Small business voices react to Spring Budget 2023

Today’s budget announcement by chancellor Jeremy Hunt has drawn mixed reactions from among the UK’s startup and small business community.

Some policies have received a welcome reception, including the announcement of 12 entrepreneurial ‘investment zones’; the extension of emergency support for high energy bills; the ‘full expensing’ announcement, and a pro-parent childcare support policy that initially, at least, sounded like a godsend for parents and their employers.

However, plenty in the startup sector have responded with reservation to the list of policies, wary of the tangible impact they’ll actually be able to make among a small business community reeling from recent crises. We’ve gathered some initial responses to the Spring Budget 2023, below.

More on this:

• “We’re a long way from Startup Britain” – Spring Budget Review
• What small businesses wanted to see from the Spring Budget

Childcare support feels like a political mirage, not an immediate lifeline

You can picture the delight of many a parent upon learning they’d suddenly be eligible for up to 30 hours of free childcare support per week for toddlers under three. The policy is clearly intended to help the (overwhelmingly female) parents who’ve had to make the tough decision not to return to work, due to some of the highest childcare costs in the world.

For a parent of a toddler under three, living in London – and yes, I’m one such parent – the support could put £10k per year back in pocket. Cue jumping for joy on Tuesday night when the announcement was previewed.

For employers, too, this would be a windfall. Not only do they keep or gain a skilled workforce having to otherwise make a lifechanging call, but those staff get a far larger effective ‘pay rise’, courtesy of the government subsidy, than most employers would be able to offer them.

And then, the reality of the plan hit on Wednesday at around 1.30pm. Jeremy Hunt announced that the proposed support wouldn’t roll out in its entirety until deep into 2025. Two year olds, for example, won’t be eligible for the 30 hours of free care until 2025, beginning with 15 free hours from April 2024 (anyone want to guess when my own little bundle turns three?).

There’s no one who’d realistically believe the Tories will be in power to see this all through. The promised support for parents is less of a ready-to-go gift, and more of a political mirage, blurring on the distant horizon. It’ll be a neat little point of campaigning come election time – “remember what we promised for parents?” – and then, a cynical trap for a future Labour government to navigate. Either Labour fails to find the money, and the remaining Tory MPs get to call out a failure to support parents; or, Labour sees through on the commitments and whoever’s left on the Tory benches claims credit for the idea.

Meanwhile, small businesses desperate to attract and keep talent will see no material difference for a year, and parents of young children will continue to deal with eye-watering childcare fees throughout the next 12 months of the cost of living crisis.

Slim pickings for small business

Today’s Budget was touted as one for growth but there’s not much small businesses will have taken from it.

While small firms are busy creating the jobs, the news that returning mothers and returnships for the over 50s may help them fill their vacancies will be welcome – but no amount of tax tinkering can make up for the incremental rise in Corporation Tax that hits well before £250K in profits and effective slash in their incomes especially when energy costs are still so high.

What we would have liked to see were measures on how small businesses can be supported to boost digital adoption, how Brexit freedoms could be used to help them sell their wares to the world, and to secure contracts with government.

The announcement did confirm a long-coming change in the landscape of business support with local economic decisions moving from Local Enterprise Partnerships to local councils. This spells significant change and it’s not clear how local councils will handle this.

A budget of promise for tomorrow, not today

This was largely a Budget of promise for tomorrow, not today. There were some welcome announcements, such as investing £2.5bn into quantum over the next decade which will deliver rewards in decades to come. And, it was good to see the importance of R&D in promoting innovation recognised. Ultimately, though, for the UK’s fast-growth tech sector to thrive, the burning issue remains later stage funding.

Announcements around the defined contribution pension funds and making the London Stock Exchange (LSE) and AIM a better place to list have been deferred to the Autumn Statement.

Today, the Nasdaq remains the leading market in terms of liquidity and trading for technology companies so there is considerable ground to be made up to shore up the scaleup ecosystem in the UK.

If we compare the UK’s investment to the German government’s ‘Zukunftsfonds’, which is mobilising tens of billions of Euros in equity funding for technologies of the future, the optics do not look good. The focus on the UK’s vibrant ecosystem is still not sufficient to create a pipeline of tech companies suitable for public markets.

The funding gap between early and late-stage businesses is simply too large

It’s somewhat a relief that there haven’t been any big surprises in this Budget. After a tumultuous few months, it’s great to see the government beginning to build back the confidence of early-stage businesses and prove that growth is a priority in our ambition to become a tech and science superpower.

This starts with R&D – the funding gap between early and late-stage businesses is simply too large. So while there was something of a U-turn on the R&D tax credit scheme cuts – which has been in place for over a decade – it feels like an act of appeasement and compromise rather than progress. This will have a significant impact on early-stage tech businesses and Britain’s research capabilities, especially those that cannot devote 40% of their total expenditure to R&D investment.

Active investment into unlisted equities through pensions also needs to be promoted, so we can match the might of other European hubs that are using pensions to their advantage. This has once again been kicked down the road and we look forward to the potential introduction in the autumn of investment in high growth firms from defined contribution pension funds, as the proposed changes have the potential to unlock billions in investment capital.

