Earlier this week, Phillip Hammond delivered his 2018 budget with a tone of reassurance and a hopeful outlook, declaring that “the era of austerity is finally coming to an end”. Major developments for the high-growth sector remain contingent on Brexit negotiations, but the government expressed a clear commitment to business-as-usual, and maintains that the UK will continue “to be the best place in the world to start and scaleup a tech business”.
Specifically, Hammond pledged up to £200 million to the British Business Bank (BBB) if a relationship with the European Investment Bank Group (EIBG) cannot be maintained post-Brexit, to support the development of the UK’s innovative, fast-growing companies. Funding for the BBB’s Start-Up Loans Programme will also be extended until 2021.
Perhaps most important for ambitious companies is news that consultations will be held to discuss investing pension savings in high-growth SMEs. The BBB is already working with some of the largest defined pension providers, including Aviva, HSBC, and The People’s Pension, to explore options for pooled investment in patient capital. This will be key to ensuring there is sufficient patient capital for high-growth businesses.
Many of the those high-growth businesses take advantage of intellectual property developed at universities, so it’s great to see the government has also pledged £5 million to help up to 10 local authorities develop proposals for new University Enterprise Zones. These promote collaboration between universities and businesses and build on the UK’s expertise in technology transfer.
The introduction of a new 2% tax on tech businesses operating search engines, social media platforms and online marketplaces has raised some eyebrows, despite Hammond making reassurances that only profitable tech companies with annual revenues of over £500 million would be eligible.
Tech Nation CEO Gerard Grech said:
“As more and more businesses digitise, the way we levy taxes on companies must evolve and the UK is well-placed, with the strongest tech sector in Europe, to be a leader in this area. However, today’s announcement by the Chancellor, Philip Hammond, of a 2% tax on revenues of multinational technology companies risks stifling entrepreneurialism and innovation, which recent governments have done much to encourage. We have heard assurances that the new tax, designed to raise more than £400m, will not be a crude digital sales tax and will not impact smaller digital platforms. But tech startups and entrepreneurs can be forgiven for feeling that they could still end up in the sights of future Chancellors. We do not want to risk being left behind in a global race by moving out of step with other countries in this area.”
However, Melissa Geiger, Head of International Tax and Tax Policy of KPMG asserted that:
“At this stage his much anticipated announcement to raise more revenue from the tech giants through some sort of digital tax amounts to a declaration of intent rather than a detailed policy statement. He is rightly hoping that an international consensus will emerge before he has to move on his promise of unilateral action.”