On 3 March, Rishi Sunak outlined plans for the UK's post-pandemic recovery in his 2021 March Budget. Geared towards 'protecting the jobs and livelihoods of the British people', the measures covered in the Spring Budget brought the government's total coronavirus spending up to £407bn. Among key industries, the tech sector will welcome the majority of the chancellor's new spending plans, with Sunak admittedly "backing tech in a big way" by introducing a range of measures that aim to nurture the growth of both smaller and established tech firms.
With our key takeaways from the hotly-anticipated budget already being covered here, this article takes a look at the impact of the announcement on the tech sector, with a particular emphasis on what business leaders across the country have made of these technology-driven changes. But before we identify which steps have been taken to support the growth of digital business, let's first take a look at how tech-led growth may be able to increase profitability for businesses in all sectors.
Why is tech-led growth essential?
It's not a big secret that ever since the COVID-19 pandemic forced non-essential businesses to cease in-person trading, digital services have been providing a lifeline to struggling small-to-medium-sized-enterprises (SMEs). From keeping workers connected through online software like Zoom and Microsoft Teams, to helping customers purchase products and services via e-commerce platforms, digital technologies have provided immeasurable support to companies in a variety of ways.
In fact, according to a study cited in Bloomingdale Bank & Trust, more than a third of personal businesses within the UK have started offering services online throughout the pandemic. In addition to this, companies in fields like law, real estate, and healthcare have also harnessed online tools to carry out their practices virtually. However, aside from supporting SMEs through the worst of the pandemic, the UK's world-leading digital industry may also play a vital role in our country's recovery effort.
Aside from keeping the tech sector strong, the innovation of digital products and services may also help to improve the productivity and resilience of all businesses. As this report by Sage suggests, if SMEs were able to invest more into technology and digitisation, this could create an estimated £325 bn in small business revenue, while delivering up to £145 bn to the broader economy. Also, due to the potential growth that this could create, the report also concludes that more significant technology investments could support up to 2.7 million new jobs across the UK.
This is because if the UK focused on technologically-driven growth, and more businesses made a concerted effort to adopt more digital technologies, productivity rates of SMEs would be expected to improve, and then subsequently, so would their annual turnovers. Therefore, when looking towards recovery in a post-COVID world, a tech-led strategy may be the best way to drive long-term business stability, resilience, and job creation.
So, with this in mind, what measures have the March Budget introduced that support our country's world-leading tech industry?
What changes have been made?
Fast-track FinTech visa
One significant measure that was announced in the March Budget was the introduction of the fast-track FinTech visa. This scheme was designed to help the FinTech sector, which already contributes around £11 billion to the British economy annually, by encouraging high-skilled workers like engineers, researchers, and scientists to work at UK firms. The new visa option simplifies bureaucracy for eligible international talent, and aside from only supporting the FinTech sector, the reform is also likely to benefit the technology industry more broadly.
These fast-track visas will enable eligible candidates to work in the UK without being backed by a sponsored organisation or needing to obtain a third-party endorsement. With 40% of FinTech staff being foreign-born, the move seeks to reverse some of the damage caused by Brexit, which cut off the UK from the EU's valuable talent pool. Additionally, with the UK being a world-leader in financial technology, making it easier for highly skilled migrants to enter the UK tech industry improves our chances of emerging from the COVID-19 pandemic in a similarly strong position.
What do business owners make of the scheme?
Most business owners are in agreement that this scheme could be an indispensable way to facilitate the growth of homegrown FinTech startups. As Rafa Plantier, head of UK & Ireland at Tink, tells BusinessCloud "The UK has always been a fintech pioneer", adding that the new visa represents a golden opportunity for the UK to continue leading the FinTech sector, encouraging entrepreneurialism, growth, and investment. This sentiment is echoed by Seema Farazi, the UK and financial services immigration leader at EY, who conceded in a press release that the government has taken an affirmative and decisive step ahead to position the UK as a major hub for fintech and tech, and that a tailored visa route into UK scale-ups will have massive and far-reaching implications for the better, and will metaphorically ‘prop up’ the tech sector as it looks out onto broader horizons- to the global marketplace.
However, some business leaders believe the changes to the immigration system don't go far enough. When talking to the Evening Standard, John Dickie, policy director at the non-profit London First, expressed that the requirement for a sponsor must also be removed from other businesses outside the FinTech sector. Dickie explained that, since foreign workers remained necessary at all skill levels, it would be a missed opportunity if we do not see similar moves on a broader level to attract global talent. So, although the government's fast-track visa scheme is likely to benefit the national technology sector, many believe that if these immigration reforms were made to be more inclusive, the UK would be able to attract highly-skilled talent to other major industries.
In addition to this, Nadine Goldfoot, the managing partner at Fragomen, called for a greater focus on producing homegrown talent. When explaining how this could be possible, Goldfoot explained that, by looking more broadly at education, we could grow and create better talent in tandem with bringing in workers from overseas.
