The tech and creative sectors in Bath and the West of England are rich and varied. They are also critical to the strength of the region’s economy.
Both will be keeping a close eye on next Wednesday’s Spring Budget, when it is hoped Chancellor Jeremy Hunt will provide some help for their ongoing success.
At the same time, the stability that the business community craves has, thankfully, started to return after a tumultuous period – so it certainly feels that we are moving in the right direction.
Here are some of thoughts on what could be in the Chancellor’s famous red briefcase next Wednesday.
R&D tax credits
It seems inevitable that there will be cuts to research and development tax relief for small businesses, which will come into force from April.
The widely forecast reductions in tax credits will be a cause for concern for everyone involved in the technology industry here in the region, but especially for our tech start-ups.
At the moment, small businesses may claim a rebate of around a third of R&D investment, which has been pivotal to growth for many. But soon those rebates will be scaled back to just 19p for every £1 spent.
Our tech entrepreneurs in areas such as artificial intelligence (AI) and biotechnology, manufacturing and computing are at the forefront of efforts to turn the UK into a science and technology superpower by 2030 and so deserve every bit of Treasury support.
It has been reported that Treasury officials are working with business leaders to find a way to protect some strategic sectors such as AI and biotech, albeit at a lower level, and it remains to be seen what the outcome will be.
The scaling back of tax breaks is bound to also prompt fears that some larger companies may move abroad to make the most of fiscal incentives overseas. At the same time, it may put off businesses who are eyeing a move to tech hubs like Bristol, which is a genuine concern given the city’s tech innovators are among those that have proven themselves to be the engine of regional economic growth.
‘Super-deduction’
BGF is optimistic that changes will be announced to the capital allowances regime which will lead to better tax breaks for companies that invest rather than withdraw cash from their coffers.
It is hoped that the Chancellor will identify a successor to ‘super-deduction’ tax relief, which lets companies deduct up to 130% of the cost of plant and machinery from profits before tax.
‘Super-deduction’ is set to come to a halt in April, at the same time that the Corporation Tax rate is poised to rise by six points. This has been described as a double whammy as the ‘super-deduction’ has meant that for the past two years many companies could cut their tax bill by 25p for every £1 they invest.
Research carried out by Confederation of Bristol Industry among its membership found that a fifth of business investment that benefitted from ‘super-deduction’ would not have gone ahead without it.
I share CBI’s view that it would really help local firms if the Chancellor introduced full expensing on a permanent basis for capital investment, so businesses would be able to reduce their taxable profit by the full cost of an investment.
Science and Technology Framework
In the absence of ongoing R&D tax relief within the Budget itself, we do of course warmly welcome the newly launched Science and Technology Framework by Secretary of State for Science, Innovation and Technology Michelle Donelan.
This will be supported by £370m to bolster investment in innovation and harness the potential of pioneering new technologies like AI. That will be music to the ears of the tech community in Bath and the West of England along with the regional BGF team.
The framework is also promising targeted support for local innovation clusters, reduced bureaucracy and new funding approaches.
Conclusion
After a period of significant economic turbulence, a feeling of confidence and optimism has started to return as the region’s business community maps out its long-term future.
Above all, I hope that the Budget will have an innovation-first emphasis to give Bath and the West of England’s tech and creative sectors a competitive edge in the global market.
Encouragement of R&D investment is among the measures needed to show support for our hi-tech firms who can really kickstart economic growth here in the West of England and beyond.
