The Chancellor is set to deliver the Autumn Statement to Parliament on 22 November, where he will outline the government’s latest tax and spending decisions informed by predictions by the Office of Budget Responsibility.
The announcement could have important implications for startups and small businesses across the country, as it’s expected that business taxes will not be reduced from the 25% rate established in April.
It also is expected the Chancellor will address extra relief for businesses working in the artificial intelligence space, after leading technology firms wrote a letter encouraging the government to support investment in digitalisation.
The letter recommends support of 140% on the first £50,000 of expenditure on productivity enhancing digital services.
The Chancellor will need to weigh out a number of policies based on their financial weight, including the full expense capital allowance regime that is already in place, as well as tax incentives for R&D.
From 1 April 2023 until 31 March 2026, companies subject to UK corporation tax will receive a 100% first year tax deduction for expenditures they incur on qualifying plant or machinery – known as full expensing.
The Chancellor has hinted already that tax cuts are virtually impossible and that ‘frankly very difficult decisions’ had to be made for the Autumn Statement.
This is worrying for startups, who already have been dealing with a complicated macroeconomic and regulatory climate.
According to figures from the Confederation of British Industry, private sector activity continued to fall in the three months leading up to October, with downturns across the services, distribution, and manufacturing sectors.
“More funding is pivotal to innovation”
Startups are a paramount ingredient of the business landscape as SMEs comprise 99.2% of the business population in the country. Having faced difficult economic conditions over the past years, they want measures in the Autumn Statement that will safeguard economic growth and innovation.
“More funding is pivotal to innovation,” stresses Dr James Clough, CTO and cofounder of Robin AI, an AI-powered contract software company.
“For the Autumn Statement, this means boosting R&D tax credits for deeptech and AI companies and incentivising pension funds to invest in venture capital.”
“There were cuts to R&D tax credits in the Spring Statement, much to the dismay of many startups, as this scheme was beneficial to both early stage companies and those that are looking to scale,” outlines Dr Clough.
This is particularly crucial for AI companies, which have risen to the tech foreground as the UK embarks on a mission to become a regulatory figurehead following the AI Safety Summit.
“Even if the Autumn Statement only introduces one of these measures, the UK could better capitalise on its potential to become a science and technology superpower and a global leader in AI. UK pensions are a source of untapped wealth, and using this capital for investment could fund AI companies,” Dr Clough continues..
Tax cuts at the top of the wishlist
According to research conducted by iwoca, one of Europe’s largest SME lenders, tax cuts are the most sought after policy among small businesses ahead of the Autumn Statement – 46% of SMEs want this.
This follows stagnant SME growth over the past year, with just 34% of small businesses reporting growth and 28% shrinkage. SMEs have blamed rising business costs for falling revenue, after a year of struggling with high inflation.
Importantly, SMEs believe the government hasn’t done enough to help them weather the storm. Of those surveyed, 42% said government support in the last year has been insufficient for their business.
“The message from SMEs to the Chancellor is clear – cut tax and protect us against potential spikes in energy costs to help us trade through this uncertain economic environment,” points out Christoph Rieche, iwoca CEO.
Besides targeted tax cuts, 32% of small businesses want to see an extension of the small business rate relief scheme and 22% want to obtain support with training costs for staff.
Regulation only where needed
For startups, the Autumn Statement will not just be about economics, but signalling that appropriate regulations to bolster innovation are in the pipeline
“First and foremost, we need politicians and government to understand and define the “problem” before trying to jump to conclusions, solutions and regulations,” emphasises Rafie Faruq, CEO and cofounder of Genie AI, an artificial intelligence legal assistant.
“What exactly are we trying to regulate? AI? But AI is just code and mathematics, so are we regulating coding and mathematics?” he questions.
What Faruq suggests is an economically forward-thinking AI regulatory scheme where freedom of business operations is respected without the limitations of regulations and taxes. He applauds investment through programs like InnovateUK.
Upskilling will be key
Startups also point out the importance of implementing incentives to improve the workforce’s training and education in emerging technologies.
“Investment in education also remains a key issue,” notes Faruq. “It’s important that large companies like Meta and Google don’t just buy up all the academic talent, and that universities can compete in academic research with the big players by having access to large-scale computer power.”
Preparing for the next financial year
Although the annual inflation rate decreased to 5.6% in October, the lowest since January this year, the macroeconomic outlook is predicted to continue to be challenging into 2024.
The upcoming general election is similarly set to cause some disruption, as politics takes the centre stage on the agenda.
As the government financial plans are confirmed next week in the Autumn Statement, small businesses will continue to demand more initiatives that foster innovation and investment.