While there is the welcome recognition of innovation and talent beyond London with the introduction of 12 new investment zones, this same promise of investment into broad areas needs to be applied to tech businesses who cannot devote so much of their budget to R&D.

We proved over the weekend that we can respond quickly to a crisis by supporting the startups impacted by the fall of SVB. Let’s keep that momentum.

Only a very small portion of UK businesses will be eligible

The government clearly recognises that its decision to cut tax relief for all SMEs in November undermines its ambition to make Britain the next Silicon Valley. In particular, the government’s new funding for R&D-intensive businesses will allow the UK’s most innovative companies to do what they do best. The structure the Chancellor ran through sounds sensible and clear, with 40 per cent of spend being a straightforward figure and goal for others to work towards.

However, it is a lot more targeted and therefore not as accessible. Forty per cent of spend on R&D is very high, so only a very small portion of UK businesses will be eligible. The government estimates about 11,000 businesses could benefit, which is about 14% of current claimants. All other small businesses that don’t meet the threshold will still see a cliff edge in funding, which will most certainly have an impact on the UK’s innovation as a result.

Furthermore, while its definition of “research-intensive SMEs” is clear, we don’t know which companies and what activity will be eligible. It would be great to see green innovation incorporated into this. It was a little disappointing not to hear more mention of funding relating to R&D in environmental technologies, which the UK could be a world leader at. To drive forward the sustainable transition, specific tax incentives must be considered around green R&D. If they can include that in definitions, it could provide a boost both to our innovation and net-zero objectives.

This could particularly harm young companies

While it’s great to see the government has decided to largely reverse its decision to cut R&D tax credits scheme for high tech companies, those measures should stretch to companies at all stages and sectors of tech. The cut to R&D credits still remains for those companies that can’t afford to allocate 40% of their research and development investment.

This will particularly harm young companies, which is concerning because these are the businesses most likely to create the growth we need from early-stage to scaleups. Therefore, it is vital to keep the policies and picture consistent across these companies, to avoid funding gaps and to encourage scaleups to remain in the UK.

Strange absences

It was strange that an extension of the EIS and VCT schemes was not mentioned. There is a lot of work to be done to keep the UK globally competitive, and current Government policy has not yet met with very positive rhetoric.

These are critical schemes for UK startups, and it is odd that the extension, which has no new fiscal impact, has not been swiftly implemented. It is one of the few areas, post-Brexit, where the Government truly enjoys new powers.

Looking forward, I’d encourage the government to maintain close oversight of the FCA, in its efforts to continue to support the startup ecosystem. The FCA recently introduced unwieldy and complex regulations affecting startups disproportionately – such as the Consumer Duty and new restrictions on the financial promotion of alternative investments.

The impact will only be felt by larger businesses

The new policy announced by the Chancellor around ‘full capital expensing’ will go some way to reducing concerns over the increases to corporation tax, but its impact will only be felt by larger businesses.

It will not bring any further relief to small businesses, who already received such relief from the previously announced Annual Investment Allowance.

The investment zones announcement is long overdue

The announcement of 12 entrepreneurial investment zones within the budget is long overdue in not only promoting innovation at a local level, but in ensuring that the specific sectoral strengths of different parts of the UK contribute to the overall economy.

Whilst I welcome the links with the higher education sector, it is also critically important that the investment zones also maximise the opportunities for those high growth firms that are scaling up locally, and have the greatest potential for creating jobs and prosperity

But the 12 new investment zones don’t stretch the length of the land

The creation of 12 new investment zones is a great step towards achieving a ‘founder first’ mentality – specifically, moving beyond a narrow focus on the ‘Golden Triangle’ of London, Oxford, and Cambridge that has for so long been at the forefront of investment, especially in science and deeptech.

But it’s very concerning to see that the south coast has been left out. The South East, South West, and particularly Southampton, for example, is a leading source of innovation alongside the ‘Golden Triangle’, so this oversight is personally disappointing, yet unsurprising, to see.

This is an example of where relatively deprived areas like Southampton lose-out because of its geographic location. Southampton has two things that The Government should be looking for – world-class science and tech innovation coupled with social and economic challenges much like many other cities

The value of R&D cannot be overstated

We’re delighted to see the government act in response to the many science and innovation-based companies that rely on the existence of the R&D tax credits scheme.

It will help companies operating across deep tech and life sciences, to continue to attract and retain world leading talent and have the materials to develop the fundamentally important technologies required to make the UK a leader in the fields of science and innovation.

We want to continue to attract global companies to the UK to work side-by-side with the fast-growth ventures born here and the nascent businesses being spun out of our excellent academic institutions. It is that richness of companies, clustering together, that will deliver a model community capable of competing internationally.

Following a week in which the chancellor also acted swiftly to support venture capital-backed start-ups affected by the collapse of Silicon Valley Bank, we can see this as well as the quantum computing strategy and AI Sandbox commitments as hugely positive moves in the right direction for our sector.