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Looking ahead to the Spring Budget

07 Mar 2017

CaSE Executive Director Dr Sarah Main takes a look at tomorrow’s Budget and the key announcements that CaSE that will be keeping an eye out for

The mood is that the Chancellor will take a ‘steady as she goes’ approach to the budget, sending signals of reassurance in anxious times. It is reported that he will seek to build up reserves for any Brexit challenges and future trade deals, offer relief to businesses facing sharp rises in business rates, invest in technical skills, and put flesh on the flagship policy of revamping social care. No doubt, the Prime Minister will be looking for a budget that supports the opening statement of her premiership that she wanted to distribute the proceeds of growth more equitably – ‘a country that works for us all’.

Philip Hammond indicated in a Cabinet briefing in February that he would focus on productivity, skills, research and development support and infrastructure spending in the budget. Following the considerable pledges on R&D and industrial strategy at the Autumn Statement, we can expect the Spring Budget to feature details of the first round of spending. The announcements on robotics and artificial intelligence are likely to represent the first tranche of that funding, but we expect a longer-term consultative approach for allocation of funds going forward.

R&D investment and industrial strategy

The National Productivity Investment Fund announced at the Autumn Statement pledged £4.7bn by 2020-21 in R&D funding to be spent via the Industrial Strategy Challenge Fund and via UKRI on innovation, applied science and research. The funds ‘ramp up’ over four years, starting at £425m in 2017-18 and rising to £2bn in 2020-21. We have yet to find out the proportion of funds directed via each route or the principles for allocation.

There are a number of initiatives to stimulate consultation on the industrial strategy, such as the Knowledge Transfer Network’s UK-wide Industrial Strategy Challenge Fund workshops and the independent Industrial Strategy Commission, which is seeking responses to a call for evidence by 2nd May. In December, Science Minister, Jo Johnson, said,

“We will be begin to identify different challenge areas between now and the Budget in 2017. We will set out more detail on funding breakdown and proposals, including for wider consultation with the research and business community, in due course.”

It will be interesting to see how much detail is put forward at the budget tomorrow. We will be looking for some clarity on the proportion of the new money to be spent via the Industrial Strategy Challenge Fund and other routes, and some indication on strategies for allocation of those funds over the next few years.

The tax environment for R&D

At the Autumn Statement, the Chancellor pledged to review the tax environment for R&D “to make the UK an even more competitive place to do R&D”. Reviews were announced into R&D tax credits, ‘patient’ capital, and the Small Business Research Initiative.

In a Written Answer published on 27 January, Financial Secretary to the Treasury David Gauke confirmed that the review of the tax environment for R&D was “due to conclude at the Spring Budget”. The Chancellor is expected to provide a report on this topic at the Budget, having cited his desire to “[ensure] that the UK is the most attractive place in Europe to do private R&D work”.

I will be keeping a close eye out for announcements on the tax environment. There is potential for significant announcements in what can be a controversial area. I hope that any investments will be well thought through so that they work for those people and businesses they are intended to support.

Technical skills

There is a clear focus from Government on technical skills, which I anticipate will be welcome across science and engineering as it is an area of need across the sector. But it will be important to ensure there is funding to support the ambition and that money is spent well. Institutes of Technology are announced in the Industrial Strategy but it is not yet clear how they will sit in the post-18 landscape. There does not seem to be sufficient funding attached for them to be widespread even if they are expected to build on existing provision.

It is likely that much of the support for technical skills will come from the Apprenticeship Levy, which is due to come into effect in April. The levy has been controversial and represents a large cost for many science and engineering businesses and charities. Companies will be looking to ensure that there is some return on their investment.

Place –  productivity, infrastructure and education

There is no doubt that the Government is alive to the need to deliver for people across the UK. We can expect the Chancellor to talk about productivity in his speech tomorrow, a measure of our economy in which we perform poorly against international comparators and that varies widely with place across the UK.

The CBI has highlighted that regional productivity is highest in areas where children get the best GCSE results and school performance is strongest, leading them to call for ‘renewed attention’ to education. Productivity has been found to vary across sectors, with R&D being recognised as a universal driver of productivity and R&D-intensive sectors delivering much higher Gross Value Added per worker than the average.

So if productivity varies with place, sector and education, how can the Chancellor ensure his initiatives to boost productivity across the UK have real effect? It was pointed out to me yesterday that a key, if perhaps politically mundane, foundation is to ensure transport and digital connections are effective across the UK. If a person cannot travel easily to a neighbouring town for a job or technical training, they are limited to the opportunities available in their immediate vicinity. If a person can travel or connect remotely to a number of towns in their region, the job market becomes immediately bigger and the opportunities to realise their ambitions immediately greater.

I think perhaps I will be listening out for the unflashy investment in infrastructure that might just enable the Government’s flagship initiatives to take off.