How does the budget affect startups?

If we aren’t currently talking about the upcoming COP26, that is taking place this Sunday (so article pending next week), or about Facebook rebranding as Meta, (who knows where that came from?) then everyone is talking about the Chancellor’s budget announcement and what that means four the startups and small businesses out there.

We spoke to founders and respected members of the startups community about their initial thoughts on what was announced, and what that actually means for the future of our industry.

Michelle Ovens CBE is the Founder of Small Business Britain and said: “This is a ‘back to business’ budget. However, many small businesses still have a way to go to get their business ‘back to thriving’ again.

“Investment in infrastructure, skills and innovation are welcome, and the business rates relief for retail, hospitality and leisure is a very positive, timely step and will go a long way to help small businesses in these hard-hit sectors. Although Help to Grow Management is still in its infancy, it continues to help businesses recover. But we need to see opportunities for small businesses in the announced £30bn green fund and ensure that the smallest businesses can access the R&D relief and increased local government investment.

“However, we would hope that today's budget does not rule out more measures over the winter to ease small business cash flow which continues to struggle with high supply chain costs, as acknowledged by the Chancellor. A tentative recovery is certainly on the cards. Ensuring this creates opportunities for small businesses, as well as the rest of the economy, should be the government's priority for the winter ahead.”

Within the budget announcement Mr Sunak confirmed that £1.4bn will be set aside for a Global Britain Investment Fund to help lure in foreign investment whilst also confirming a £150m cash pot for regional angel investors. Stephen Page, Founder and CEO, SFC Capital commented: “Whilst we welcome the money for regional angel investors, why allocate 10x more funding to attract foreign investments when you still have so much untapped potential internally? For example, boosting the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) within the UK would encourage greater investment here at home. Foreign investments are great but they also mean that future profits & returns will go outside the UK to overseas investors eventually.”

One point that was suggested in the Wednesday budget announcement, was that skills investment could hold key to overcoming existing crisis. International recruitment agency, Aspire, responded to the Chancellor’s Budget 2021 speech and Chairman Paul Farrer, commented: “This Budget paints a positive picture. Unemployment is falling, wages are rising and economic forecasts are strong. The commitment to invest further in innovation, skills and infrastructure across the UK should create jobs, boost employment and prove important to economic growth.

“A Global Talent Network is a welcome development, on the face of it. As is the £560m that will be spent on improving basic maths skills, to help people get back to work. These initiatives and the £3.8bn skills investment promised could hold the key to overcoming post-Brexit challenges and solve the UK’s skills crisis once and for all.” 

Another point that came from the budget was the Government’s investment in innovation, new skills pledge, and changing taxes to unlock institutional capital. Commenting on this, Sarah Barber, CEO of Jenson Funding Partners said: “The Government’s investment towards R&D and innovation is welcome but there needs to be encouragement at the early stage investment level in order to ensure this innovation results in growth. Entrepreneurs and businesses need to be assisted on their journey – making sure they are supported and are receiving the right amount of funding. The Government’s skills pledge is part of this assistance, startups need access to talent. However, you would also hope there will be an emphasis on developing business skills to create future leaders - this is often overlooked.

“Tax is also a vital factor. The commitment to changing taxes to unlock institutional capital is a welcome sign but we still need efforts to simplify the tax system in order to not create unnecessary hurdles that disincentive investors. If properly managed, investors can be an asset to the UK and have a major impact on the Government’s ultimate goal, to create the next wave of innovation to feed the UK economy.”

Reacting to the Autumn Budget Statement, Oliver Prill, CEO of Tide, said: “Although we welcome the Chancellor’s interventions to help business in the wake of the pandemic, including the £150m fund for small businesses in Scotland announced today, small businesses, which total 5.6m across the UK and form the economy’s backbone, aren’t out of the woods yet and we were disappointed by the lack of small business-focused policy, particularly for those without a premises, in the Autumn Budget Statement.

“Official data shows that the number of small businesses dropped significantly, by 6.5%, between 2020 and 2021 as a result of Covid-19, and while we also saw a start-up boom, the government needs to do more help small businesses to thrive, with a regulatory framework to help them thrive and not hinder them. Small businesses should not be forgotten.”

The hospitality sector has been through its fair share of turmoil over the past 18 months, and so it was only expected that the Chancellor was to do something that specifically related to help saving this industry and the small businesses within it.

Commenting on the 50% cut on business rates announced in the Budget, Chris Sanderson, CEO of the hospitality recruitment app, Limber said: “This will be a massive boost to the hospitality sector, which has been one of the hardest hit by the pandemic. Every penny counts and those extra pennies will go a long way to bring hospitality businesses back to their pre-pandemic health. Businesses in the hospitality sector will be popping the sparkling wine corks to celebrate, as that’s just got cheaper, too. There are still difficult times ahead but this has been a decent Budget for the hospitality sector.”

Tim Mills, Managing Partner of ACF Investors believes there will be some positive impacts for UK startups and there are silver linings we should be taking from this budget announcement. He said: “Today's budget contained some good news for UK startups. The increased investment into R&D will obviously be welcome news to innovative businesses in the UK. Less obvious, but also significant, is the announcement that R&D tax reliefs are being changed to include cloud computing and data costs. This has been long campaigned for and it's good to see the Government finally catch up with the modern reality of the R&D costs facing UK startups. We also cautiously welcome the Government's consultation on further changes to the regulatory charge cap for pension schemes, which has the potential to unlock institutional investment to support some of the UK’s most innovative businesses.”

Adding on the regulatory charge cap for pension schemes, Moray Wright, CEO at Parkwalk, said: "The relaxing of the regulatory charge cap for larger pensions schemes could unlock some of the £2.2trn currently off-limits to higher-risk, less liquid startups. It's also great to see the continued commitment to R&D spending, which will help the UK maintain its position as a world leading innovator and university powerhouse, and the investment is attempting to translate more of this innovation into value back to UK plc, rather than taken overseas. With the combined force of opening up pension fund investment into the innovative UK businesses of the future and a continued commitment to R&D spending, the UK is in a strong position to ‘level up’ and retain its crown as a ‘science superpower’. Both these initiatives compliment each other as greater support for R&D investment combined with a larger investment pool from pensions funds, greater support when they are ready to scale.”

Finally, James McLeod, Vice President at Faethm AI said: “The Government’s latest budget announcement means we finally have a clear idea of what ‘levelling up’ means for the UK’s jobs market. Aiming funding at skills training is a step in the right direction, and this type of investment is important if the UK wants to become a high skill, high wage economy. But as good as a ‘skills revolution’ sounds, it’s crucial that investment is backed by proper planning to give the Government the results it is after.

“We all know that tech is revolutionising the way we work and will continue to do so in the years to come, but having the ability to map what this looks like for individuals and sectors alike and then target spend where it’s needed is essential. Automation and AI in the workplace are becoming commonplace, and this means that many workers face job displacement if they aren’t able to digitally upskill and fast. For a high skilled workforce to be truly impactful, the skills they possess have to be relevant for the future as much as they are for the present. Investment needs to go beyond training alone, but also focus on identifying where skills are needed and how employees can be transitioned into new, more in-demand roles.

“Every employee has transferable skills, and the government needs to make the most of this. It must consider further targeted investments that encourage businesses to retain staff, retrain them in essential digital skills and competencies, and redeploy them in more in-demand roles where they can offer longer-term benefits and growth opportunities. That way, businesses can add capacity and increase productivity, creating a more future-proof, digitally adept workforce - all of which will help the government deliver on its levelling up agenda.”