BIA analysis of 2021 Budget
With the pandemic still holding much of the economy under duress, the Chancellor today delivered a Budget that both aimed to impress on the public the difficult times ahead whilst simultaneously offering a road to recovery.
As a consequence, many of the business support measures such as Furlough will continue, and more money has been made available to vaccine programmes. But alongside these measures to mitigate the impact of the pandemic, there was a promise of more investment in science and tech scale-ups, improvements to R&D tax credits to incentivise cutting edge science to be conducted in the UK, and rule changes to make it easier to list on the London Stock Exchange.
A Plan for Growth
Alongside the Budget, the Treasury published Build Back Better: our plan for growth, which has been rumoured to be instead of the Industrial Strategy revamp that was underway within the Business Department. The document is probably worthy of a full blog of its own and is an important signal of intent from the Treasury that we will analyse in more detail in the coming days.
We were however pleased to see in the document the Treasury acknowledge the success of the Biomedical Catalyst (a key campaign focus for the BIA) and that there will be an Innovation Strategy in Summer 2021. There was no announcement on new funding for the BMC, however.
It also states that the Government will consult in the next month on whether certain costs affect defined contribution (DC) pension schemes’ ability to invest in a broader range of assets. This is to ensure DC pension schemes are not discouraged from such investments and are able to offer the highest possible returns for savers. The Department for Work and Pensions will also come forward with draft regulations that will make it easier for schemes to take up such opportunities. This is another agenda the BIA has been engaging heavily on in recent years.
£375m for scaling innovative companies
Noting the success of the Future Fund, the Chancellor announced a new “Future Fund: Breakthrough” programme to be run by British Patient Capital, part of the British Business Bank. We understand this is new money in addition to the Bank’s existing programmes. It will target R&D intensive companies seeking a minimum of £20m and will crowd in private sector investment to support their growth.
There was no mention of the heavily-anticipated Life Sciences Investment Programme that the BIA has been urging the Chancellor to approve and launch, but we remain hopeful we might see movement on this in the coming weeks.
New rules for listing companies
The findings of the Lord Hill review of listing rules were published this morning to coincide with the Budget, and the Chancellor has accepted many of its recommendations. The review was commissioned by the Treasury to identify ways to make the London stock markets more attractive to tech and life sciences businesses. You can read BIA’s submission here.
Of interest to our sector will be changes to rules on Special Purpose Acquisition Companies (SPACs), which have emerged as a popular fundraising route for biotech in the US in recent years. Their viability for biotech on London market remains to be seen but it is something we will watch with interest. The review also echoes our priorities in relation to the wider financial ecosystem concerning: unlocking pension investment; maintaining a competitive tax environment; and improving SME research provision. It recommends the Government look at these further.
Among its other recommendations, the review also says dual class shares should be permitted to give company founders more control once taking their company public, but only on the premium segment, not AIM. Overall, in our view, the reviews recommendations are unlikely to move the dial in the competition between London and Nasdaq for biotech listings. In the past year we have seen investors interest in London-listed biotech increase significantly, maintaining this momentum is how a sea-change will be achieved.
All of the recommendations will require consultation by the Financial Conduct Authority (FCA) before anything can be changed.
R&D Tax Credits
Following two consultations, HMRC and HM Treasury have finalised the PAYE cap design for the SME R&D Tax Credit regime, committing to the two-step test design the BIA worked with them on. The final design provides an exemption from the cap where a company is creating, preparing to create, or managing intellectual property and where less than 15% of the R&D expenditure is with other connected companies (the BIA favoured an increase over the original 10% proposed). This means most UK biotech SMEs will be unaffected by the cap on their R&D tax credit claims, which is intended to prevent abuse of the scheme and not penalise genuine companies. The cap will also be brought in for accounting periods beginning after 1 April with no straddling period, which the BIA also originally flagged as a problem for businesses.
