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  • Budget 2021: what does it mean for innovation?

Budget 2021: what does it mean for innovation?

The government has ambitious plans for R&D and digital, and CBI members will welcome some of the announcements.

27 Oct 2021, 5 min read

In budgets, there is usually a fleeting nod to innovation and R&D figures are buried in the small text. Not so this year. The Chancellor spoke at relative length about measures to deliver an innovation economy, including modernising R&D tax credits, increasing core research budget, substantial increase for the Innovate UK budget, importance of being open to talent from around the world, and measures to improve digital connectivity across the UK. So far, so good.

However, as many anticipated, the government’s previous headline commitment to spend £22bn on R&D by 24/25 has been delayed by two years, instead reaching £20bn by 24/25. This row back tarnishes what could otherwise have been a blockbuster of a budget on innovation. The direction of travel is broadly good, however with many priorities depending on this budget – from AI strategy and integrated review to delivering on net zero and capitalising on potential to lead future industries - and global competitors investing with scale and urgency, the question is whether new commitments will go far enough or fast enough.

Summary of announcements:

On R&D the overall increase in budgets and focus on supporting business innovation and investment is positive. As are the expansion in scope of tax credits to reflect modern R&D practices – something CBI highlighted in our changing nature of R&D work.

Behind the headline figures the delaying of spend and backloading of the increases over the three year period will dampen the overall leverage potential and mean the UK will have to double down on wider measures to attract and grow business investment and flaunt the UK’s credentials as an innovation economy.

  • Increase R&D spend to £20bn by 24/25 with aim to spend £22bn by 26/27 including:
    • £400m increase to Innovate UK budget taking it to £1.1bn in 24/25, a 36% increase across the period with most of the increase coming in year 3.
    • £1.1bn increase to core research budgets through UKRI taking it to £5.9bn in 24/25, a 23% increase
    • Full funding for Horizon Europe participation
    • £600m increase for health research in DHSC
    • £300m for commercialisation of low and zero emission technologies
  • Modernising R&D tax credits - scope will widen to include cloud and data
  • Will consult on incentivizing domestic spend through the R&D tax credit and on further changes to the regulatory charge cap for defined contribution pension schemes aiming to unlock institutional investment to support some of the UK’s most innovative businesses.

On Digital:

Good to see continued funding for improved digital connectivity and mobile coverage but still more to do to ensure UK’s digital infrastructure can support a world leading digital economy:

  • Reconfirmed the £1.2 bn for Project Gigabit 2021-22 to 2024-25.
  • £180m over three years as part of the government’s £500m investment in the Shared Rural Network.

Government increasing support for the UK’s world-leading tech sector through funding the UK’s developing digital regulation regimes:

  • £160m into new innovative industries in the UK.
  • £50m to ensure that UK continues to be a world leader in digital technologies. This includes doubling the AI scholarships, funds for developing a new data regime post-Brexit (which CBI is currently seeking views from members on to respond to the data reform consultation), and digital identities as the Trust Framework moves from Alpha to Beta in the new year.
  • £110m for the government’s new safety regime to deliver on the Government’s Online Safety Bill and commitment to make the UK the safest place online.

DCMS Budget to be increased on an average by 2.9% per year:

  • DCMS to receive a £600m cash increase over the Parliament to 2.7bn in 2024 – 2025.

Online Sales Tax (OST)

  • Government will publish a consultation shortly on a UK-wide online sales tax. If introduced, the revenue from an OST would be used to reduce business rates for retailers in England.

On talent and levelling up:

  • Investors will follow talent so being open to global talent is critical to attracting investment. Confirming eligibility criteria for the new Scale-Up Visa in Spring 2022 to attract highly skilled people is welcome news for innovative growing tech businesses and entrepreneurs who rely on talent to expand.

  • There is a big wait and see on levelling up, but with some welcome measures announced today, including the new Global Talent Network. With labour shortages biting in sectors from the lower-skilled to the high, this new network could prove a useful tool in some of our most exciting, higher-skilled industries alongside much needed funds to spur global investment into the UK.
  • A new £1.4bn Global Britain Investment Fund, to by support investment in the UK’s life sciences, offshore wind and automotive manufacturing sectors.
  • £1.6bn for the British Business Bank’s (BBB) regional funds, including an expansion of the funds into the North East and South West of England.

The UK has tremendous building blocks to be a leading innovation and digital economy. We now want to help business and government, along with the wider research and innovation ecosystem, work together to follow through on ambition and realise potential.