With the UK government continuing to face down criticism over how it is handling plans to remove the UK from the European Union, today the country’s Chancellor Philip Hammond delivered an annual Autumn Budget that underscored its continuing push to win over the tech world.
In a wide-ranging speech laying out proposals for investment and taxes for individuals and businesses, the government laid out its commitment to innovation, and specifically artificial intelligence (AI), immersive technology, driverless cars, life sciences and FinTech. Among the initiatives: a range of investments for new technologies like AI and 5G that add up to over £500 million ($663 million); wider tax breaks and other schemes to bring more investment into the sector; and laying the groundwork for making it easier to build and test new technology in the UK, such as new rules that will let companies test self-driving cars without safety operators.
“A new tech business is funded every hour and I want that to be every half hour,” Hammond said in his speech. “So today we invest over £500 million in a range of initiatives from artificial intelligence to 5G and full-fibre broadband.”
The Budget’s tech developments come a week after Hammond and Prime Minister Theresa May unveiled £80 million in tech programs, along with an expansion of its work visa scheme for highly-skilled people.
As with that news, the UK government is aiming to reassure tech companies, those who are building them and working for them, and those who invest in them, that the UK is committed to making sure that the sector continues to thrive regardless the country leaving the EU.
This is important because the tech sector has been a juggernaut for the last several years in the UK economy — employing 1.5 million people, growing faster than the UK economy, and bringing in nearly £7 billion of investment last year. But one of the biggest concerns about Brexit has been its impact it will have on the economy and the UK’s ability to attract talent and investment and businesses from abroad once the UK is no longer interlinked with the continent.
In the short term, Brexit has already had a chilling effect, with the value of the pound dropping badly against other currencies, some investments getting put on hold as people wait to see how everything will play out, and even some startups reconsidering their options in terms of where to set up and grow.
Here is a rundown of the tech highlights in today’s Budget:
Investment: Over the next 10 years, the government proposes to spend £20 billion “to finance growth in innovative firms”. This will include a new £2.5 billion investment fund at the British Business Bank, which will co-invest with the private sector to bring the total invested up to £7.5 billion. The intention is to use this in part to offset a departure of funding from the European Investment Fund in the wake of Brexit. “We stand ready to step in to replace European Investment Fund lending if needed,” Hammond promised today.
Along with its own investment fund, the government is also doubling the allowance for tax breaks to VC firms and others that invest in “knowledge-intensive companies” (read: tech startups). The Enterprise Investment Scheme, as the initiative is called, is also going to be refocused so that it doesn’t emphasize “low-risk” businesses as much, to help channel the investing and subsequent tax breaks to businesses that are focusing on more emerging (and more risky) problems and solutions.
It will also work to improve how pension funds can invest in the tech sector. This is a key area for tapping capital, since pension funds collectively have some £2 trillion under management. Currently the UK lags behind countries like Canada in helping those groups figure out routes to investing in tech, which has been seen in the past to be too risky, but has clearly evolved, producing some of the world’s most valuable companies. (My personal opinion though is that I hope this isn’t made too easy to do: tech remains a risky business, with many startups and bigger companies failing all the time, and pension funds are a lifeline for many, so combining those could potentially be a disaster if handled badly.)
Cybersecurity: This will also have its own investment fund, “a National Security Strategic Investment Fund to invest in advanced technologies to contribute to the national security mission.” The Budget doesn’t specify a size to this fund, but it will also involve partnering with business angels to foster investments. Cybersecurity was also singled out in the Budget with a commitment of £10 million to create facilities to test the security of 5G networks, in partnership with the National Cyber Security Centre.
Artificial intelligence. As with the rest of the world, the UK is doubling down on AI to capitalise on the many forms that this will take in the years to come. One topline development is that the UK plans to establish “the world’s first national advisory body for artificial intelligence” with the Centre for Data Ethics and Innovation will set standards for the use and ethics of AI and data, with the aim to lay the groundwork for “practical development” in the field. It will be conducting an independent review of AI to get things started.
The plan is to invest at least £75 million into the field of AI, to build “data trusts” to help train and run AI systems; to establish “AI fellowships” and to provide grants to fund 450 PhDs in the field “to secure the UK’s leading position in the global AI market.”
There were some other interesting pockets It also plans to put in £30 million towards “digital courses using AI” as part of a larger retraining scheme for the UK workforce.
Autonomous vehicles. One specific area of AI that the UK wants to be active in is driverless cars, citing research that projects that this will be a £28 billion industry in the UK, employing 27,000 people, when it’s up and running. As part of this — perhaps controversially — the UK wants to establish a looser framework for testing self-driving vehicles “without a safety operator.” It’s also planning to put £100 million more into a scheme to help people switch over to battery-powered electric cars.
Somewhat related to the automotive effort, the Budget also gave a little oxygen to an overhaul of the country’s geospatial data. “The UK has some of the best geospatial data in the world, and much of it is held by public bodies,” the Budget says. “The potential economic value of this data is huge.” Indeed, it’s a necessary component not just of mobile apps and other basic mapping services, but it will be an essential part of how self-driving cars will be able to manoeuvre themselves without human involvement, among other applications. The government plans to put aside £40 million annually for the next two years to figure out how to free up and commercialise some of this data.
If you’ve ever thought that regulators are somewhat ridiculous for taking too long to reach decisions and wield their power over too-powerful companies, then you might be interested to hear that the Budget also contained a provision called the “Regulators’ Pioneer Fund“, £10 million that will be used to help regulators figure out how to tap into some of the newer innovations in data science and other tech to do their jobs better.
An even smaller shout-out was given to the gaming industry — surprising considering how many successful games companies have come out of the UK over the years. The government said that it plans to throw £1 million more into the UK Games Fund each year until 2020 to help finance and support early-stage games developers.
Taxes. In addition to investments, the Budget also touches on the role the tech industry will pay in how monies are collected.
The amount of taxes that large tech businesses pay — or should we say the lack of taxes that large tech businesses pay — has been a flashpoint topic for years now, where questions have been raised over whether large tech giants like Google, Amazon and Apple are paying their fair share of taxes here when their businesses are organised to minimise that amount.
While Europe has gotten involved in the Apple tax case in Ireland and Amazon’s business in Luxembourg, and is currently going through its own proposals to figure out how to plug the tax gap in digital services, the UK has now published its own consultation into the area.
“The government remains committed to tackling tax evasion and avoidance, aggressive tax planning and non-compliance, including those seeking to evade or avoid tax using offshore structures,” the Budget notes.
The UK government says that to date it has collected nearly £160 billion in additional tax revenues since 2010 and is aiming to do more on this front by reforming tax laws in light of what it describes as “the changing nature of our economies in the digital age,” and more specifically the fact that where a product is ordered and paid for, and from where it is delivered to a consumer, may not always be the same country where that product is ultimately used.
The issue of collecting taxes is a thorny one, above and beyond all of the policies and macroeconomic trends that may get impacted by Brexit — and it represents yet another area where the UK is trying to tread carefully as it lays out its carrots to entice the tech world to stay and grow here.
Read the full budget here.
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