The Chancellor’s Autumn Statement 2023: Commentary from Jenny Tooth OBE, Executive Chair UKBAA

The Chancellor, Jeremy Hunt’s Autumn Statement was set out in the context of the Government’s commitment to cut inflation, reduce public debt and bring down borrowing – and in the wake of the encouraging OBR forecasts. The Chancellor’s key focus was on cutting tax and rewarding hard work, backing business investment and boosting growth, including a further raft of measures to support science, technology and innovation.

Extension of the EIS and VCT Tax Reliefs Scheme:

We were especially delighted to hear as part of these measures that the EIS scheme sunset clause has been extended from 2025 to April 2035. However, we are aware that the legislation must still pass through a number of stages to pass domestic and international subsidy criteria before reaching implementation. Nevertheless, we hope that this announcement will provide a more certain framework to our investment community to plan their financial commitment and support to growth focused entrepreneurs going forward, whilst enabling us to raise greater awareness and encourage greater take-up of EIS and SEIS across the UK.

With a focus on supply side measures, the Chancellor’s decision to bring the National Insurance rate down from 12% to 10% for individual employees and to address the additional burdens for self employed, whilst bringing implementation forward to January 2024, is clearly a welcome move. Nevertheless, the Chancellor did not propose any change to the underlying tax bands for personal income tax that have remained unchanged for the past three years and so we must conclude that any changes have now been pushed forward to the Spring Budget 2024.

For businesses, the decision to make full expensing permanent will be a welcome offset to the higher rates of Corporation tax , enabling companies to offset 25p for every pound they invest off their tax bill, including the 50% first year allowance for special rate assets.  This should give some certainty to longer term planning for investment. The continuing support to small business rates relief is also valuable and supporting also the retail and hospitality sector as well as high streets for a further year.

Support to Businesses focused on Technology and Innovation:

R&D Tax Credits: The changes to R&D tax credits have been an ongoing challenge to many of the businesses backed by our Angel and early-stage community and UKBAA has made vigorous responses on our members’ behalf to Government consultations. The Chancellor has confirmed that the two schemes for smaller businesses and larger businesses will now be merged from April 2024, but the rate at which loss-making companies are taxed within the merged scheme will be reduced from 25% to 19%.  It is also good to see that the R&D intensive scheme which had the complication of requiring 40% annual investment expenditure on our has now been reduced to 30% – which allows around 5000 extra businesses to qualify for enhanced rate of relief. This is particularly important for the smaller tech companies that many of our angels are supporting and also offering a one-year grace period has been introduced so that companies who dip under the 30% threshold will continue to receive relief for one year. We will be monitoring these changes to assess the impact on the innovative businesses that many of our angels back and will be keen to get your feedback.

Unlocking Pensions to invest in innovating growth potential businesses:

The Chancellor announced a further number of actions following the Mansion House reforms announced in July. The package of measures builds on the momentum gained over the summer which saw further signatories joining the Mansion House Compact taking the total number to 11 and the launch of the BVCA’s Venture Capital Investment Compact. These developments increase the opportunities to aggregate and consolidate these funds and increase the opportunities for defined benefit schemes to invest in productive finance, while protecting their member benefits.  

We are particularly concerned at UKBAA that the benefits offered by the Pension Funds and these new Compacts will benefit the Angel and Early-Stage investment market and not just be directed towards the growth end of Venture. We will be working to address this with key partners across the supply chain as the infrastructure for mobilisation of these new Pension funds is put in place.

The further measures for Pension Funds include:

£250m to two successful bidders in the Longterm Investment for Technology and Science LIFTS initiative, subject to final agreement, which will create new investment vehicles to mobilise pension funds generating over a billion pounds of investment from pension funds and other sources into UK science and technology companies.

A new Growth Fund within the British Business Bank, providing a permanent capital base of over £7bn to give Pension Funds access to investment opportunities in the UK’s most promising businesses.

