Autumn Statement 2023 analysis
The Chancellor yesterday delivered a comprehensive package of investment and support for the UK life sciences industry in his Autumn Statement. In this blog, Dr Martin Turner, Head of Policy and Public Affairs at BIA shares his reflections on key announcements.
The Chancellor yesterday delivered a comprehensive package of investment and support for the UK life sciences industry in his Autumn Statement. He said he is “incredibly proud of our life sciences industry” and highlighted that British-discovered vaccines and treatments saved more lives across the world during the pandemic than those from any other country.
Key announcements were:
- £520 million in capital grants available for medicine manufacturing that will enable the UK to compete to be the home for next-generation technologies like mRNA and CRISPR;
- Further pension reforms to unlock investment, £50 million for the Future Fund: Breakthrough, and a new VC Fellowship scheme to train the next generation of investors;
- Decreasing the threshold for R&D intensive SME tax credit from 40% to 30% and introducing flexibility. There will also be no restrictions claims for grant-funded R&D projects;
- Accepting the recommendations of the spin-out review to increase the pace, quality and success of companies coming from UK universities;
- New investment zones, demonstrating the importance of life sciences to the economy across the country.
All the Autumn Statement documents and the Chancellor’s speech can be found on the HM Treasury website.
R&D tax relief reforms
There will be more flexibility for R&D-intensive SMEs through the special scheme previously announced in March whereby loss-making SMEs receive 27p for every £1 they invest. The Autumn Statement reduced the R&D intensity threshold from 40%, as first announced in March, down to 30% from April 2024 onwards. Companies will also remain eligible to claim through the scheme if their R&D intensity drops below the threshold for a single year. This is welcome flexibility that BIA has called for, as one-off large non-R&D costs could inadvertently hit life science companies.
The Treasury also confirmed that it will go ahead with a new R&D tax relief scheme, which will run alongside the R&D-intensive scheme, and end its long-running review of the regime (although more anti-fraud measures may still be brought in). Read this blog for an explainer. The rate of benefit under the new scheme will be 20% whist the notional tax rate applied to loss-makers in the merged scheme will be the small profits rate of 19%, rather than the 25% main rate set in the current RDEC. This will result in an after-tax cash benefit for loss-making companies of 16.2p for each £1 invested in-house and 10.5p for contracted-out R&D. Restrictions on claims for subsidised R&D (i.e. grant-funded projects) will also be removed for all schemes in the future. This is really welcome as it’ll make Innovate UK grants more valuable.
We expect the Autumn Finance Bill 2023 in the next week or so to legislate for these changes and provide further clarity on the new regime, but it is the HMRC guidance we urgently need and have been waiting for. We are contacting HMRC directly and pressing for this to be published so that life science SMEs can forecast their finances.
A short paper was published alongside the Autumn Statement setting out more detail on these reforms.
Other tax measures
A major plank of the Chancellor’s growth strategy was making permanent full expensing, which was previously a temporary measure running until the end of March 2026. This has been called for by many trade associations, including BIA and ABPI, and supported by the Labour Party.
Companies can claim 100% capital allowances on qualifying plant and machinery investments, and full expensing allows them to write off the cost of investment in one go. Under full expensing, for every pound a company invests, their taxes are cut by up to 25p. It largely benefits profit-making companies. It will make the UK a more competitive location for medicines manufacturing and new R&D facilities, which will strengthen the UK ecosystem.
The Government will also legislate in the Autumn Finance Bill 2023 to extend the existing sunset clauses for the EIS and VCT from 6 April 2025 to 6 April 2035. It also published an analysis of the effectiveness of these schemes. Overall, the findings from this research suggested EIS was supporting companies subject to the relevant market failures and the scheme had a significant positive impact on the situation of these companies.
Manufacturing and investment across the UK
The government will invest £520 million to secure life sciences manufacturing between 2025 and 2030. This is a significant and extremely welcome expansion of similar schemes run since 2021.
Through the Medicines Manufacturing Industry Partnership (of BIA, ABPI, Innovate UK and the Office for Life Sciences), industry has called for an expansion of a capital grants programme that covers 10-15% of new manufacturing facilities. This funding will make the UK more internationally competitive to win a share of the global next-generation medicine manufacturing market in technologies like mRNA and CRISPR.
