After a long weekend of negotiations around the Silicon Valley Bank crisis which ultimately led to HSBC acquiring the stricken bank, all eyes were on the chancellor as he unveiled his ‘budget for growth’.
Amidst measures for pensions, pubs and potholes, there was plenty for the fintech industry to digest, including tax cuts, investment in hubs around the UK and an artificial intelligence (AI) sandbox.
New R&D tax credit scheme for SMEs
Despite repeated calls from the UK tech industry to abandon planned cuts to the research and development (R&D) tax credit scheme, the chancellor is pressing ahead.
The scheme enables founders to claim back money spent on R&D as tax relief or cash credit. The idea is to encourage experimenting and innovation to push the industry forward.
UK companies claimed £6.6 billion in R&D tax credits in 2020-21 but, in November 2022, Hunt cut the rebates available to small and medium-sized businesses in a bid to reduce fraudulent claims, while increasing credits for larger companies.
Just last week, over 250 startup founders urged Hunt to reverse proposed cuts to R&D tax rebates for SMEs.
Possibly because of this pressure, in his spring statement, the chancellor announced additional tax support for R&D-intensive startups in fields such as AI and fintech that spend more than 40% of their total expenditure on R&D.
They will be able to claim £27 for every £100 spent on R&D. Tax relief for larger companies spending on R&D will increase from 13% to 20% from April 1.
Yoko Spirig, co-founder and CEO of Ledgy, said this was “positive for the tech ecosystem,” and that, “this move, coupled with the UK government’s intervention to support tech businesses through the weekend’s Silicon Valley Bank crisis, shows the UK is still an attractive place for tech firms and will help ensure it stays out in front as a positive example for other European markets.”
Tech hubs near UK universities to get £1 billion
Another key part of the spring statement was £1bn in extra funding for tech hubs clustered around universities in England to boost business investment in the regions.
Hunt pledged to create 12 investment zones in eight areas “to drive business investment and level up” the country, each backed with £80m of government funding.
He said that the zones will form the cornerstone of his efforts to supercharge growth and accelerate research and development in the “most budding industries”.
Laurent Descout, co-founder and CEO of Neo, welcomed the news: “From 2021 to 2022, spin-outs from UK universities created more than 56,000 jobs and almost £6bn of investment and this investment will help ensure this success continues. As a fintech with an office in Cambridge, we have seen first-hand the innovation taking place at UK universities and welcome the chancellor’s support.”
AI sandbox to support UK artificial intelligence
The chancellor announced an “AI sandbox” to boost support for the UK’s artificial intelligence companies and help firms get cutting-edge products to market faster.
He also committed to introducing a new AI prize, dubbed the “Manchester Prize”, for which the government will award £1m a year for the next 10 years to “the person or team that does the most ground-breaking AI research” in the UK.
Reacting to this announcement, Matthew Hodgson, CEO of Mosaic Smart Data, commented: “An annual £1m prize for AI research will go a long way in boosting the government’s pledge to make Britain the next ‘Silicon Valley’ and is a positive move in the UK’s ongoing quest to become a science and technology superpower.
Looking ahead: Encouraging institutional investors to back tech
Hunt hinted at what’s to come in the autumn statement, saying he will come back with a plan to unlock investment from pension funds and other sources.
This follows a Square Mile meeting at the end of January which involved top pension firms including Phoenix, Aviva and L&G and the fintech industry body Innovate Finance and big four firm EY to discuss pooling institutional capital in a £50bn private-sector led fund that would mimic the role of a “sovereign wealth fund”, as revealed by City AM. The goal was to encourage pension funds to invest in high-growth tech firms in a bid to support the sector through a challenging fundraising environment.
Hunt also said the autumn statement would include plans to make the London Stock Exchange a more attractive place to list.
In 2022, IPOs raised a combined £1.6 billion compared to £6.6 billion in 2021. Firms such as UK chip designer Arm, owned by Japan’s Softbank and building materials group CRH recently shunned London to pursue stock market listings in the US. Other firms such as Atom Bank pushed planned IPOs back to 2024/2025.
Pierre-Antoine Dusoulier, CEO at iBanFirst, said, “We look forward to seeing how the UK will push the barriers for fintech growth and remain at the centre of financial services innovation. With its position as a global leader at risk, a combination of increased innovation, job creation and growth is essential to ensure that the UK remains in the top spot and fulfil Jeremy Hunt’s goal to become the ‘next Silicon Valley’.”
Looking ahead, Alisa DiCaprio, Chief Economist at R3, and former FinTech Committee Chair at the US Dept. of Commerce said: “We look forward to hearing more about the Treasury’s support for other fintech initiatives, like the FMI sandbox and accelerated settlement taskforce, to ensure the UK remains at the cutting edge of financial services innovation. With competition rising from Europe and elsewhere, harnessing transformative tools specific to empowering financial services, such as distributed ledger technology, is quickly becoming a central pillar of economic growth.”
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