Jeremy Hunt is offering extra help for companies investing in research and development in next week’s Budget to help compensate for his decision last autumn to scale back tax credits for the sector.
The UK chancellor is set to restore relief to companies which can prove they are spending large amounts on research in sectors such as fintech and artificial intelligence, according to people close to the negotiations.
Hunt’s announcement that he was scaling back R&D tax credits in November’s autumn statement prompted fierce criticism, with a survey by industry group the Coalition for a Digital Economy finding that the average start-up would lose around £100,000 if the cuts to tax credits went ahead. Some 97 per cent of founders said that they expected the cuts to have a severe impact on their start-ups.
Business groups are likely to welcome the partial retreat by the Treasury, although they warned that if ministers restricted the additional help to a small group of tech sector companies, it would deter R&D investment by other small firms.
“If they narrow help to just high-intensity R&D firms that would undertake this anyway, this means less investment in innovative SMEs,” said Craig Beaumont, head of external affairs at the Federation of Small Businesses, a trade group.
Other pledges in the Budget include “an unprecedented £20bn of investment over the next 20 years” in carbon capture and storage projects, the Treasury announced. But Hunt will not provide any extra funding for CCUS before the next election, expected by the end of next year.
Hunt will also announce a competition for the construction of Britain’s first small modular nuclear reactors, which the government said is likely to see Britain’s Rolls-Royce compete with rivals such as GE.
The chancellor also will roll out measures to encourage people to extend their careers into later life, including a hike in pension allowances for higher earners, according to people familiar with the plans.
He will unveil increases in both the £40,000 cap on annual pension contributions and the £1mn limit on tax-free pension pots. The lifetime allowance was set at £1.5mn when it was introduced in 2006, rising to £1.8mn in 2010. But it was cut to £1mn in 2016 and is currently £1,073,100, where it was due to remain until 2026.
The move is seen inside the Treasury as one way to tackle the thorny problem of large numbers of workers — particularly in their 50s — abandoning the workplace.
The policy is also designed to tackle the problem of some senior doctors who have stopped working for fear of facing huge tax bills after the government announced a six-year freeze in the annual allowance in 2020.
However, Steve Webb, a former pensions minister, said the government would be using a “sledgehammer to crack a nut” if they reformed the entire system just to solve the problem of doctors leaving the NHS.
Sir Steve, partner at investment consultant Lane Clark & Peacock, added that the move “could backfire” if people were able to reach their savings targets earlier and encourage them to “clock-off earlier” than they would otherwise do.
Another prong of Hunt’s attempts to get people back into work will be extra help with childcare for working parents.
The poorest families who are eligible for universal credit will see the amount of money they receive for childcare rise by nearly 50 per cent, from £646 to £950 for a single child and from £1,108 to £1,630 for two children.
The Treasury is also considering giving child-minding agencies financial incentives to recruit, with the hope of boosting the number of childminders available to parents. Proposed new rules would also make it easier for childminders to register with agencies and give nurseries relief on business rates.