BIA Budget 2020 analysis
Today the new Chancellor, Rishi Sunak, stepped up to the Despatch Box to deliver the first Budget of Boris Johnson’s new government. As was widely publicised ahead of today, the Government is to lead a highly interventionalist agenda with the largest increase in capital investment, which includes R&D, in living memory. There were important announcements for the life sciences sector, including increased R&D investment, a new £200m scale-up fund, and positive news on the R&D tax credit PAYE cap.
Economic forecasts have been downgraded due to low productivity, and are expected to be even worse due to the coronavirus outbreak, which came too late to be factored into the Office for Budget Responsibility’s predictions. This morning, the Bank of England also cut the already low interest rate to 0.25% and announced measures to support lending to small businesses to counter the coronavirus economic shock.
As anticipated, the Chancellor opened his speech with a large package of measures to support people and businesses dealing with the COVID-19 outbreak, and shore up the economy. As part of this, he committed to providing whatever the NHS needs to respond to the COVID-19 threat. This, he said, includes money for research to find a vaccine. £30m for NIHR has already been announced.
Among many measures, statutory sick pay for all SMEs will be refunded by the Government for up to 14 days and Government-guaranteed loans will be provided through banks for any temporary impacts on SMEs’ cash flows. Also included in this section of his speech was the announcement of a review of business rates, to conclude in the autumn. This could lower the base costs of life science companies’ operations.
Science and innovation investment
With the Conservative’s manifesto commitment to double R&D investment from £9bn to £18bn by 2024/25, not to mention the fact that UKRI’s core budgets run dry at the end of this month, there was quite some anticipation on what would be announced. A rabbit was pulled out of the hat for the science community, with the Chancellor announcing that the increase would hit £22bn, £4bn more than expected, and spending would increase 15% next year. This could be important as public investment should be front-loaded to leverage industry investment in the years to come to help reach the Government’s 2.4% target. Sunak championed the “Ideas” agenda, but criticised the concentration of R&D investment in the greater South East and said the new money would be allocated to universities across the UK. The details of how this is done will be crucial.
There was no mention of the Biomedical Catalyst, which the BIA has called for. But the 15% increase in science and innovation spending, which we think but have not confirmed is for this coming financial year starting in April, could give Innovate UK the headroom to fund the BMC. The BIA will be working to make sure that happens.
£800m was confirmed for the UK’s version of the US DARPA, but little more information was shared about what this addition to the research and innovation landscape would look like.
The Budget confirmed that it will provide the British Business Bank with additional resources to launch a dedicated £200 million investment programme, which is expected to enable £600 million of investment for life sciences scale-ups. This was a key demand from the BIA in our Budget submission. The investment was first mooted by Boris Johnson in October last year following many conversations the BIA has had with government officials and the British Business Bank, but it was not mentioned in the December manifesto so it is great to now see it confirmed. We hope it will now provide the Bank with extra resource to speed up its investment into life science-focussed venture capital funds.
The government will also provide the British Business Bank with the resources to make up to £200 million of additional investment in UK VC and growth finance in 2020-21, likely to counter the loss of the European Investment Fund support.
R&D tax credits
The Chancellor confirmed the RDEC rate rise that was promised in the Conservative manifesto and launched a consultation on the inclusion of data in eligible costs, which was also in the manifesto.
There was also an update in the policy document on the PAYE cap on SME R&D tax credit payments, consulted on last year (see our response here). It said that it will not be implemented this year as planned and that the cap will be modified to be introduced in 2021. This is the direct result of lobbying from our members and detailed discussions we’ve been having with HM Treasury over the past year. We are delighted to have it confirmed that the policy will not be implemented as originally proposed. We expect a public consultation shortly.
Following much speculation, the Government has not done away with Entrepreneurs’ Relief altogether but will lower the lifetime limit from £10m to £1m, effective from midnight last night. The Enterprise Management Incentive (EMI) also remains and will be reviewed 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 is great news and again reflects discussions we’ve had with Treasury and HMRC officials.
As was anticipated, Sunak has cancelled the planned reduction in Corporation Tax from 19% to 17%, saving an expected £6bn a year for the Exchequer. This, he said, would make money available for the NHS.
A policy design consultation has also been launched on the plastic packaging tax intended to promote the use of recycled plastic. The consultation says there will be a deminimus threshold of 10 tonnes of imported plastic, under which companies will not be impacted. The Treasury is also exploring whether it is feasible to create a limited exemption for some of the plastic packaging used for licensed human medicines. This follows lobbying work by BIA and ABPI and will be important for our bioprocessing members, who we will be working with to feed into the consultation.
The Budget also delivered funding for the South Cambridge railway station, which will help connect London Kings Cross to the world-leading biotech hub there, where AstraZeneca and the MRC Laboratory of Molecular Biology are based, among many other innovative companies. The magical journey starts at platform nine and three-quarters!
What happens now?
We still have a spending review to come, which will conclude in July to determine the Government’s spending priorities for the next five years. The Chancellor said this is when serious meat will be put on the bones of the Government’s R&D commitment.
He also announced a review of the fiscal rules and how the UK accounts for spending, with the suggestion being that he is considering including investment in “human capital”, which can include health and education investment, could be counted as capital. This would allow borrowing to fund these activities while sticking with the Conservative’s manifesto fiscal rules.
There are several consultations coming from today’s Budget that the BIA will be responding to with the help of our members and particularly our Finance and Tax Advisory Committee. Please do get in touch if you would like to be involved.
Tune into our Budget 2020 webinar
This Friday we’ll be hosting a webinar where I’ll delve into the key announcements in more detail and give you the opportunity to ask questions and make comments. You can register here.
Dr Martin Turner
Martin joined the BIA in April 2016 as Policy and Projects Manager and was promoted to Head of Policy and Public Affairs in January 2019. He is responsible for the BIA's policy outputs and public affairs activities. He also leads on innovation and industrial strategy policy and provides the secretariat for the BIA’s Finance and Tax Advisory Committee and the Intellectual Property Advisory Committee.
Martin has eight years’ experience in policy and public affairs and has worked at the Royal Society, the Campaign for Science and Engineering, and the Association of Medical Research Charities. Before embarking on a career in policy, Martin completed a PhD in molecular biology at the University of Sheffield, where he also co-founded and was director of an award-winning science communication charity called Science Brainwaves. He has a BSc in molecular biology from the University of Manchester.