The Chancellor confirmed the Investment Zones programme in England will be extended from five to 10 years, with the envelope of government funding and tax reliefs on offer now doubled to £160 million. West Yorkshire will host one of 12 Investment Zones across the UK. It’s based around the region’s universities in Leeds, Bradford and Huddersfield and the cluster of life sciences businesses thriving in the area. The new Liverpool City zone will focus on life science. There was also a promise to review planning rules to enable the building of more factories and facilities, something which Labour have committed to reforming, with Rachel Reeves saying: “we will fast-track… our life sciences… to grow our economy and provide good jobs in every part of our country”.
The Lord Harrington’s Review looking at how the UK can better attract foreign direct investment into key growth sectors was also published. There will be a new concierge service for large foreign investors. BIA fed into this in meetings with the minister, we’ll analyse its recommendations shortly.
Unlocking pension funds
There is a great deal of momentum following the Mansion House Compact, including the launch of the Venture Capital (VC) Investment Compact and the Mansion House Pension Summit bringing together pension funds, trustees and private market investors for the first time.
A large package of reforms was published alongside the Autumn Statement to help deliver better returns for savers and boost economic growth. This largely focuses on consolidating sub-scale pension funds. Labour’s Shadow Chancellor, Rachel Reeves, said they would go even further.
The Chancellor announced a new Growth Fund run by the British Business Bank to give pension funds access to investment opportunities in the UK’s most promising businesses. This would be particularly beneficial if they did not feel they had their in-house expertise to make venture capital investments. The BIA has called for this over many years as it is a great opportunity for pension funds to invest in the most innovative companies with the confidence that they are investing alongside the government and expert investors.
There will also be a new Venture Capital Fellowship Scheme to nurture the next generation of UK VCs to help manage capital unlocked from pension funds in the future. This will build on the expert and effective community of life science VCs we have already. Originally proposed by the Life Sciences Scale-Up Taskforce, which BIA led with the Office for Life Sciences, a fellowship programme will provide structured support for mid-career level VCs, share best practice and build the community, similar to the successful US Kauffman Fellowship.
The Long-term Investment In Technology and Science (LIFTS) competition, launched at Autumn Statement 2022, invited pension funds and venture capital firms to form consortiums and bid for £250 million to unlock new investment from pension funds into innovative tech and science companies. British Business Bank has run the competition. We are aware of some life science VC funds that have submitted applications alongside those focused on other sectors. An announcement on 21 November said £250 million would be allocated but we understand contractual discussions are still ongoing.
The Bank also received £50 million additional funding for Future Fund: Breakthrough, which invests directly into scaling deep tech and life science companies.
The Government has accepted of all the recommendations of the Independent Spin-Out Review and provided £20 million in funding to support proof-of-concept funding for more spin-outs.
The reviews 11 recommendations included increasing entrepreneur training for PhD students, sharing resources and expertise across university technology transfer offices (TTOs) and bring greater consistency to spin-out deal terms. The government has accepted all the recommendations and published a full response.
Life sciences innovation and data
The Autumn Statement committed £10 million to a Manufacturing Centre of Excellence in Oligonucleotides, with an additional £10 million from Scottish Enterprise. To mark the 2028 centenary of the discovery of penicillin, the government is granting £5 million seed funding to help launch the Fleming Centre. A collaboration led by Imperial College London and Imperial College Healthcare NHS Trust, the Centre will support the next generation of world-changing health innovations.
The UK is uniquely placed to harness the power of health data to improve patient outcomes. To help do this, the Government announced a further £51 million for Our Future Health (OFH). Genomics England, along with a consortium of partners, will also launch a world-first Rare Therapies Launch Pad, generating evidence on whether a pathway for new individualised therapeutics could be implemented in the UK for children with ultra-rare disease.
Sir Paul Nurse’s review of the UK’s research, development and innovation (RDI) organisational landscape was also published alongside the Autumn Statement. BIA submitted to the review and we’ll assess its recommendations shortly.
Regulation and clinical trials
In May 2023, the Government committed £121 million in funding as a first response to Lord O’Shaughnessy’s recommendations on improving the UK’s commercial clinical trial offer. Up to £20 million of this funding will now be used to launch the first Clinical Trial Delivery Accelerator, focused on dementia, to help innovation reach NHS patients faster. The Government’s full response to the review and an implementation plan was published alongside the Autumn Statement.
The government is supporting plans to catalyse the growth sectors, including life sciences, by committing £50 million to deliver a two-year apprenticeships pilot to explore ways to stimulate training in these sectors and address barriers to entry in high-value standards.