The Autumn Budget 2024: what's in it for tech?

31 Oct 2024 08:22 AM

Amidst a challenging fiscal landscape, Chancellor Rachel Reeves delivered her first Budget under the Labour Government—the first Labour Budget in 14 years that will define the next few years in office. 

The Chancellor presented the Autumn Statement focused on fixing the foundations, balancing the ambition to “return to economic stability” while trying to create the right environment for investment.  

The Budget introduces a substantial and lasting rise in spending, taxation, and borrowing. Budget measures are set to boost spending by nearly £70 billion annually over the next five years, with around two-thirds allocated to current expenditures and one-third directed toward capital investments. 

The Chancellor presented several different announcements aimed at increasing investment while setting out changes to the Government’s ‘fiscal rules’, with a new emphasis on stability and investment.  

What did the budget tell us about the economic outlook for the UK:   

According to the Office for Budget Responsibility (OBR), the outlook for the UK economy is forecast to grow by just over 1 percent this year, by 2 percent in 2025, before falling to around 1.5 per cent which is slightly below the estimated potential growth rate of 1 2/3 percent, over the remainder of the forecast.  

There was positive news for inflation. The OBR forecasts inflation will rise by 2.6 percent in 2025 due to budget policies, before falling back to the BoE’s target of 2 percent. The next interest rates cut is expected from the Monetary Policy Committee (MPC) next week.   

The Chancellor has recognised the potential technology will fundamentally reshape the UK economy and support sustained economic growth, as demonstrated by the promise of a Cross-government Review of Technology Adoption for Growth, Innovation and Productivity.  

Additionally, for the next financial year, all government departments have a 2% productivity, efficiency, and savings target. There is no doubt, technology will play a role in supporting government departments reaching this target.  

However, there was a significant rise in employer national insurance contributions that will have an impact on businesses and their ability to invest.  

Below we provide an overview of: 

• What tech focused announcements were there in the budget sector

• Details of the Government’s Corporate Tax Roadmap

• Other announcements of note to techUK members

• techUK’s take on the budget

What tech focused announcements were there in the budget?

Below, we outline key recommendations that the Chancellor has acted on to better seize the role of technology and digitisation to drive investment and growth:   

• Cross-Government review of technology adoption for growth, innovation and productivity.  
  
  Announced in the Budget, the government will task the government Chief Scientific Adviser, Professor Dame Angela McLean, with National Technology Adviser, Dr Dave Smith, to lead a review on barriers to the adoption of transformative technologies that could enhance innovation and productivity, with a focus on the growth-driving sectors identified in the Industrial Strategy green paper. Reinforcing the government’s growth mission, the review’s recommendations will directly inform the development of the industrial strategy and sector plans that will be published alongside Phase 2 of the Spending Review. 
  
  In techUK’s Growth Plan, we call for using digital and technology adoption to improve the resilience, efficiency and quality of our public services, delivering better outcomes for UK taxpayers. We note that virtually every other business sector has a ‘growth plan’ predicated on greater digitisation and the use of new and emerging technologies.  

• Taking steps to encourage digital adoption in SMEs through e-invoicing and a renewed Digital Adoption Taskforce, with a £4 million pilots’ package to encourage tech adoption for SMEs
  
  Announced in the Budget, the government will publish a consultation in early 2025 to establish standards and increase the adoption of electronic invoicing. 
  
  techUK’s Growth Plan called for prioritising digital record keeping including e-invoicing that can result in savings and productivity gains. E-invoicing can have huge advantages for the Government. It supports international trade and boosts revenue for Governments and enables real time visibility of the state of the economy. 
  
  Alongside this, to support more small businesses’ digitisation efforts, the government will extend the SME Digital Adoption Taskforce, and it will produce an interim report early in 2025. The Department for Business and Trade will soon announce details of a £4 million pilots’ package to encourage tech adoption for SMEs. 
  
  Additionally, we called for addressing productivity challenges and enable SMEs to unleash the benefits that AI can bring with better SME digitisation support. This included deliver a comprehensive digital adoption plan with clearly defined targets by 2030. 

• Closing the tax gap through modernising IT and data systems within HMRC 
  
  The Budget noted that the government will invest in modernising IT and data systems to improve HMRC’s productivity and improve taxpayers’ experience of dealing with the tax system, delivering the modern and digital service businesses and individuals expect. 
  
  In the Growth Plan, we pointed to specific failure on customer service from HMRC on delivery of the R&D tax credit, resulting in additional cost for the taxpayer and Government. We call for the Government to achieve real transformation by addressing the UK Government legacy IT and data challenge. 

• Funding doubled for the Made Smarter Adoption Programme. 
  
  The Budget announced that funding for the Made Smarter Adoption programme will double to £16 million in 2025-26, supporting more small manufacturing businesses to adopt advanced digital technologies and enabling the programme to be expanded to all nine English regions. 
  
  Our Growth Plan called for expanding the Made Smarter Adoption Programme given the North-West Made Smarter pilot programme, supporting technology adoption in the manufacturing sector, injected up to £115m in GVA to the region. While we called for expansion across sectors other than manufacturing, this is still a step in the right direction. 

• Protection for the UK’s R&D budget and boosting innovation through stability and effective delivery of R&D tax reliefs. 
  
  The Budget confirmed protecting core R&D budgets, with a real terms increase in funding for the National Institute for Health and Care Research to support the NHS and wider health and care system in driving a revolution in research, life sciences, med tech and data. 
  
  The Corporate Tax Roadmap, released alongside the Budget, outlined enhancing the administration of R&D reliefs by establishing the R&D expert advisory panel, along with maintaining the generosity of the rates for the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs. 
  