The Treasury has also launched a new wide-ranging review and consultation on both the SME and large company R&D tax credit schemes. This will consider the inclusion of data and cloud computing costs (which the BIA has campaigned for and the Government consulted on last year) along with other measures including the R&D definition, consolidating the two schemes, and how overseas activities are claimed for. We’ve been assured it will not be a cost cutting exercise, but it is certainly going to be a key focus for the BIA in the coming months to ensure positive outcomes.
The Government announced at Budget 2020 that it would review the Enterprise Management Incentives (EMI) scheme to ensure it provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and examine whether more companies should be able to access the scheme. This was delayed due to the pandemic but a call for evidence has now been launched.
Investing in vaccines
The Government is committing £22 million to fund the expansion of the world’s first trial of combining different vaccines as part of a two-dose regime. This will also fund the world’s first study assessing the effectiveness of a third dose of vaccine to improve the response against current and future variants of COVID-19.
The Government is also providing a further £5 million upfront investment in clinical-scale mRNA vaccine manufacturing to the Centre for Process Innovation (CPI) in Darlington, on top of £9 million funding which has already been provided to develop their mRNA vaccine manufacturing capability and support mRNA process development. The funding will support the creation of a library of mRNA vaccines for COVID-19 variants for possible rapid response deployment to allow the UK to get ahead of potential virus variants. This will enable development of a set of potential COVID-19 vaccine updates, similar to the way annual flu vaccine updates are developed.
Corporation tax changes
The Government has borrowed 17% of national income this financial year and forecast 10.3% next year. The Chancellor said there would have to be tax rises to start to repair the public finances. Among them, Corporation Tax rate will rise to 25% in 2023 (when the Office for Budget Responsibility expect the UK economy to have recovered). Even with this change, it will remain the lowest in the G7.
However, to encourage the UK’s businesses to invest to grow themselves and the economy, a new “super deduction” will help companies that are not loss-making by providing a tax reduction of 130% of their capital investments.
A new immigration system
The Chancellor said that a “scientific superpower needs scientific superstars” and announced visa reforms aimed at highly skilled migrants, including: a new unsponsored points-based visa to attract the best and most promising international talent in science, research and tech; new, improved visa processes for scale-ups and entrepreneurs; and “radically simplified bureaucracy” for high skilled visa applications. There will also be a new Global Business Mobility visa by spring 2022 for overseas businesses to establish a presence or transfer staff to the UK.
The government will introduce a £7 million fund from July 2021 to help employers in England set up and expand portable apprenticeships. This will enable people who need to work across multiple projects with different employers to benefit from the high quality long-term training that an apprenticeship provides. Employers themselves will also benefit from access to a diverse apprenticeship talent pipeline. Employers will be invited to bring forward proposals for how this could work.
HM Treasury moves north
The Chancellor also announced the long-awaited location of a Northern outpost for the Treasury, which is part of the Government’s commitment to “levelling up” between the UK’s regions. There will be a new “economic campus” in Darlington, which is already a prominent hub for biotech manufacturing, with the CPI and Fujifilm Diosynth Biotechnologies nearby. Surely nothing could help build an economy based on science and innovation better than Treasury officials and scientists mixing freely in the pubs of Darlington!
Responding to the Budget, Steve Bates OBE, Chief Executive of the BioIndustry Association (BIA), said:
"The COVID-19 pandemic has shown the strategic necessity for the UK to have a thriving domestic life sciences and biotech sector. Companies and researchers from across the UK have led in the global effort to develop, manufacture and deploy the COVID-19 vaccines, therapies and diagnostics needed to re-open the global economy. As the Prime Minister made clear last week, this successful public-private partnership is the formula for our country’s prosperity for years to come, a strong and active government investing massively in science and technology, coupled with a dynamic enterprise economy.
“The Chancellor rightly highlighted the UK’s opportunity to grow as a life science superpower as a core part of the future UK economy. For the life sciences sector, today’s Budget launches key reviews and consultations into R&D tax credits and listing regimes for capital markets, as well as new ways to attract entrepreneurs to the UK and for scaling companies to easily attract talent. The BIA looks forward to engaging in the detail of these initiatives to build the optimum environment for innovative life sciences companies to grow. By doing so the Chancellor can anchor high quality jobs in the UK for the next generation.”