The Chancellor also confirmed the launch of a new Venture Capital Fellowship programme based on the programmes by the Kaufman Foundation in the US which will focus on creating a new cohort of world leading investors in the UK’s venture capital funds. This was announced alongside measures being taken by government to reform legislation to give effect to Solvency II reforms to ensure a more targeted regulatory regime for the insurance sector enabling private investment into productive assets. Further measures were also announced to boost investment in the public markets to take forward further recommendations from the Lord Hill review.

Horizon Funding opportunities: Having associated the UK to the Horizon Europe and Copernicus programmes this summer, the government has announced ambitious investments of over £750 m in UK R&D this financial year including a £250m dedicated to long term world class discovery fellowships , alongside £145m for new Business Innovation support and establishment of a National Academy focused on mathematical sciences.

New POC Fund: Following the recommendations of the independent Review of University Spinouts which were announced last week and strongly endorsed by both Academia and Investors, the government has agreed to provide £20m for a new cross-disciplinary Proof of Concept research funding scheme to help prospective founders in the UK’s Universities demonstrate the commercial potential of their research.

The extension of the British Business Bank’s Future Fund Breakthrough programme has also been announced providing at least £50m additional investment in the UK’s most promising R&D intensive companies.

Further measures to support key growth sectors of the future: 

Advanced manufacturing: £4.5bn has been announced to help unlock private investment in strategic manufacturing sectors starting in 25-26 lasting for five years. This includes £2bn for the automotive sector to support manufacturing development of zero emission vehicles, batteries and supply chain; £970 m for the aerospace sector to support zero carbon aircraft technology and £960 million to support a Green Industries growth accelerator to support investments in manufacturing capabilities for clean energy sectors

Additional Funding to support AI. Measures include the launch of the first AI safety institute with £100m investment and launching a pilot AI regulatory sandbox in March 2024 and also offering £1m award prizes to researchers on the safe responsible application of AI over the next 10 years.  In addition, building on the £900m investment committed to develop new super computers in Spring 2023 budget, a further £500m is being invested in computer potential to allow researchers and SMEs is to develop new foundation models for AI, including for example the discovery of new drugs.  This will complement the government’s £100m AI Life Sciences accelerator mission already announced by the Prime Minister to use health data and cutting edge AI to address some of the most pressing health challenges.

Life sciences: In addition to the £121m funding committed in May 2023, a further £520m in funding has been announced from 2025-26 to support transformation of manufacturing in life sciences, including £10m with an additional £10m from Scottish Enterprise to develop a world class manufacturing centre of excellence in Scotland also providing £5m seed funding to help launch the Fleming sector through a collaboration led by Imperial College and Imperial College NHS Trust to support the next generation of world changing health innovations.

Creative Industries: Following the publication of the Creative Industries Sector Vision in June 2023, £77m has been allocated in new government spending together with significant tax reliefs worth £1.6bn to maximise the opportunities for growth of this sector. This will include boosting the international competitiveness of tax incentives to support key sub sectors including the Visual effects sector and to support the production of Film and High end TV across the UK.

Extending Investment Zones: as part of its Levelling up Agenda, the government is extending the investment zones programme from 5 to 10 years and doubling the envelope of funding and tax reliefs available in each investment zone from £80m to £160m. A new set of Investment Zones, including Greater Manchester West Midlands and East Midlands and also an additional investment zone in Wales. These thirteen Investment Zones to be established across the UK offer important opportunities to build further capacity among the Angel and early stage community in these chosen localities and support the development of an effective investment ecosystem within these new zones.

Overall, the Chancellor has announced some valuable funding commitments to support businesses, innovating entrepreneurs and investors.  The greater certainty around the EIS/SEIS Tax reliefs is a very welcome boost after a challenging climate for equity investment these past 12 months, although, we will have to wait to the Spring Budget for further details of any further tax cuts or investment stimulus. As we move forward to the Election Year ahead, we will continue to keep in touch with these financial and policy commitments and we will be monitoring the impact of these developments for our community and we welcome your feedback and views.

For further details see here: Autumn Statement 2023 

By UKBAA 23 Nov 2023