  Our Growth Plan called for using the R&D tax reliefs ‘Expert Advisory Panel’ to inform recommendations around HMRC’s administration, operation and delivery the R&D tax credit. 
  
  techUK also called for maintaining stability of the credit to instil business confidence so maintaining the generosity of the rates is welcome.  

• Clarifying how full expensing applies to computer software. 
  
  The Corporate Tax Roadmap further outlined clarity on what qualifies for different capital allowances. The government will provide businesses with greater clarity on what qualifies for capital allowances to help make investment decisions. HMRC has already issued several guidance changes following discussions with industry and tax experts on common areas of uncertainty such as the treatment of computer software and the interaction between the annual investment allowance and full expensing. 
  
  techUK’s Growth Plan called for encouraging business investment, and that the tech sector reaps the full benefits of the full expensing regime by clearly including technology products in upcoming guidance. 

The Government’s Corporate Tax Roadmap 

The Corporate Tax roadmap, released alongside the Budget, aims to provide clarity about the business taxes and highlights some areas where the government expects to consider changes to ensure the tax system remains dynamic.  

This includes detailed plans for improving the operation, accessibility and targeting of key schemes, including further reducing fraud and error, and improving HMRC customer experience. This predicates around priority areas of: predictability, stability and certainty.  

Major commitments made in the Roadmap include: 

Corporation tax: Capped the headline rate of Corporation tax at 25% for this Parliament. Along with monitoring international developments with a view to ensuring that the UK’s regime remains competitive. 

Digital Services Tax: A commitment to removing the Digital Services Tax (DST) once the Pillar 1 global solution is in place. A review of the DST is due next year, and the Government will consider the timings and the format of the review considering the progress made on Pillar 1 implementation in the coming months. 

Capital allowances: Maintained permanent full expensing for this Parliament. Maintaining core features of the UK’s capital allowances regime including the £1 million Annual Investment Allowance. Further exploring how to provide greater clarity on what qualifies for different capital allowances to help make investment decisions.  

Full expensing: Will explore an extension of full expensing to assets that are bought for leasing or hiring. 

R&D tax reliefs: Maintained the current rates for the merged R&D Expenditure Credit scheme and the Enhanced Support for R&D intensive SMEs. Enhancing the administration of R&D reliefs by establishing the R&D expert advisory panel, continuing to improve signposting and guidance on R&D reliefs. Launching an R&D disclosure facility by the end for 2024. Launching a consultation on widening the use of advance clearances in the R&D reliefs. 

The Government also committed to £25 million in 2025-26 to launch a new multi-year R&D Missions Programme to solve targeted problems that will crowd in private and third sector investment to accelerate delivery of each mission. 

Tax administration: The Government will develop and consul on a new process that will give investors in major projects increased advance certainty. Update in spring on how the government will take forward it ambitions on modernising the technology the CT system relies on. 

Other announcements of note to techUK members: 

Capital Investment: Capital investment will increase by over £100bn over the Parliamentary term. An increase in public services investment which includes £3.75bn on the NHS, £1.4 on schools, £1.2bn on prisons and £1.4bn in road maintenance. 

Employer National Insurance contributions: Increased rate by 1.2 points to 15%, cut the Secondary Threshold to £5,000 until 5 April 2028 and uprate with CPI thereafter. Increase Employment Allowance to £10,500, remove the £100,000 Employment Allowance eligibility threshold. 

National Living Wage: Increase the national living wage by 6.7% to £12.21 an hour. 

Carried interest: Increased the rates of Capital Gains Tax on carried interest to 32% from 6 April 2025, then move the carried interest taxation regime to the income Tax framework from 6 April 2026 onwards. 

Capital Gains Tax: Capital Gains Tax increase the main rates of CGT to 18% and 24% from 30 October. 

Carbon Border Adjustment Mechanism (CBAM): Confirming sectoral scope of the UK CBAM from 1 January 2027 to be aluminium, cement, fertiliser, hydrogen, and iron and steel. On this, techUK had called for delivering a response on the design and delivery of UK CBAM as soon as possible following the March 2024 consultation.  

Health: The NHS budget will rise by £22.6 billion by 2025/26, amounting to a 4% real terms growth rate across two years. Capital spending will also rise by £3.1 billion by 2025/26. This will cover new diagnostic equipment and surgical hubs. 

HMRC modernisation: To be announced in Spring 2025. Increasing tax receipts from modernising HMRC systems and data. 

AI Action Plan: The Government will soon publish the Artificial Intelligence Opportunities Action Plan, outlining a roadmap to leverage AI for growth, productivity, and improved public services. 

techUK’s take on the Budget:  

Responding to the Chancellor’s Autumn Budget, techUK CEO Julian David said:   

“We are pleased to see that the Chancellor has acted on recommendations from techUK’s Growth Plan that will help drive business investment and productivity increases in the medium term.   

These include improving technology adoption in public services through clear targets, taking steps to encourage digital adoption in SMEs through new pilots, e-invoicing, a renewed Digital Adoption Taskforce, and protecting the UK’s R&D budget. Clarifying how full expensing applies to computer software and a cross-government Review of Technology Adoption have the potential to be significant.   

However, heavy tax rises on businesses will have an impact now and come before seeing the Government’s complete offer on growth.   

To help businesses have the confidence to invest against this background of increased costs, the Government must act fast and bring forward its plans for AI opportunities and the detail of the Industrial Strategy.   

techUK and our members stand ready to work closely with the Chancellor and her team in the weeks ahead to achieve this.”