that forecast will only come to fruition if those businesses are given the freedom to keep working on their latest innovations.”
The Chancellor has committed £500 million spend on skills, which, to Adam Hale, the CEO of the recently acquired HR tech brand, Fairsail, isn’t nearly enough. “£500m to spend on skills is a nice headline-grabbing figure, but it’s not nearly enough. Neither is it focussed on where we need to radically improve skills – in IT. We would really like to see more focus on the T in STEM (Science, Technology, Engineering, Maths) – we think it’s T-time!”
For Hale, the chronic IT talent shortage in the UK needs to be addressed immediately, and more specifically.
“As the UK’s fastest growing technology scale up, we have an acute need for technology professionals, yet it’s unbelievably difficult to find them,” he says. “And with only 5,600 students studying computer science at A-Level in 2016 (600 of which were female!) versus 31,000 doing sociology, it’s no surprise. We could be aiming for at least a tenfold increase here over the next five years, with females making up at least 30 per cent.”
For Indian tech giant, Tata Consultancy Services (TCS), the UK is a strategic tech hub for its European base. Shankar Narayanan, head of TCS in UK and Ireland, believes a concerted focus on technical skills routes, not just academic, will help the country in the long term. “But with a 40,000 yearly shortfall in STEM graduates across the UK, it’s essential that business, government and the education sector take urgent action to ensure a sustainable economy in the face of new technologies. It really is a case of disrupt or be disrupted,” he says.
TCS has worked with more than 70,000 young people across the UK in schools and universities through its IT Futures programme, where the company’s tech talent spend a record number of hours volunteering to boost skills in communities across the country. For Narayanan, it’s also about continued learning. “Education is something that spans a lifetime. We believe in continuous learning, not only through school and university, but throughout an individual’s career. Because of this, TCS averages ten full days of learning, per employee, per year,” he adds.
For businesses that can’t afford to scale up their talent, the onus falls on the government to help bridge the skills gap.
Fairsail’s Hale explains that it’s a matter of competitiveness. “In a world where every industry is rapidly digitising, we strongly encourage the government to make this a priority or scale ups like us will have to move technology off shore,” he adds.
Return to work fund
Amber Vodegel, the co-founder of the rapidly growing pregnancy and parenting apps under the company Health & Parenting Ltd, points to the Chancellor’s announcement of a £5 million returnship fund to help address gender inequalities in the workplace and at home. “The government’s pledge to create a £5 million fund to extend return to work schemes is music to my ears,” she says. “Too many people – usually women – put the brakes on their careers after having children, but the reasons for doing so are varied.”
According to Vodegel, sometimes it simply doesn’t pay to work with spiralling childcare costs taking up most, if not all, of the monthly salary. “Other times, women are finding themselves marginalised when it comes to career challenges or promotions as their commitment to work is questioned. This is particularly true for those returning part time,” she says.
“The longer the break, the more difficult it is to pick a career back up or even embark on a new one. It’s important that women are given options: to return to work and be valued and rewarded for their contribution, whether they work part time or full time. The option to work flexibly or to start their own business, like I have done.”
The latest pledge is therefore a welcome addition to the tax-free childcare scheme that will be rolled out from next month and the doubling of free childcare entitlement for three and four year olds, Vodegel adds.
“Initiatives like this will help to address gender inequalities in the workplace and at the home. Women who work will have more successful daughters and conscientious sons according to Harvard, so we don’t just owe it to today’s working women but to our future generation of professionals, scientists and doctors too.”