It was Chancellor Rishi Sunak’s big day: Budget Day. This is the second Budget since he became Chancellor of the Exchequer and the first since COVID-19 radically changed the lives of almost everyone around the world.
The budget had a number of standout elements including the continuation of the job-saving furlough scheme but with freeports, merging of the green and tech industry and the Future Fund: Breakthrough Initiative, we’re seeing what looks to be this government’s hopes and aspirations for what the UK’s future economy looks like.
Here we look at the implications of the 2021 Budget to the tech sector.
What’s The Future Fund: Breakthrough Initiative All About?
The Chancellor has announced a £375 million fund that will provide investment in highly innovative companies found in the science and technology industry. These businesses will have to be looking to raise a minimum of £20m of funding. So we’re not talking small cheddar here and as much as I’d like to think we could get some funding for various tech projects we have on the go we have nothing on the scale of those kinds of figures and I suspect a lot of other technology companies won’t have either.
As part of the process, the Government will take a stake in these scale-up tech companies in conjunction with VCs who will match the contribution. When we say VCs in the UK you can largely say pension funds, which is where the money tends to come from. I always like the sound of things that give the country a stake in a business as long as it doesn’t end up being a government-led business. So that’s got to be a good thing and most scale-up tech business owners recognise that if they want to rapidly grow their business they are going to have to sacrifice a stake in their company and probably ultimately control of their business in order to achieve their goals. It’s not something I want for us here at GrowTraffic but it’s something I recognise a lot of business owners decide to do.
It’s good to see the Chancellor has put the green economy and the tech industry front and centre in this year’s budget and it should provide many tech businesses with a bit of assurance about the importance we have in the economy.
Let’s be honest though, £375m isn’t a lot of money when it comes to rapidly scale up tech businesses across the country. You’ve got to need a minimum of £20m, so let’s assume a lot of businesses are going to ask for more. I think it’s not inconceivable that this fund could end up only helping something like 10 – 30 businesses. And the problem with tech is it tends to require fewer people to work the systems than non-tech businesses, so resources get concentrated. There will be jobs, just not as many as if that same money was pumped into less capital intensive industries. Still, as long as the government is getting a good stake in them we should be paying to create the next round of tax-dodging offshore tech firms.
One of the other things we need to think about is how the government structures the VC element of the fund to ensure there is more diversity in the businesses that are invested. VCs are woefully inadequate when it comes to investing in diverse ranges of business, with most of the people that receive investment turning out to look suspiciously like the people running the funds. Think rich white boys from some of the ‘better’ schools.
The pandemic has already been the catalyst for massive transformative innovation in the UK and I don’t expect that to slow down anytime soon, so it was great to see the Chancellor referencing some of the success from over the past year. It’s clear the sector’s successes and the resilience it has shown to the effects of the pandemic have helped Sunak to further form his vision for the country’s future economy.
It’s got to be the right kind of tech though. And it’s got to be big thinking tech. The £20m threshold will go some way to making sure only big tech gets involved but let’s hope it’s not just someone in Whitehall signing off on these projects. As we’ve learned about government purchasing over the pandemic, they often would be better with professional help. I suppose that’s what the VCs will help them with.
This coupled with the existing R&D tax relief points some way to what the government is hoping for the economy, but wouldn’t it have been better if they could have made this kind of funding available to many more smaller businesses? The ones that don’t need quite so much investment but which still have the potential for exponential growth?
What’s Happening With The New Overseas Visa Scheme?
With this new scheme, we’re going to see more start-ups and scale-ups able to access the best overseas talent.
I’m in two minds about this if I’m honest. I mean, personally, I am all for the free movement of people on economic grounds, fundamentally we are all economic migrants and what better reason for moving could there be but for work? But on the other hand, I think there is already a lot of leeway for those talented individuals who want to make their way over here and it’s got to be more important to bring up the education of the people in this country so businesses can tap into highly literate and trained individuals?
Let’s be honest, we’re already a driving force in the world’s tech industry, so who are we looking to import? I think this is something the fintech industry has been pushing for and I’m not sure what the real benefits are for such a small group of people to be allowed in. Still, if it broadens the pool of talent it’s got to be a good thing.
Will The Help To Grow Scheme Be Beneficial For The Tech Industry?
The Help To Grow Scheme is going to help up to 130,000 businesses throughout the UK. It aims to provide both management and digital skills training.