Future Fund: Breakthrough
Following on from the government's £1bn Future Fund, the Future Fund: Breakthrough is an initiative aimed at encouraging the co-investment of private investors. Worth a total of £375m, the Future Fund: Breakthrough will offer grants to firms who seek to raise up to £20m, by matching private sector investment with taxpayer money.
The scheme, which will take stakes in scale-up tech businesses as part of the budget, is geared towards startups in life sciences, quantum technology, and cleantech. It seeks to keep technology businesses on home soil because, even though the UK is at the top of the game for tech startups, due to a lack of local funding, these enterprises are often at risk of being bought up by overseas rivals. Some high profile examples of this include the London born AI developer DeepMind being bought by Google for $500m in 2014, and the 2016 acquisition of Cambridge born microchip company ARM by Japan's Softbank.
What do business owners make of the scheme?
There is a general consensus among tech industry leaders that this update to the Future Fund will help build innovation across the UK's robust FinTech sector. As Rosi Haberman, head of media and technology at NTT Data, states, the new fund to buy stakes in tech startups is a sign of governmental faith in technology as the lifeblood of transformation and innovation for the UK… It offers high-growth firms an opportunity to level up their ambitions, potentially securing the UK's status as a global hub for tech opportunities and jobs. This opinion is reinforced by Jessica Rushworth, chief strategy officer at Digital Catapult, who believes that after all the tech industry has done for the country throughout the pandemic, it's only fair that these efforts were considered in the latest national budget.
However, with less than 9% of venture capital being invested into companies with women in the founding or leadership teams in 2020, Evie Mulberry, MD at Astia, calls for a more significant commitment to investing in diverse teams. When talking to the Business Cloud, Mulberry comments that" these businesses are there to fund" and that she hopes "the government takes this into consideration when they assess which businesses to back."
Help to Grow Scheme
In advance of the Spring Budget, the Treasury announced the new "Help to Grow” initiative, which is targeted towards helping SMEs adopt digital technologies and provide management training to increase productivity, innovation, and future growth. The initiative is set to provide a total of £520m to businesses that qualify for its help. It’s made up of a digital scheme that gives SMEs access to discounted software, and advice on how to utilise it, alongside a management scheme that offers MBA-style management training to SMEs.
Help to Grow: Digital is set to be implemented this Autumn and is open to SMEs who employ between 5 to 245 employees, have been trading for more than a year, and would be purchasing the discounted software for the first time. All eligible businesses will be able to receive a discount of up to 50% on approved software, with a cap of £5,000.
With research from the IDC revealing that companies who were able to take advantage of the most recent digital technologies to adapt to social distancing restrictions were able to grow up to eight times faster than those who didn’t use digital tools, it’s clear that the coronavirus has accelerated the need for tech in business. Additionally, with the future of work likely to contain remote or hybrid styles of working for a long time coming, equipping SMEs with competent digital software is expected to benefit businesses long after COVID-19 passes. But what do business owners think? What do business owners make of the Help to Grow scheme?
According to Cas Paton, CEO of OnBuy, this government initiative could not only create a massive increase in the number of small businesses launching over the next year, but could even mark the start of the modern-day roaring twenties. In an interview with Business Cloud, she tells the magazine that the possible knock-on effect of this ‘boom’ could potentially be massive, with increased employment, an uplift in spending, and a highly-performing economy to possibly support the next generation of talent. This opinion is supported by Julian David, CEO of techUK, who mentions that research has shown that, if delivered effectively, support for digital adoption may help SMEs increase their revenues and productivity, and create job opportunities across the UK.
However, reservations among some owners do exist. As Pranab Sood, VP of Small Business at GoCardless, tells SME Magazine when referring to the widespread adaptation of technology, said, there are two massive obstacles to achieving this, with one being a lack of awareness concerning the tools and software currently available to help SMEs. The second is the sense of apprehension businesses may feel when it comes to incorporating new technology into their daily operations.
So, if the government wants to make the Help to Grow initiative as successful as possible, it’s essential that the management scheme helps business leaders to develop their strategic skills, so that digital adoption can reach its full potential.
Contactless payment spending increase
Among the proposals outlined in the Spring Budget, it was announced that the limit of single payments using contactless card technology would raise to £100 later on in the year. The decision was first considered by the Financial Conduct Authority (FCA) back in January 2021, and this comes under a year after the FCA raised the limit from £30 to £45 to encourage contactless shopping.
With the pandemic forcibly accelerating the move away from cash and pin-only payments, this spending limit increase is designed to boost retail spending while also helping to protect consumers and vendors from the risk of transmission. Chancellor Sunak addresses this in his address to parliament, commenting, that as we start to open the UK economy once more, and people return to the High Street, the contactless limit increase should make it easier than before for people to pay (and pay fast) for their shopping, providing a welcome boost to retail that is likely to protect jobs and drive growth.
But do business leaders agree with the spending limit raise?
What do business owners make of it?
Opinions regarding the spending limit raise are mixed. While many business owners are lauding the spending changes for instilling confidence across the retail sector, many are concerned that the move may increase instances of fraudulent behaviour.
