The Autumn Statement of growth? Startups react

The Chancellor, Jeremy Hunt, has delivered the Autumn Statement and has outlined a package of 110 economic measures to boost economic growth.

Coined as the Autumn Statement of Growth, the Chancellor stressed the “economy has grown but work is not done,” and that the government “backs British business.”

Key measures include an additional £500m for the development of computing power for artificial intelligence, making the full expensing program permanent, and a freeze on the small business multiplier for a further year.

Here’s how startups reacted to the Statement.

AI’s growing coffers

The further £500m in funding for the development of computing power has been welcomed by AI startups.

“It’s excellent to see the Chancellor react to feedback Genie AI and the rest of the startup community have provided when it comes to investment in the AI sector – in particular the need to compete through compute resources,” welcomes Rafie Faruq, cofounder and CEO of Genie AI.

“The question is more whether the amount is enough, and will it be distributed effectively and fairly? Some companies and institutions are building foundational LLM models from scratch, which can take tens of million of pounds to train, whilst others only need fine-tuning resources,” he warns.

Similarly, others are calling for more holistic support for AI startups.

“The announced £500m into supercomputers over the next two years is encouraging, but to really unlock our high-growth potential, we need a longer-term strategy that will ensure our universities, scientists, and startups can continue to innovate and build their IP with a strong ecosystem of support, wherever they are based in the UK,” says Jason Teng, Partner at Potter Clarkson.

Full Expensing is now permanent

After speculation about whether full expensing would be made permanent or not, the Chancellor has confirmed the macroeconomic conditions are appropriate to make the tax break permanent.

Full expensing is a 100% first-year allowance which allows companies to claim a deduction from taxable profits that is equal to 100% of their qualifying expenditure.

Startups are split in their reaction to this measure, with some arguing it simply is not enough to support small businesses.

“The Chancellor’s pledge to make full expensing permanent for businesses is of no benefit at all to pioneering SMEs in the critical R&D phase,” claims Diane Gilpin, founder of Smart Green Shipping. “The only ones that stand to benefit are big business. What we need to focus on is accelerating early-stage innovation.”

Others applaud the move, albeit with some caution.

“There’s enormous demand for lab space and once in situ, companies inevitably need to create the right environment and facilities for research, testing and production,” outlines Stuart Grant, CEO of ARC.

“Although not relevant to all of our members, for those that it is, it might not materially alter their spending intentions, as scaling science and tech companies already have a clear plan to help them realise their strategy,” he adds.

“It will, though, see a return on that investment happen sooner, which can only be a good thing,”.

Pensions schemes for investment in high-growth companies

The Autumn Statement confirmed the furtherance of the Mansion House Reforms through a £320m pot to unlock investment in the UK’s most promising high-growth companies by pension schemes.

The Mansion House Reforms are expected to provide an extra £1,000 a year for the average earner that starts saving from 18 and unlock economic growth.

“UK pensions are a source of untapped wealth which will both enable more investment into fast-growing tech startups and help the UK cement itself as a global leader in the sector,” welcomes James Clough, CTO and cofounder of Robin AI.

“With increased funding, we would not only see more startups harnessing rapidly evolving technologies but also more skilled individuals being attracted to the UK and world-leading companies staying and listing here,” he adds.

Priya Oberoi, Founding General Partner at Goddess Gaia Ventures also sees the move in a positive light. “Tapping into the latent wealth of UK pensions will unlock greater funding routers for high-growth companies, particularly healthtech startups where the road to commercialisation is long and requires significant patient capital.”

Although the Mansion House Reforms are seen by startups as a way to unlock the investment power of pensions, to others, the Statement was a missed opportunity.

“It’s disappointing that there was no mention of closer ties between innovators and regulators, which would have allowed fintech a seat at the policy table,” laments Babs Ogundeyi, CEO and cofounder of Kuda.

Changes to the R&D tax scheme

The Chancellor announced that loss-making companies that are taxed within the R&D scheme will now have their rates reduced from 25% to 19%. The threshold for additional support for R&D intensive loss-making SMEs will be lowered to 30%, benefiting a further 5,000 SMEs.