The management courses are only available to about 3,000 and those companies have to make a contribution of about £750. I’m sure these will be beneficial to those businesses but I’d suggest we can probably ignore those in how we’re thinking about this. It’s the digital skills schemes that should be of most interest.
The devil is always in the detail and we’re going to need to see what the level of skills learners will leave this training with. Often one of the biggest problems with these schemes is they aren’t targeted at high enough levels of training and it just ends up covering what people – especially people working for tech businesses – already have a decent knowledge of.
Will The Furlough Extension Help Tech Businesses?
This is an interesting one. I know a lot of businesses in the tech field that are still very reliant on the furlough scheme. They tend to be the overcapitalised big tech businesses but let’s be honest most tech businesses are small to medium-sized affairs and where possible they’ve been trying to get their employees back to work so they can work their ways out of the pandemic.
I am sure there will be plenty of tech businesses who are thankful for this scheme, however, tech has been one part of the economy that was able to show huge resilience. I’m thinking this won’t be as big a boon for those businesses that were relatively strong before the pandemic.
But if there’s one thing I’ve learned over the last year it’s not to take for granted the state of the economy. At any point, things could dramatically change for the worse and I expect we’d all be thankful for the furlough scheme extension.
As something like one in five businesses is preparing to make redundancies by the end of the furlough, I can’t help but thinking we’re just kicking the can down the road. I would encourage those businesses with employees on furlough to slowly begin to let people go with generous packages if they don’t think there is a job left for them. This will give the people time to find new work and not shock the system. We’ve got to be realists in business.
At GrowTraffic we made one redundancy last summer of a furloughed employee. It was a tough decision but we felt it was the best one in the long run. Fortunately, only six months later we were in a position that we could start to think about hiring again. But it could have gone either way.
In many situations, just holding a job open won’t be the right solution, either for the business or for their employees.
Will The Tech Industry Benefit From The Change In Grants In Apprenticeships?
The government is allocating £126m for traineeships with incentive grants for apprenticeships being raised to £3,000.
I think the big thing here is we’re head down in the 4th industrial revolution and technology changes so rapidly that these training schemes have to deliver what the tech sector requires long term.
About 7 years ago I had an apprentice and that poor guy got a poor level of on the job training. He was just left to his devices, both by me, my employer and the college he attended. These training schemes must be really valuable for people.
We’ve got to think about how we get STEM skills teachers into teaching roles to make sure these skills are baked into children’s education from the very ground up. Only then will the UK’s employees be ready for the huge change we’re all seeing in our lifetimes.
Do The Business Rates Changes Affect Tech?
I think there is a misconception that most tech businesses are run as back bedroom businesses that somehow earn a lot of money with few costs. There are some businesses like that but most tech businesses have to have physical locations as well.
There is going to be a change in how technology businesses provide office spaces in the future. Undoubtedly there will be more working from home and probably more working locally. But let’s not write the obituary for offices, warehousing and other physical properties just yet because that’s not going to happen. And these properties all require businesses to pay business rates.
There have been lots of complaints about the unfairness of the business rates system. I personally favour scrapping it for a sales tax, so everyone is treated equally. I suspect the country would get higher returns than are currently seen through the business rates, but it goes against the way our nation is divided and I understand why the government doesn’t go near it.
Other Thoughts on the 2021 Budget
The above represents my thoughts on 2021’s budget form a tech business perspective, but there were other areas that stood out to me.
I think one of the biggest areas that I had hoped to see included in the business was social care. Why why why was there no mention of social care, after all, they have done over the last 12 months? It’s something that we know we need to sort out and with the country in the state it is perhaps now is the time to fix it?
I also think we need to do more about the housing industry. It’s time to nudge more individual investors out of the private rental sector. It’s just no good that individuals are providing this kind of housing, essentially running businesses worth hundreds of thousands of pounds on a shoestring budget. In my opinion, this is an infrastructure problem that needs resolving.
As I said in the above section, I think it’s time to move away from the antiquated business rates system and implement a sales tax. So every sale would have a certain percentage applied to it. We have the technology to do this now and it would be relatively easy to work out what was generated in an area so monies could be redistributed to local councils. I believe this is going to be one of the best ways to deal with the tech giants and make a more level playing field for smaller competitors.
Having been involved in town redevelopment schemes through my role as Chair of our local town’s redevelopment board, it was good to see the results of the Levelling Up Fund, but I was disappointed to see the number of relatively prosperous towns included in the mix. That doesn’t sound like levelling up to me.