Ian Johnson, managing director at the payment business Marqeta, outlines the potential risks involved with the measure. When talking to the BBC, Johnson explains, the issue when it comes to increasing the limits on physical contactless cards is when they are cloned or stolen, it becomes even easier for a ‘fraudster’ to spend large amounts of the victim’s money ‘in one go’. He also added that it is important to consider that the UK is currently among the countries with the highest levels of fraud in the EU.
But some business owners remain more optimistic. When voicing his opinion on the new contactless spending limit, Piers Dryden, head of the technology sector at law firm Bradners, expressed his thoughts by holding that, while the contactless payment limit increase may also cause some issues around the increased risk of fraud, certain advancements in biometric fingerprint-based security and biometric authentication (which certain banks are looking to add), as well as the benefits of faster, more hygienic shopping experiences and more substantial retail activity, are quite compelling indeed.
The benefits of this spending reform are seconded by Paul Marcantonio, executive director at ECOMMPAY. He comments that allowing customers to spend in abundance with a contactless card may reduce a ‘potential point of friction’, making it easier for them to spend more. The combination of this with the relief on business rates for eligible retailers may help many businesses to rebuild their finances.
Incentive grants for apprenticeships
In a bid to create and nurture homegrown talent, incentive grants for apprenticeships are set to rise from £1,500 to £3,000, with an additional £126m being allocated to these traineeships. In his speech, Chancellor Sunak said over 40,000 young people in English would benefit from these traineeships, with the apprenticeship scheme helping people of all backgrounds and ages ‘re-skill’ in an attempt to level up Britain’s economy.
As part of these plans, employers who hire a new apprentice from the 1st of April to the 31st of September this year will receive £3,000 from the government. This is on top of the existing £1,000 that employers get for new 16-18-year-old apprentices and those younger than 25 with an education, health, and care plan.
While these incentive grants are open to employers across sectors, with an increasing number of internships springing up within the IT sector, it’s expected that these new measures could fuel the growth of this industry by addressing its skill gaps problem.
What do business owners make of this?
Business owners are essentially in agreement that these measures will positively impact the tech sector in large. However, since these incentive grants don’t specifically prioritise technical and digital skills, some fear that these changes do not go far enough in preparing the younger generation for the digitally-mediated future.
These sentiments are summed up by Adrian Overall, CEO of CloudStratex, who comments that “the recently announced £126m boost for traineeships is to be clearly welcomed… Yet the chancellor needs to pay specific attention to the fact that we are in the midst of a new era, which is characterised by astonishing advances in technology that are redefining how we live in the 21st Century.” When explaining what could be done to tackle this problem, he points to addressing the shortage of STEM subject teachers in secondary schools, and placing a greater ensuring equity in education.
However, despite calls for a heavier focus on digital skills, it’s clear that these incentive grants will save many young people from long-term unemployment by providing them with valuable subsidised employment opportunities. Extension of the furlough scheme
Otherwise known as the Coronavirus Job Retention Scheme, the furlough scheme, which was previously due to close at the end of April, has been extended until the end of September. This means the government will continue to pay 80% of wages for employees who are unable to work, with employers being asked to contribute 10% in July and 20% throughout August and September.
For many tech startups and scale-ups, this scheme will continue to be an essential lifeline by allowing companies to keep their lights on for as long as in-person trading is restricted. However, with one in five SMEs expected to make redundancies once the furlough scheme comes to an end, this places extreme pressure on small businesses to return to pre-COVID-19 revenue levels before September.
What do business owners make of the furlough scheme?
While the extension of this support mechanism is appreciated by businesses within the tech sector and beyond, many business owners fear the September deadline may still not leave them with enough time to recover their financial damages. Oliver Prill, CEO of FinTech Tide, weighs in on this anxiety, commenting about his concern that September is far too soon to remove crucial financial support. He added that pulling the furlough scheme (alongside other financial support) could pose a real danger to a massive amount of small businesses, particularly if it is done too soon.
Simon Handford, CEO of UKCloud, also believes that this financial support doesn’t go far enough to rebuild the country's weakened tech industry. When explaining what else could be done to strengthen the sector, Hanford holds that rebuilding the economy will require more than a simple ‘cash injection’, and will need more investment in British businesses, as well as in the tech skills that power the UK’s digital economy, particularly when it comes to mid-sized businesses who have ‘played to their strengths’ throughout the pandemic via their agility and by adapting to adverse market conditions.
Final thoughts: a good day for the UK tech sector?
Overall, with the March Budget’s keen focus on tech, R&D, and innovation, the chancellor’s plans appear to be very favourable to the UK’s technology industry. With the critical measures of the budget aiming to make it easier for firms to attract international talent, while encouraging venture capital investment, facilitating the adoption of digital technologies, and nurturing young talent through apprenticeship schemes, it’s clear that the government is putting tech at the core of the UK’s growth plan.
However, with technology playing such a central role throughout the last year of the pandemic, and the greater utilisation of digital technologies empowering businesses across all sectors, some business owners argue that even more significant investments may be needed if the UK wants to retain its world-leading status in the technology sector.