BIA analysis of Autumn Budget

Yesterday, the Chancellor delivered a Budget that aimed to be fiscally disciplined following the economic turmoil caused by the pandemic, as well optimistic in setting out extra public spending to support the post-COVID economy. Alongside the Budget, Sunak set out the first multi-year spending review since 2015. The three-year review increased UK Government departmental budgets until 2024-25, which is helpful for organisations like UKRI and Innovate UK to be able to plan projects and competitions in the longer-term.

The Chancellor cited innovation as being central to driving long-term growth and improved living standards and his policy announcements emphasised the Government’s commitment to making the UK a science superpower.

All the Budget documents are available on here and you can read the BIA’s submission to the Budget and Spending Review consultation. Below are the key things we’ve identified for our sector.

Public investment in R&D

Noting that, on average, one pound of government R&D expenditure stimulates £2 of private investment, the Chancellor set out the vital role government plays in supporting science and innovation. It was disappointing to see the Chancellor revise the public R&D investment target down from £22 billion by 2024/25 to £20 billion by 2024/25 and £22 billion by 2026/27. However, he reiterated the Government’s commitment to spending 2.4% of GDP on R&D by 2027. £20 billion is also still higher than the £18 billion, which was the target until March last year.

The core research budget of the Department for Business, Energy and Industrial Strategy (BEIS) will rise to £14.2 billion per year by 2024/25 to deliver on the Innovation Strategy, including:

• £1.1 billion per year more for universities and research institutions by 2024/25.
• Full association to Horizon Europe, including to support new international partnerships.
• £800 million by 2025/26 to establish the new Advanced Research and Invention Agency (ARIA) to carry out high-risk, high-reward research.
• Support for priorities agreed by the new National Science and Technology Council, including AI and bioinformatics.

Also announced was a substantial increase in funding for Innovate UK, as recommended by the BIA, with a total of £2.5 billion by 2024/25. Its budget will increase to £0.7 billion in 2022/23, £0.8 billion in 2023/24 and £1.1 billion in 2024/25. In the coming months, we look forward to seeing how much of this budget goes towards refilling the Biomedical Catalyst, which the BIA recommended should increase to £100 million a year for the length of the Spending Review.

Health R&D commitments

The Government announced £5 billion for health R&D over the Spending Review period as part of the Department for Health and Social Care (DHSC) budget. This increase of £605 million on 2021/22 funding by 2024/25 is an important recognition of the UK’s strategic advantage in this area. This funding is to support:

• New research funded by the National Institute for Health Research (NIHR) addressing some of the UK’s most significant healthcare challenges
• The delivery of the Life Sciences Vision by the Office for Life Sciences with £95 million
• The UK’s world-leading genomics industry, including Generation Genome, a pioneering newborn screening programme to detect over 200 rare diseases
• Research for COVID-19 treatments, including £33 million in 2022-23 to deploy COVID-19 antivirals

Investing in life sciences manufacturing

The Global Britain Investment Fund was announced to support investment in economic opportunities across the UK. We’re pleased to see this include £354 million for life sciences manufacturing, including medicines, diagnostics and vaccines. We expect this will include an expansion of the £20 million manufacturing grants pilot launched last year. The UK life sciences sector has shown its enormous strength through its response to the COVID-19 pandemic but increasing health resilience in the UK is imperative and this commitment is important not just to do this, but to also create thousands of jobs in this world-leading industry.

R&D tax credits

Following the consultation HM Treasury held over the Summer, the Chancellor announced he will look at reforming R&D tax reliefs. Though much of the detail of these reforms will be set out in a document due to be published later this year, he did announce he would be following the BIA’s calls on modernising the scheme and expanding it to include data and cloud computing costs.

The Chancellor also announced his intention to look at how overseas R&D is supported in the tax relief regime. Our innovative companies need partners both within the UK and with global leaders to gain the competitive edge to take on the world. Supporting this activity with R&D tax relief has enabled UK companies to develop therapies for rare diseases, attract significant inward investment and retain intellectual property in the UK. We have already spoken to the Treasury about the potential negative impact which removing overseas R&D could have and they have confirmed they are keen to work with the BIA and our members on these reforms in the coming months.

