With Chancellor Rachel Reeves’ promise to “invest, invest, invest”, the Autumn Budget was the first clear indication of the new government’s priorities for driving economic growth.
In the preceding PMQs, the outgoing Leader of the Opposition urged the Prime Minister to “channel his inner tech bro”. And while there were some encouraging announcements on this front – like £950m for skills capital and additional R&D funding – the overriding question afterwards was whether this was a good Budget for business.
Earlier this month, the government announced an impressive £63.5bn in foreign direct investment at the International Investment Summit – a significant demonstration of its ambition to position Britain as a global hub for investment.
While this additional capital is certainly a welcome boost, FDI alone is not enough to protect the UK’s startup ecosystem, which has such a vital role to play in maintaining Britain’s competitive edge. Across the country, entrepreneurs looked to the Budget for signs of government support to help them drive the innovation needed to solve the major challenges society faces today. Did they get it?
Protecting startups for future gain
The biggest headline from the Budget for the UK’s startups was the changes to Capital Gains Tax rates. The Chancellor announced that lower rates of CGT will rise from 10 to 18% and the higher rate will rise from 20 to 24%, saying this will raise £2.5bn for the Treasury.
However, evidence from the US suggests that higher capital gains deters start-up funding – and so the Chancellor will need to closely monitor the impact of these changes on early-stage investment to ensure they do not clash with the government’s mission for this Parliament – economic growth.
Indeed, according to the Startup Coalition’s survey, 97% of founders and investors think that increases to CGT to the same level as income tax would have a negative impact on the UK’s entrepreneurial ecosystem. More worryingly, 89% of founders surveyed would consider moving themselves or their business abroad.
To grow, the UK needs to cultivate an ecosystem that supports startups to flourish at home. Higher CGT could drive talent and capital elsewhere, just when we need them to power job creation and economic resilience – going against the government’s growth ambitions.
Dissuading vital investment in startups risks slowing the UK’s progress and weakening the country’s reputation as a top innovation hub – certainly not a policy the world’s third-largest tech ecosystem should be encouraging.
Britain’s brilliant entrepreneurs are key to the country topping the table of global competitiveness – and government funding and policy must do all it can to keep them at home.
Major boost to R&D capabilities
Elsewhere in the Budget, the government announced record levels of R&D investment – £20.4bn to be exact. The Chancellor stated her ambition to “fully harness its potential and foster a dynamic investment economy”, a welcome boost, particularly in combination with DSIT’s R&D budget increasing to £13.9 billion.
May of this year marked one year since the publication of the UK’s Semiconductor Strategy – at the time, I shared my report card to assess the progress made since 2023. My lowest scoring section was R&D capacity, noting that for the UK to grow beyond a supporting role in the semiconductor industry, funding in R&D would be critical.
Despite no clear indication yet of where exactly this key R&D funding will be used, the government should certainly consider allocating a portion of it to expand on the £1bn investment previously announced for the Strategy. The omission of specific semiconductor investment from the Budget is a frustration for those who have worked tirelessly for greater focus on this sector of national strategic importance.
What next for UK investment
Bringing influential business leaders and investors to London for the International Investment Summit earlier this month sent a strong signal to the world that the UK is open for business. The £63.5bn secured, included £24bn from Iberdrola into UK energy infrastructure, and £6.3bn from four global tech firms into data centres, highlighted that UK companies remain attractive propositions for foreign funds, as well as the government’s commitment to securing investment to drive growth.
But it’s vital that fiscal policy supports this objective too. To support the world-class sectors here, particularly in renewable energy, technology and critical infrastructure, sustaining momentum is essential.
Ultimately, the proof will be in the pudding in terms of this Budget’s impact on driving innovation and growth. While the CGT rises are a frustration and there was a conspicuous lack of support for projects aiming to develop emerging technologies, record R&D and skills investment indicate that the government’s priorities are in the right place.
Attention now turns to the next landmark economic policy moment – the Mansion House speech on 14th November. This must provide detail on the approach to pension funds (including the recent announcement about the creation of British Growth Partnership) that was lacking in the Budget, and more broadly outline the specifics on how the government intends to embolden innovation and drive its highly sought-after economic growth. More work ahead for the new Chancellor and UK Government.
Russ Shaw CBE is the founder of Tech London Advocates & Global Tech Advocates, and a regular UKTN columnist.