Britain gets tech-heavy Budget – focus on skills, productivity and taxing Internet giants

SUMMARY:

Chancellor Phillip Hammond delivered his Autumn Statement to the House of Commons today, with a budget that was more technology focused than recent years.

Chancellor of the Exchequer, Phillip Hammond

Chancellor of the Exchequer, Phillip Hammond, today delivered a budget with a strong technology focus – more so than any in recent years – to the House of Commons, setting out the government’s priorities for investment for the coming year.

The Chancellor’s Autumn Statement focused heavily on investing in digital skills, putting more capital into R&D, and made some attempts to address the growing concern that the world’s digital giants aren’t paying enough tax within the countries they operate.

Hammond also stated that the Treasury would be setting aside a further £3 billion to deal with the challenge of Brexit (on top of the £700 million already invested). However, he wanted to make clear that this budget is not simply about the UK’s exit from the European Union. He said:

But this budget is about much more than Brexit. The world is on the brink of a technological revolution, one that will change the way we work and live. And transform our living standards for generations to come. And we face a choice. We either embrace the future, seize the opportunities that lie within our grasp and build on Britain’s great global success story, or as the Party opposite advocates, reject change and return to the failed and irrelevant dogmas of the past. We choose the future, we choose to run towards change, not away from it.

The prize will be enormous. For the first time in decades, Britain is genuinely at the forefront of this technological revolution. Not just in our universities and research institutes, but in the commercial labs of our great companies and on factory floors and business parks.

The Chancellor said that he has a “clear vision” of what a global Britain looks like, where “talent and hard work is rewarded” and where Britain is a “hub of enterprise innovation”. Central to this is the Treasury’s mission to boost the UK’s lagging productivity. To support this, Hammond announced a further £8 billion (bringing the total to £31 billion) for the government’s National Productivity Investment Fund, over the next five years.

The Treasury has also allocated a further £2.3 billion in investment in R&D, and will increase the main R&D tax credit to 12%.

Chancellor Hammond also expressed support for digital businesses, announcing new funding for a range of ‘next generation technologies’. He said:

We have some of the world’s best companies and a commanding position in a raft of tech and digital industries that will form the backbone of the global economy of the future. Those that underestimate Britain do so at their peril. Because we will harness this potential and turn it into the high paid, high productivity jobs of the future.

A new tech business is founded in Britain every hour. And I want that to be every half an hour. So today, we will invest over £500 million in a range of initiatives, from AI, to 5G and full-fibre broadband. We support regulatory innovation, with a new Regulators Pioneer Fund. And a new geospatial data commission to develop a strategy for using the government’s location data to support economic growth.

Today we are publishing an action plan to unlock 20 billion of new investment in UK knowledge intensive, scale up businesses. Including through a new fund in the British Business Bank, seeded with £2.5 billion of public money; by facilitating pension fund access to long term investments; and by doubling EIS investment limits for knowledge intensive companies, while ensuring that EIS is not used as a shelter for low-risk capital preservation schemes.

The budget also included investments in driverless vehicles and electric cars. The government will establish a new £400 million charging infrastructure fund, invest an extra £100 million in Plug-In-Car Grant, and £40 million in charging R&D.

Skills

The government is also placing a heavy focus on digital and technology skills, with the Chancellor announcing a raft of investments in maths and computer science, as well as retraining for those already in work. He said:

Knowledge of maths is key to the high tech, cutting edge jobs in our digital economy. So we will expand the teaching of mastery of maths programme to a further 3,000 schools, we will provide £40 million to train maths teachers across the country, we will introduce a £600 maths premium to schools for every additional student that takes A-level or core maths. And we will invite proposals for new maths schools across England. More maths for everyone! Don’t let anyone say I don’t know how to show the nation a good time.

Computer science is also at the heart of this revolution, so we will ensure that every secondary school pupil can study computing by tripling the number of trained computer science teachers to 12,000. And we will work with industry to create a new National Centre for Computing.

But rapid technological change means that we need to help people to retrain during their working lives. Ensuring that our workforce is equipped with the skills that they need for the workplace of the future. Today, we are launching an historic partnership between the government, the CBI and the TUC to set the strategic direction for a national retraining scheme. It’s first priority will be to boost digital skills and to support expansion of the construction sector.

To support this retraining, the Chancellor said that the government will invest £30 million in digital skills distance learning courses.

Interestingly, as soon as Hammond finished his speech, Microsoft released a lengthy response to the skills investments – claiming that the government and the vendor share the same vision for skilling up the UK. The length of the response, and the speed with which it was released, suggests that the vendor and the government have had previous discussions about what was going to be announced in the Autumn Statement. See the following tweet:

Microsoft and the government have been cozying in recent months, making joint announcements and with ministers making plenty of visits to Microsoft. Observers have raised concerns about the closeness of the relationship – but we will leave it there for readers to make their own assumptions.

Reforming tax

Public concern has been mounting over the tax affairs of US technology giants – with Amazon, Facebook and Google coming under fire for routing their tax revenues through low-tax EU regions. All of which is perfectly legal, of course. However, growing pressure has been placed on the government to reform the tax system to ensure that the companies pay their fair share.

For example, experts estimate that for the 10 year period to 2016 Google has probably paid around £200 million in tax on estimated profits in the UK of £7.2 billion. That’s a tax rate of around 2.7%, when most businesses based in the UK pay a corporate tax rate of 20%.

Previous UK Chancellor of the Exchequer, George Osborne, struck a deal with Google to pay £130 million in back-dated taxes for the past ten years.

Equally, Apple was recently hit with a €13bn tax bill by the European Commission, after it ruled that the company had been receiving illegal state aid from Ireland, where its EU operations are based.

Chancellor Phillip Hammond addressed this in the budget today. He said:

There is a wider concern across this House and in the business community about the tax system in the digital age.

Along with the innovation and growth that it brings, digitalisation poses challenges for the sustainability and fairness of our tax system. But this challenge can only be properly solved on an international basis.

And the UK is leading the charge in the OECD and the G20 to find solutions. Today we publish a position paper on the tax challenge posed by the digital economy, setting out our emerging thinking about potential solutions.

In addition, Hammond said that whilst an international effort is being made to come up with a solution, the government would be taking action now by beginning to tax royalties that relate to UK sales, which digital business pay to jurisdictions that are not taxed. However, the outcome in tax revenue boost is still paltry and the Chancellor is unlikely to receive high praise for the efforts. Hammond said:

So from April 2019, and in accordance with our international obligations, we will apply income tax to royalties relating to UK sales, when those royalties are paid to a low tax jurisdiction. Even if they do not fall to be taxed in the UK under our current rules. Raising about £200 million a year.

This does not solve the problem, but it does send a signal of our determination. And we will continue work in the international arena to find a sustainable and fair long-term solution that properly taxes the digital businesses that operate in our cyberspace.

My take

As with every budget, the real meaning and impact of the announcements will come over the following days as economists, analysts and researchers get their hands on the data. We will be keeping a close eye on this.

Having said that, it’s encouraging that technology and digital is being placed at the centre of the budget. It’s long overdue. If the UK is going to create a successful economy post-Brexit, then it needs to go over and above other EU nations to ensure its productivity, skills and economy are geared towards a solid digital future. Will it be enough to overcome the pain of Brexit? The jury is still out on that.

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