The R&D tax relief scheme has also been combined into one, merging the R&D Expenditure Credit and SME schemes.

“The move by the Chancellor to reduce the rate of tax for loss making companies is a significant step in the right direction for the tech startup community,” praises Seb Wallace, Investment Director at Triple Point Ventures.

“By reducing scrutiny and streamlining the process for R&D claims, the government is sending a clear message of support to innovation-driven businesses. This decision fosters an environment where companies can channel more energy and resources into what matters most – groundbreaking research and development,” he continues.

Others similarly applaud the simplification of the R&D tax scheme.

“More funding is pivotal to innovation,” welcomes Clough. “This decision particularly affects AI startups as high computing costs can make research within this sector a very capital-intensive exercise.”

“After last year’s Autumn Statement, we saw confidence amongst UK SMEs drop significantly, with about one-third feeling less confident in their ability to grow,” reminisces Ralph Rogge, cofounder and CEO of Crezco.

“Simplifying R&D tax credits will allow SMEs to invest deeper into technology and innovation, further establishing the UK as a fintech and entrepreneurial powerhouse,” he notes.

For other startups, the measure is still oblivious of early-stage startups and their research and development needs.

“The Chancellor’s raft of announcements today benefit scale-ups and later-stage companies but we are still missing genuine support for early-stage startups,” says Neil Ruth, founder of Well Cell. “Without the right support for homegrown startups, the UK risks losing huge potential from a technical, talent and economic standpoint to more startup-friendly shores abroad right from the earliest days.”

The Public Sector Productivity Programme

The Chancellor also updated the Treasury’s Public Sector Productivity Programme, which has outlined opportunities to cut admin, safely harness AI and deliver early interventions to relieve pressure on public services.

The programme has been welcomed with cautious optimism by small businesses.

“It’s encouraging that this year’s Autumn Statement recognises the critical importance of low productivity levels in the UK’s Public Sector, however, an over-reliance on tech and AI is misguided,” warns Anthony Impey, CEO of Be the Business.

“We must recognise there is no silver bullet for this crisis and expand our focus to include an emphasis on the development of management, leadership, and digital skills which are crucial for the successful implementation of tech in business,” he continues.

What was missing from the Statement?

Amongst all the measures the Chancellor outlined, some startups believe there were crucial points that were missing from the agenda.

“The PSTN switch-off is the biggest shake-up of the telecoms sector in a long time, it will help the UK to maintain its position as the ‘third-largest tech country in the world’. That’s why it’s incredibly worrying that the Government has not set out more measures to ensure a smooth transition,” worries Simon Hochhauser, CEO of PiPcall.

“Lots of businesses are still yet to realise how the switch will impact them; with many using legacy technology like fixed-line office phones, they could be left without sufficient communication if they aren’t careful. Organisations should not wait for the Government to implement measures, they must upgrade their technology now,” he recommends.

How are startups looking at the year ahead

As Parliament debates the measures outlined by the Chancellor over the next three days, startups are looking ahead with some cautious optimism.

Although some policies are warmly welcomed by startups, there are about how the additional pots of funding will trickle down and impact small businesses.

“The Autumn Statement provides top down guidance, however much government investment is lost through operational and allocative inefficiencies,” warns Faruq. “UK business investment has been 9.5% of nominal GDP over the past 10 years, compared to 11.2% on average between France, Germany and the US, indicating a need to double down on business and, by extension, startups.”

“Generally speaking, these are good measures,” he says. “The R&D Scheme has long been bureaucratic and cumbersome for little marginal benefit. There’s more the government could do, such as simplifying the tier 2 visa scheme to hire skilled workers, and simplify the Innovate UK grant scheme, in particular the application and ongoing management of grant programmes.”

As the UK gears up for next year’s general election, exclusive Startups data showcases that businesses have a strong interest in government assistance, particularly in access to capital and funding.

In fact, regulations that favour small businesses will carry political weight – of the small businesses we surveyed, 54% said their vote would be affected by the business incentives they receive.

As the year continues and the effects of the policies of the Autumn Statement take effect, small businesses will continue to request measures that will foster stability and growth following a tumultuous economic year.