How the Spring Budget announcement will affect the tech industry

Last month, amid a backdrop of calamity and coronavirus, Chancellor Rishi Sunak delivered the UK’s first Budget since October 2018. Although the ensuing Covid-19 public health crisis dominated the Budget, stifling any plans for some long-awaited economic policy reform, Sunak announced a £30bn ‘fiscal stimulus’ to support affected businesses, echoing the Conservative Party’s election slogan of “getting it done”.

Sunak’s mantra was therefore one of crisis prevention, and of resilience in the wake of the storm. But what were the biggest changes announced, and what do they mean for the tech start-up industry?

Entrepreneurs’ relief scaled back

This time around the Budget was difficult to predict. However, despite the unexpected resignation of Sajid Javid, as well as Brexit uncertainty and mounting concerns over coronavirus all looming large, one change experts did predict was reform to entrepreneurs’ relief.

The incentive, which costs the taxpayer £2bn per year, grants entrepreneurs a reduced rate of 10% capital gains tax (CGT). It has previously been criticised as ineffective on the grounds that it disproportionately benefits only the wealthiest entrepreneurs, ultimately failing to deliver on its objective – to incentivise individuals to embark upon new business ventures.

Although there was much talk of abolishing the system altogether, Sunak has instead opted to reduce the lifetime limit on claims from the relief from £10m to £1m – a move that he states will save £6bn over a period of five years. While the chancellor vows to recycle the money saved by the measures in order to cut other business taxes, in a move which appears to be a sensible compromise, cuts to the system might appear as a step back for fledgling company founders.

Increased funding for start-up loans

However, it is unlikely that the cuts to the entrepreneurs’ relief system will deter founders from starting and scaling companies in the UK. In last month’s budget, the Chancellor also unveiled £130m in new funding to extend start-up loans to 10,000 more entrepreneurs between 2021 and 2022. There was more good news, too: £5bn of new export loans for businesses.

While the commitment of this new funding to extend start-up loans is a promising first step, it is important we do not rest on our laurels. Government-backed initiatives can prove crucial in supporting new business growth in all areas of the country, especially those outside of London, in areas not always associated with start-up culture. It is clear, therefore, that this must be the first in a series of measures intended to deliver the provisions required for start-ups to raise the capital they need to prosper, particularly throughout this period of economic and collective uncertainty.

In light of recent events, it was unavoidable that the chancellor would dedicate much of the budget announcement to outline contingency plans for businesses to manage their cashflow, helping them to deal with any financial fallouts felt as a result of the Covid-19 pandemic.

Nevertheless, the government should be mindful of the fact that there is still much more to be done in order to accelerate start-up growth in the tech scene. Indeed, it should bear in mind the vital role that early stage businesses play in leading innovation, creating jobs and growing the economy in the UK.

The pledge of £130m new funding for loans in particular should reassure start-up founders, but more must be done. Sunak’s efforts must be sustained if we are to provide new businesses with the essential tools that they need to launch, scale and ultimately, succeed – particularly in such testing times.

Ritam Gandhi worked as a consultant for a decade for the likes of Accenture and Bank of America Merrill Lynch before, in 2014, going on to found Studio Graphene – a firm that specialises in developing amazing blank canvas tech products. Working with many start-ups alongside innovation teams in more established companies, the London-based agency plans, designs and builds astounding tech products for its clients. What’s more, Gandhi and the team also use their experience and expertise to help leaders grow their business from ideation, to launch and beyond.