Tech sector leaders have given a cautious welcome to measures unveiled in Chancellor Kwasi Kwarteng’s mini budget earlier today. But they have warned that more detail is needed on many of the plans designed to stimulate economic growth.
Delivered in the House of Commons this morning, the proposals include new low tax investment zones, changes to IR35 tax rules, investment in tech scaleups and increased limits for the seed enterprise investment scheme. These changes are in addition to previously announced measures to help businesses with rising fuel bills.
Mini-budget leaves tech infrastructure questions unanswered
Julian David, CEO of techUK, the industry body for technology vendors, said the mini-budget included some “key announcements” for tech including new incentives for start-ups.
But he said he was concerned about the lack of information on how the government will meet its national connectivity targets. It is aiming to deliver 5G connectivity to 85% of the country by 2025. Currently this coverage is 70%. “The statement provided limited details on how the UK will meet its targets to roll out gigabit broadband and 5G across the country, on the direction of key pieces of regulation for the tech sector, or how to boost R&D,” David said.
“Ultimately, it is long-term productivity growth that will get the UK economy back on track. The government needs to work urgently with industry to flesh out the details of these plans to provide clarity for businesses looking to invest.”
Changes to IR35 rules
There have been growing calls to reform the IR35 rules, Tommy Mcnally, CEO of Tommys Tax told Tech Monitor. The most recent rule changes, introduced last year, were supposed to support individuals who worked as an employee but paid less tax than a full-time staff member as they were registered as contractors under limited companies. However, these proved controversial, and will now be reversed from April next year.
Mcnally says he believes the chancellor has “done the right thing and removed unnecessary worry for firms as well as reducing employer national insurance and pension liabilities on top of payroll admin time and cost”.
For staff, the changes mean expenses can be offset against their tax bill. Mcnally says it will make it easier to move between jobs which “really benefits the gig economy”. This is particularly useful for tech professionals “during a time when demand is high and wages are increasing month on month”, he says.
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Runar Reistrup, CEO of freelance management platform YunoJuno, says relaxing IR35 rules shows the government “understands the immense value of the flexible contractor workforce.”
“With companies about to face challenging times at an unprecedented speed of change, being able to easily tap into a flexible freelance work force of highly skilled specialists will be key for their ability to adapt,” he said.
Will low-tax investment zones boost businesses?
As well as changes to tax rules that impact the workforce, including scrapping the top rate of tax, the chancellor announced plans for a series of investment zones where business rates could be frozen, companies offered low or zero tax rates and other investment benefits. These will compliment existing enterprise zones, which offer similar benefits.
In a white paper on the zones, the treasury said they will offer lower taxes for businesses based at the sites, as well as accelerated development and planning processes to allow companies to make better use of the land and wider support for local growth in and around the zones.
“In addition to the tax offer, planning flexibilities will remove a significant barrier to economic growth, and together tax and planning flexibilities will enable businesses to benefit from the positive effects of co-locating,” a government spokesperson said.
Katie Gallagher, managing director of Manchester Digital and chair of the UK Tech Cluster Group, said: “We tentatively welcome the concept of the new low tax investment zones and would call upon the government to work hand-in-hand with the existing regional tech eco-systems which already understand the local economy and where investment is needed to really flourish.”
The government is in discussion with local authorities over sites in the Tees Valley, Norfolk, West of England and West Midlands. CJ Green, chair of New Anglia Local Enterprise Partnership (LEP), which covers Norfolk and Suffolk, said these zones “promise to offer compelling benefits to business as evidenced by our own Enterprise Zones, which have boosted 4,934 jobs, supported 216 businesses, and unlocked 137ha of development land over the past few years”.
But Green added that the LEP “needs to see more detail about the proposed new zones”, including where they would be located and the impact on local planning legislation.
Overall, Gallagher says the proposals outlined in the mini-budget will benefit tech businesses, but established companies and start-ups are already nervous about the economic future, so details are needed to confirm how the investment plans will work.
“This budget leaves many questions about costs, but in the short term we are glad to see some measures to support businesses,” she said. “We look forward to seeing the full economic and fiscal forecast later this year.”