Addressing the scale-up challenge

In the Life Sciences Vision, the Government took on board the BIA’s proposal to establish a Life Sciences Scale-Up Taskforce to look at the scale-up challenge faced by innovative SMEs, including unlocking new sources of finance. The Chancellor said that the Government will consult on further changes to the regulatory charge cap for Defined Contribution pension schemes to unlock institutional investment to support some of the most innovative businesses, which is part of a much wider piece of work across government and financial regulators. While the work of the Taskforce is ongoing, these broader changes will likely be important to the final recommendations which the Taskforce will set out by the end of the year.

Developing and attracting talent

Recognising the importance of attracting high-skilled migration to boost innovation, the Chancellor announced new Scale-up, High Potential Individual and Global Business Mobility visas launching in Spring 2022 to attract highly skilled people. A Global Talent Network will be created to find and bring talented people to the UK to work in key science and technology sectors, launching in the Bay Area and Boston in the US, and Bengaluru in India. The network will launch in 2022, working with businesses and research institutions to identify UK skills requirements and source talent in overseas campuses, innovation hubs and research institutions. The San Francisco Bay Area and Boston are the major US biotech hubs, and attracting talent to relocate to the UK is key to the work of the Scale-Up Taskforce.

Noting the importance of apprenticeships in providing businesses the opportunity to build the skilled workforce they need in order to grow the Government is increasing apprenticeships funding to £2.7 billion by 2024/25 and delivering apprenticeship system improvements for all employers. This includes an enhanced recruitment service by May 2022 for SMEs, helping them to hire new apprentices.

Medicines regulation

The Budget was light on any commitments in relation to the Medicines and Healthcare products Regulatory Agency (MHRA). The health regulator was mentioned in the context of seizing the opportunities of Brexit, with the Chancellor promising to continue to invest in and transform the MHRA, and that through the Budget and Spending Review, the Government will take further action to ensure the UK’s regulatory and legal framework works in the best interests of the UK. We’ll be looking out for more information on what this further action could mean.

Conclusion

Responding to the Budget, Steve Bates OBE, Chief Executive of the BioIndustry Association (BIA), said:

“It is thanks to the UK’s life sciences sector, which has developed essential vaccines, diagnostics and medicines to enable to re-opening of our economy, that the Chancellor was able to make important spending commitments in this Budget, which we welcome.

“Modernising R&D tax reliefs to include data and cloud computing is essential for life science firms discovering and developing life-changing therapies for patients. Increasing the budget of Innovate UK to over £1 billion by 2024, will enable UKRI to renew the Biomedical Catalyst, which is vital for UK entrepreneurs to crowd in private sector investment into the next generation of life science companies. There is also welcome new investment worth over £5 billion in health R&D, leveraging the UK’s world-leading genomics industry and aiming to anchor medicines manufacturing in the UK.

“The Chancellor also announced his intention to look at how overseas R&D is supported in the tax relief regime. UK life sciences innovation provides global benefits and needs global collaboration, particularly in clinical trials. UK SMEs are world-leaders at the centre of global networks which allow access to the highly specialist skills, facilities and patients needed to develop new treatments fast. Our innovative companies need partners both within the UK and (if what’s needed isn’t close to home) with global leaders to gain the global competitive edge they need. Supporting this activity with R&D tax relief has enabled UK companies to develop therapies for rare diseases, attracted significant inward investment and retain intellectual property in the UK.

“Rather than remove reliefs on this positive innovative and entrepreneurial small life science company behaviour, the Treasury should look to reduce fraud in the system by tackling tax advisors that unfairly push the boundaries of the scheme.”

For more information, please contact Dr Martin Turner, Head of Policy and Public Affairs on [email protected] or 07850 518 075.