Autumn Budget 2024: what was in it for tech and science scale-ups?

Last week saw the Chancellor's Autumn Budget, the first for this Government and a Budget that will define their term in office. In short, the Budget focused on 'fixing the foundations' of the economy and included details to increase Government spend, tax and borrowing to drive longer term capital investment. But what exactly did the Budget reveal for scaling tech and science firms?

It's safe to say the Autumn Budget revealed a mixed bag of announcements for scale-ups. There was some support for an innovation-led economy, with commitments in funding to the R&D Budget, and specific funds for ‘high growth sectors’, along with the extension of vital EIS and VCT schemes. But hikes in CGT (albeit lower than pre-Budget expectations) and BADR, along with employers’ NICs will see an impact on the UK’s entrepreneurs and SMEs. In particular, many scaling firms' (who are SMEs) cashflow and headroom for growth will likely be hit.

Key policy announcements for scale-ups include:

Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) scheme extended: both schemes have been extended for 10 years until April 2035. A reminder that the Enterprise Investment Scheme (EIS) is a government-driven initiative designed as a significant source of capital for early stage businesses while also providing tax reliefs to the investors who support them. The VCT scheme is designed to drive investment into smaller, higher risk companies and VCTs play a vital role by offering patient capital and strategic support for scaling businesses.

In our Seven Tech Priorities and Growth Plan, techUK called for the extension of both schemes so this was a welcome move. Now extended, techUK call for the Government to leverage world leading schemes, bolstering support provided for smaller scale-ups and R&D intense businesses.

Hikes in Capital Gains Tax and Business Asset Disposal Relief (BADR): the Capital Gains Tax (CGT) wasn't hiked as high as many feared, and the rumours that Business Asset Disposal Relef (BADR) would be scrapped didn't see fruition.

Following the Autumn Budget 2024, changes include:

An increase the main rates of Capital Gains Tax (CGT) from 10% and 20% to 18% and 24% respectively.
The rate of Business Asset Disposal Relief (BADR) and Investors' Relief (IR) will rise from 10% to 14%, and then to 18% from 6 April 2026.

techUK continue to call for an environment that remains attractive for scaling or reinvesting in new ventures towards future economic growth and innovation.

Hike in employers' National Insurance Contributions (NICs): perhaps the largest hit to businesses, the Government announced that, from April 2025, employers will pay national insurance contributions on an employee's earnings above £5,000 at the rate of 15%. This is instead of 13.8% on salaries above £9,100 currently.

Through this tax increase, the additional revenue for the Government is estimated to be £25bn per year. This is said to be one the largest tax raising measures in history, and is expected to fund the increase spending by almost £70bn per year over the next five years.

As a result of this hike, businesses will likely have to absorb some of this through profits, and the OBR have suggested that at least some of this could be passed on to employees in the form of lower wage increases going forward. Of note, the Resolution Foundation have also indicated 'the tax rise falling heavily on low-earning jobs, and bogus self-employment being further incentivised'.

Employment allowance increased: aiming to support small businesses amidst a raft of changes, including around employers' NICs, the Government has increased the allowance from £5,000 to £10,500 from April 2025. The £100,000 threshold has also been removed, expanding the eligibility to employers. and removed the benefiting around 865,000 employers.

R&D investment prioritised: after rumours that R&D funding would be slashed, the Government committed to protecting the R&D budget, including core research funding. Announcements included £20.4 billion investment, including fully funding assoication to Horizon Europe research programme.

This marks a welcome move from the Government, recognising that UK R&D is vital to drive economic growth, and a core pillar to achieve their missions. Indeed, recent reports note that, in the UK, each £1 of public R&D stimulates between £0.60 to £1.10 of private R&D investment in the short term, and between £3.09 to £4.02 in the long term. techUK's Growth Plan recognised the importance of R&D to drive economic growth and called for maintaining UK public R&D budget.

Of note, the Budget also revealed the introduction of a multi-year R&D missions programme, highlighting the role of R&D in the Industrial Strategy. This includes a £25 million investment that aims to place scientifc progress at the front of tackling 'key National Mission challenges' ranging from heathcare advancements and the clean energy transition.

Committment to British Business Bank funding: The Budget confirmed a committment of over £250 million in 2025-26 for small business loan programmes.

Of note, following the Investment Summit, it was promising to see the Chancellor's announcement around establishing the British Growth Partnership, along with £7.9bn permanent capital for the British Business Bank. This should amplify the Mansion House reforms and support UK scale-ups access further capital to create more tech and science giants.

techUK's Growth Plan recognised the vital role of the Bank to support scaling firms across the UK and called for reform with a stronger mandate to support scaling firms, and growth across regions and nations. Commitments to funding mark steps in the right direction, and we continue to call for reform to the Bank, including making the Bank truly independent and a stronger mandate to support scaling firms. Along with progressing on the LIFTs fund to unlock institutional investment and catalyse investment into later stage scale-ups.

Within this Budget, the Chancellor also made announcements aiming to maximise women's contribution in the economy. Of note, the British Business Bank is expanding access to funding for female entrepreneurs and will invest £50m into female-led funds through its existing programmes. This falls in line with the ambition of the Invest in Women Taskforce to expand access to funding for female entrepreneurs.

