Budget 2020 – Investing in digital infrastructure, skills and R&D

On 12 March 2020, the Chancellor of the Exchequer, Rishi Sunak, presented the 2020 Budget – the first since the UK exited the European Union (available here).

The following announcements (some of which are new, but others build on previously announced measures) are likely to be of particular interest to the Technology, Media and Telecoms sectors:

1. Improving digital connectivity: the government, in an effort to increase broadband and mobile coverage throughout the UK, is committing:
   • up to £510 million in funding as part of the Share Rural Network agreement, which the government expects to be matched by industry; and
   • £5 billion investment in gigabit broadband rollout for 20% of the country which are considered to be “hard-to-reach” areas.
2. Investing in R&D: the government announced:
   • an increase in economy-wide investment in R&D to 2.4% of GDP by 2027, with an increase in public spending for science, innovation and technology to £22 billion per year by the year 2024-2025 - bringing direct support to R&D to 0.8% of GDP. The government intends part of this funding to be used to pursue “moonshot” scientific missions in order to solve issues such as climate change or the ageing population;
   • an increase in the R&D Expenditure Credit to 13%;
   • a consultation on whether the R&D tax credit should include investments in data and cloud computing to be held in the context of the Comprehensive Spending Review; and
   • £900 million investment to ensure UK businesses maintain their leadership position in high potential technologies. The government intends for a portion of this funding to contribute to the wider investment of up to £1 billion to develop the UK supply chains for the large scale production of electric vehicles (originally announced in September 2019).
3. Creating a blue-skies funding agency: the government will invest at least £800 million in a new blues skies funding agency, modelled on the American Advanced Research Projects Agency–Energy, to focus on high-risk, high reward research.
4. Closing the skills gap: as part of its plan to upgrade the nation’s infrastructure, the government wishes to increase the ability of colleges and institutes of technology to train the population for the industries of the future by announcing:
   • £120 million capital investment in eight new Institutes of Technology; and
   • £2.5 billion commitment to a new National Skills Fund to improve technical skills of adults across the country. The government will hold a public consultation on how to target this fund effectively to ensure it focuses on helping people gain skills for rewarding, well-paid jobs.
5. Cutting the VAT rate for e-publications: in an effort to reduce the cost of living and widen access to e-publications, the government will cut the VAT rate for e-books, e-newspapers, e-magazines, and academic e-journals to nil from 1 December 2020. The government expects the benefit of this measure to be passed on to consumers.
6. Increasing start-up funding: the government will allocate resources to the British Business Bank to invest an additional £200 million in UK venture capital and growth finance in 2020-21.
7. Supporting the Fintech sector: in an effort to maintain the UK’s leading position in financial services innovation, the government plans to:
   • enhance coordination between regulators to ensure the regulatory regime is proportionate and effective, especially regarding the regulation of payments and cryptocurrencies;
   • conduct a review of the UK fintech sector, led by Ron Kalifa, in order to encourage growth and competitiveness in the sector; and
   • convene a summit on the data needed to increase access to funding and credit for SMEs.
8. Piloting the Digital Trade Network in Asia Pacific region: the Department for International Trade and the Department for Digital, Culture, Media and Sport will pilot the Digital Trade Network in Asia Pacific in an effort to give innovative UK companies opportunities to access new markets in the region, while increasing support for exporters from regions outside London. In addition, the government has launched a consultation on the creation of 10 new Freeports.

The Budget 2020 also includes announcements relating to the Digital Services Tax previously announced (see our Tax Briefing) as well as measures to unlock competition in digital markets.