Yesterday we saw the first Budget of Boris Johnson’s majority government, delivered by newly-appointed chancellor Rishi Sunak. We’ve been waiting for this Budget for a while, after the address scheduled for Autumn 2019 was postponed due to the surprise general election. Now, with the spread of Coronavirus at a pandemic stage, we’re faced with a new variety of uncertainty for the country.
So what policies has our tumultuous political landscape led us to? During his one hour speech, Sunak pledged generous resources to help curb the spread of Covid-19, copious spending on infrastructure and innovation across the country, and some welcome news for the UK’s small business community.
Policies and funding to cope with Coronavirus
Sunak opened with some extraordinary measures for Coronavirus and a promise to ‘put aside party politics and act in the national interest’, assuring that the public services are already well prepared (a statement that Jeremy Corbyn later cast aspersions on), and that anything the NHS needs will be granted by government. Special measures to soften the impact of the virus include the following:
- Statutory sick pay for all those advised to self-isolate, even if they don’t have symptoms, starting from day one
- Self-employed workers who are not eligible for statutory sick pay will be able to claim contributory Employment Support Allowance (ESA), starting from day one
- Sick notes will be available via 111
- A £500m Hardship Fund will be disbursed by local authorities to help the most vulnerable
- Businesses with fewer than 250 staff will be refunded for sick payments for up to 14 days
- HMRC will accept deferred corporation tax payments from businesses in financial distress and has established a dedicated helpline to facilitate bespoke agreements
- Small firms will be able to access “business interruption” loans of up to £1.2m to help manage cash flows. The government will cover 80% of any losses with no fees to business or banks
- Business rates for retailers, leisure and hospitality sectors with a rateable value below £51k to be abolished for one year
Changes to business policies affecting SMEs
Now on to the much anticipated news around incentives for entrepreneurs. Over the past few weeks, rumours have circulated that EIS/SEIS were under threat and Entrepreneurs’ Relief (the tax break in place to incentivise people to forgo a reliable income and start their own venture) would be scrapped. Well, EIS/SEIS remain untouched and Entrepreneurs’ Relief has been reformed rather than abolished. Sunak declared that Entrepreneurs’ Relief currently costs £2b – three quarters of which goes to just 5,000 individuals – and has limited effectiveness, given that less than one in 10 claimants say it was an incentive to set up a business. As such, the lifetime limit for Entrepreneurs Relief has been reduced from £10m to £1m of gains.
We know from our own data (and many anecdotes from our friends across the ecosystem) that this scheme also allows successful founders to invest back into the UK’s high-growth economy: 28% of founders who have successfully exited a company will reinvest in the UK’s high-growth ecosystem, and we hope to see that figure continue to rise. It will be interesting to see if the reform has any adverse effects on this figure over the coming years.
We welcome the increase of research and development expenditure credit from 12% to 13%, allowing companies to claim more support for their R&D function (although we’d like it to go further in the future). Sunak also promised £200m in venture and growth capital for British Business Bank to invest in the UK’s scaling companies, along with a £130m extension to the startup loans scheme, and £5b in loans for exporters, all of which we’re very pleased to see.
Policies and spending on technology and innovation
A number of policies have been put in place and funds allocated to drive innovation, especially when it comes to sustainability. The most significant of these is an extra £22b a year spending on R&D in order to ‘invest in ideas’. This is the highest percentage of a country’s GDP being spent on R&D in 40 years, and takes UK spending proportionally beyond that of the USA, Japan, France and China.
Sunak referenced the difficulties of implementing effective and competitive regulation for digital markets, but promised future regulatory reforms to digital and tech businesses are pro-innovation and coherent. There will also be a review of the UK fintech sector led by Ron Kalifa OBE, to support growth and competitiveness.
Policies and spending on technology and innovation
Much of this budget is very positive for the UK’s startups and scaleups, and it’s encouraging to see that measures are being put in place to protect the UK’s SMEs as well as possible through the Coronavirus outbreak.
Outside of the policies mentioned above, we’re pleased to see that attention is being drawn to the regional inequalities between the north and south of the country and the devolved nations. We’d like to see the increase in government spending in these areas reflected in the growth of the high-growth ecosystems in areas outside of the capital, which currently dominates the scene.
Given everything he proposed, we’ll be watching closely to see whether this novice chancellor really can ‘get it done’.