March 15, 2023

UK Spring budget: R&D cuts but huge quantum spend

Key takeaways affecting the tech sector from the chancellor’s plans

Amy O'Brien

4 min read

UK chancellor Jeremy Hunt

Economists have painted a bleak picture of the UK economy lately, as IMF forecasts and Bank of England data show it’s falling far behind other countries. 

Chancellor Jeremy Hunt is keen to address that with his “budget for growth” — and position the UK as a “science and technology superpower”.

But has he put his money where his mouth is and given tech innovation the backing it’s crying out for?


Here’s all startups need to know about changes to the UK’s fiscal policy. 

Cuts to the R&D tax credit for SMEs will go ahead 

Despite repeated calls from the UK tech industry for Hunt to abandon this policy, first proposed in his November Budget, the chancellor has pressed on with cuts to the generous R&D tax rebate that startups have enjoyed since 2010.

To soften the blow somewhat, the chancellor did announce additional tax support for eligible research-intensive startups (in fields like AI, life sciences and fintech) that spend more than 40% of their total expenditure on R&D. They will be able to claim £27 for every £100 spent on R&D. The government said it was "committed to considering the case for further support for R&D-intensive SMEs".

Meanwhile, tax relief for larger companies spending on R&D will increase. The rate for the Research & Development Expenditure Credit (RDEC) scheme will increase from 13% to 20% from April 1.

New £2.5bn pot for quantum computing 

While the government may be saving billions on scrapping startups’ tax relief, it plans to spend billions on quantum.

Hunt announced a new "Plan for Quantum" comprised of a £2.5bn pot for researchers and academics in the UK to up the country’s competitiveness in the field — double the amount that was previously promised to the sector.

Hunt also outlined his plans for the UK to become a global leader in AI research.

He intends to launch an AI sandbox to help innovators get cutting-edge products to market faster. The government will also work with the Intellectual Property Office to provide clarity on IP rules so generative AI companies can get access to the material they need.

Hunt acknowledged the need for stronger computing power to underpin these research efforts. He committed £900m in funding to implement recommendations from DSIT’s recent Independent Review of the Future of Compute to introduce a new “Exascale Computer”.

The chancellor said he’d also introduce a new AI prize, dubbed the “Manchester Prize”, for which the government will award £1m a year for the next 10 years to “the person or team that does the most groundbreaking AI research” on home turf.

Lastly, Hunt said he would accept all nine recommendations from the UK’s chief scientific adviser, Sir Patrick Vallance, in his review into the UK’s most cutting-edge industrial sectors.

Incentives for institutional investors to back tech

Hunt praised the work of the government over the past weekend to rescue Silicon Valley Bank UK.

But he said that the events show that the UK needs “to build a larger and more diverse financing system where the benefits of investment in high-growth firms are available to more investors”.


Some first tenuous moves on this were included in the Budget. They were:

  • An extension to the British Patient Capital for a further 10 years, while increasing its focus on R&D-intensive industries, ringfencing at least £3bn in investment for them.
  • Inviting feedback on the design of a "Long-term Investment for Technology and Science (LIFTS) initiative" to create new investment vehicles for funding science and tech companies, tailored to the needs of defined contribution pension schemes. 
  • Plans to open a consultation on transferring the Local Government Pension Scheme's £364bn assets into pools to support increased investment in tech companies. 

And the rest was postponed until the next budget in the autumn. Hunt said the government would work with industry and regulators in the next few months to introduce measures in autumn that will:  

  • Unlock "productive investment" from defined contribution pension funds and other sources;
  • Make the London Stock Exchange a more attractive place to list;
  • Respond to the US's Inflation Reduction Act.

The reaction

Founders weren’t blown away. 

“Some of the most common challenges UK tech businesses face were not adequately addressed — namely, accessibility of funding for scaling businesses (kicked down the road to the autumn statement), and helping plug the tech skills shortage that holds back so many digital companies,” said Ritam Gandhi, founder and director of digital agency Studio Graphene.

They also pointed out the notable absence of any mention of the changes to the Seed Enterprise Investment Scheme that were announced last year by former chancellor Kwasi Kwarteng in his "mini-budget", and called for these to be pushed through government.

Sifted's inbox was overflowing with immediate reactions to the government's decision to press ahead with cuts to the SME R&D tax relief, which Phil Dutton, CEO and founder of Solidatus, said for early-stage, research-intensive startups were "the difference between a company surviving and going on to do great things, or dying on the vine".

But other founders said that the new 27% R&D tax credit that was announced "offset" the other credit cuts that the government was pressing on with. Caroline Plumb, CEO of Gravita, said this new measure "may have prevented innovative, research-intensive businesses from transferring their activities offshore to territories with a more friendly corporate landscape".

Amy O’Brien is Sifted’s fintech reporter. She tweets from @Amy_EOBrien and writes our fintech newsletter — you can sign up here

Amy O'Brien

Amy O'Brien is a reporter at Sifted. She covers fintech and writes our weekly fintech newsletter . Follow her on Twitter and LinkedIn