The focus on women and their contribution to the economy marks a welcome step and techUK continue to call for driving diversity into the scale-up ecosystem. We called for a focus on women in the recent Government backed Venture Capital Fellowship programme, and were pleased to see this committed to. Alongside this, our 'Women in Scale-Ups' webinar to discuss actionable recommendations the Government can take to better embed diversity across scale-ups and the investment community.

New proof of concept fund to help commercialise research: to support turning pioneering University research into high-growth companies, the Budget commited to investing £40 million over the next five years through a Proof of Concept Fund.

This marks a step to support University spinouts, recognised as a key growth opportunity from the Independent review of University spin-out companies. Indeed, UK universities are world-class in tech transfer and their spinout companies raised £1.66bn in equity funding in 2023, second only to the US in total investment in spinouts.

In techUK's Growth Plan, we called for the Government to better support the University spinout ecosystem to create economic impact from world-leading research. Of note, techUK members including Sage and Pragmatic Semiconductor originated from spin-outs and contribute significantly to the regions in which they operate through job creation and impactful cutting edge-research.

Funding for sectors with the 'biggest growth potential': funding was announced in line with the Government's recent drive for a modern industrial strategy. The Chancellor committed up to £520 million for life sciences manufacturing through the Life Sciences Innovative Manufacturing Fund, £975 million for the aerospace sector and over £2 billion to support the automotive sector.

Of note, technology and digitisation will be vital to support the growth of these sectors. In our Growth Plan, we note that virtually every other business sector has a ‘growth plan’ predicated on greater digitisation and the use of new and emerging technologies like AI and the cloud. In particular, these are welcome interventions to support life sciences innovation in the UK and it's manufacturing infrastructure - often cited as a blocker for UK innovators within this space.

Focus on effective delivery of the R&D tax credit: announced in the Corporate Tax Roadmap that was released alongside the Budget, the Government is maintaining the rates for the merged R&D credit scheme and the Enhanced Support for R&D Intensive SMEs (ERIS). Stability is a welcome move for many of our members still adapting to recent reforms and changes, and this should help boost business confidence. Of note, there were five changes to the R&D Tax Relief scheme in the last Parliament alone.

Other announcements on this included enhancing the administration of R&D reliefs by establishing the R&D expert advisory panel who will 'continue to improve signposting and guidance on R&D reliefs'. This was a call techUK made in our recent R&D Tax Relief Plan, noting that the panel should specifically inform recommendations around HMRC’s administration, operation and delivery of the tax credit. Going forward, the Government must ensure this panel regularly engage with claimants, advisors and professional bodies to increase transparency.

Support for SMEs digitisation: while this Budget revealed measures that will hit many SMEs, there were some positive measures that recognised the role of technology and digital adoption to support them. This included a revamped SME Digital Adoption Taskforce, with a report to be out in early 2025, and a 2% productivity and efficiency target for Government departments and public services. This will likely have knock on effects of Government looking for new tech solutions from the tech businesses.

In our Growth Plan, techUK called for a focus on SMEs digitisation support to address productivity challenges and enable SMEs to unleash the benefits that more advanced technologies, like AI, can bring. This included deliver a comprehensive digital adoption plan with clearly defined targets by 2030.

The Budget also saw announcements around digital infrastructure and skills that will impact scaling firms. You can read more on these announcements via techUK's insight.

What next?

At techUK, we consistently hear of both the opportunities and challenges on the horizon for scaling tech and science firms – with their contribution to the economy underscoring their immense potential to bolster the UK economy. Indeed, the ScaleUp Institute found that while scale-ups make up just 0.5% of UK businesses, they contribute 58% of SME output, equivalent to £1.3 trillion.

On Budget Day, the Office for Budget Responsibility (OBR) projected modest economic growth over the next few years. The economy is expected to grow just over 1 per cent this year, rising to 2 per cent in 2025 but dropping to 1.5 per cent thereafter. To get growth going and meet these targets, continued Government support for scale-ups is essential.

The UK is widely recognised as having many of the foundations in place to support high-growth firms. This message was highlighted at the Lords Communications and Digital Committee oral evidence session last week (the focus here was on 'Scaling up AI and creative tech'). But so too was the message around the scale of the challenge to build competitive, global leaders that contribute to economic growth. This was underscored by a point that NVIDIA is now worth more than the FTSE 100 combined. Blockers discussed included the UK's risk appetite, talent pool and previous lack of stability for the R&D tax relief scheme.

Ultimately, the Government must continue to back scale-ups and provide the resources to help innovators and entrepreneurs to successfuly scale. Identified barriers of access to capital, access to talent and a complex regulatory environment must be addressed. Onus will be on the Industrial Strategy and next phase of the Spending Review 2025 to ensure action and delivery on this. We will also be keeping a watchful eye on the Chancellor's Mansion House speech in mid November. techUK look forward to continuing to work with the Government on this policy area and we continue to do so through the guidance of our Scale-Up Council and wider membership of scale-ups.

To explore the main challenges and opportunities for UK scale-ups looking to raise investment, and gain practical insights from investors and finance providers, join our upcoming event taking place on 19 November. You can sign up via the link.