Covid-19 has caused unprecedented and unexpected disruption to our lives. However, with a plan for exiting lockdown now in place and with the vaccination programme gathering pace, now is the time to refocus on the other seismic challenges coming our way. This includes the longer-term recovery of the economy and tackling climate change.
The details of the Budget announcements this week bring good and bad news for UK businesses and universities. However, the overarching message is critical: we remain in a crisis that necessitates continued support, but we must start crafting a long-term plan for recovery.
As we pour over the details of the announcements and what they mean for our members, there are a few immediate observations from the Budget and Plan for Growth to share.
There will not be a cliff-edge end to support
For many businesses, the extension of the furlough scheme and support grants and loans will be a relief as trading conditions remain exceptionally challenging even as restrictions are gradually lifted.
The pandemic has disrupted many people’s opportunities to learn, train and progress in their careers. Apprenticeships have been particularly affected and we have long argued that the incentives for employers to offer apprenticeships were far too low to help. The announcement to double the value of incentives is a really important step towards restarting apprenticeship opportunities to the benefit of students and employers alike.
The Government wants to shape an outward-looking, low-carbon, high-tech economy
Beyond the pandemic, the Budget and Plan for Growth look towards recovery. The Chancellor described a “new economy” in which the UK is a science superpower. The R&D Roadmap, published in July 2020, made a strong case for a more innovative, research-led economy.
In our response to the Roadmap, we argued that it did not focus enough on the central role of business investment in the research and innovation system. An NCUB R&D Taskforce of business and university leaders emphasized that more needed to be done to develop a joined-up, business-led approach to research and innovation to stimulate investment.
The Plan for Growth and Budget recognise the central role of private investment in the R&D and innovation system
In a welcome move, the Plan for Growth and Budget both recognise that recovery must be investment-led. The Treasury has considered how business investment can be encouraged to stimulate growth, with the budget pulling a range of fiscal and regulatory levers to encourage businesses to invest and innovate, including:
- A new super-deduction to encourage business investment in plant and machinery assets
- A new UK Infrastructure Bank to provide £12bn of equity and debt capital financing to private sector and local authority infrastructure projects to tackle climate change and drive economic growth
- A review of Pensions Regulation to address disincentives for pension funds to invest in high-growth companies
- A consultation on R&D Tax Credits, as well as a commitment from the Government to consider bringing in data and cloud computing costs into the scope of R&D tax relief
- Future Fund: Breakthrough, a £375 million delivered by the British Business Bank and built on the existing Future Fund to support the scale up of the most innovative, R&D-intensive businesses
- Green energy innovation schemes from the government’s £1bn Net Zero innovation Portfolio to cut carbon emissions and accelerate near to market energy innovation
- A new Help to Grow Digital programme to help SME’s adopt productivity-enhancing software
The Plan for Growth also hints at a review of the Regulatory system to see how it may better support innovation. Without doubt, the newly announced Freeports, spread right across the UK, could become an important part of the UK’s innovation system. Our report, Research to Recovery, explores how Freeports could be complemented with the creation of Innovation Collaboration Zones that are focused on innovation and collaboration.
…But there are gaps
The range of initiatives announced today signal that the Government recognises that there are a variety of public levers, fiscal and regulatory, that combined impact on business investment. It is however noticeable that there is little mention of Innovate UK in both the Budget and Plan for Growth, despite the focus both documents place on innovation.
Equally, whilst the Budget recognises that delivering a low-carbon, high-tech economy will require a highly skilled workforce, there are few new announcements related to adapting to the UK’s future skills needs. Although reforms to the immigration system must be welcomed, there is little mention of how to prepare the domestic workforce for a rapidly changing labour market.
In Research to Recovery, we argue that the UK needs to fundamentally rethinks research careers, and we will hope to see more announcements in the expected R&D People and Culture Strategy.
Significant rises in taxes could hamper investment
In what many will see as a contradiction, a Budget designed to stimulate investment and spending is also characterised by steep tax rises. The IFS has estimated that the budget will mean nearly £30 billion of tax rises by 2025/26 in the form of frozen allowances and significant increases in corporation tax. Cumulatively, this would represent the steepest tax rises announced since the 1993 Budget.
Corporation tax is set to rise from 19% to 25% for more profitable companies. Smaller businesses are likely to be hit too, with the re-introduction of a small profits rate of 19% on profits up to £50,000.
For many businesses, investment in research and innovation remains a discretionary spend. Therefore there is a real risk that business investment could be hampered, despite the variety of initiatives taken in the Budget, if income from profits reduce.
A joined-up approach?
The 2020 R&D Roadmap and Spending Review were focused on research – with a clear, long-term R&D strategy and ambitious 3-year research funding settlement.
Arguably, the 2021 Plan for Growth and Budget is focused on business, investment and innovation.
Surely, the next step must be to bind these two agendas firmly together.
Businesses state time and time again that their R&D and innovation activities are built on a sustainable and excellent foundation of fundamental research delivered by the UK’s world-leading universities and research institutes. Equally, realising many of the social and economic benefits of research requires risk-taking, collaboration and commercialisation.
Economic recovery rests on the Government, businesses, universities, and others to working together to create the best possible environment for growth.