Insurtech sector ‘disappointed’ over spring budget’s partial reversal to R&D tax credit cuts

Chancellor of the exchequer Jeremy Hunt this week (15 March 2023) announced a partial reversal to planned research and development (R&D) tax credit cuts for SMEs in his spring budget.

Hunt explained that eligible private firms spending over 40% of their money on R&D would now be able to claim back £27 from the Treasury for every £100 spent on R&D. 

In his autumn budget last year, Hunt had announced plans that would effectively have reduced this figure to between £18.60 and £21.50 for every £100 spent. 

While the new budget represents an improvement on plans from last year for R&D funding, the insurtech sector has registered its disappointment with a “partial reversal”. 

Insurtech trade body Insurtech UK’s co-chairs John Warburton and Luisa Barile said: “Whilst Insurtech UK remains disappointed in the overall reduction of R&D support by the government, we welcome the new enhanced 40% tax support to help R&D intensive SMEs.

“The move does address some of the concerns that we raised from the autumn statement, but the scope is limited in terms of the levels of application.”

Julian David, chief executive at technology trade association TechUK, added: ”Despite setbacks in the past year from government, the chancellor has put the UK back on the pitch when it comes to the global competition for science and technology.

“However, the job is not done – there were notable omissions and frustrations [in the budget], such as the lack of a UK semiconductor strategy and the only partial reversal of cuts to the R&D tax credit. This will disappoint many tech SMEs.”

R&D tax relief incentivises R&D investment by reducing the costs of innovation.

Falling short

Ritam Gandhi, founder and director of software firm Studio Graphene, called the budget a “mixed bag” and said it fell short of offering the technology sector what was needed in terms of support.

He explained: “The prime minister makes a habit of mentioning that he’s spent time in Silicon Valley, while the chancellor often references his own entrepreneurial experiences.

”So, it stands to reason they’d champion entrepreneurship – particularly in tech – and these topics were certainly at the heart of Hunt’s speech, yet he also overlooked some key issues inhibiting innovation and growth.”

Despite complaints, Gandhi admitted that ”there were positives” in the budget. 

He continued: “There were boosts for AI companies and tax cuts for R&D and those investing in IT and machinery in the UK are to be welcomed.

However, he added: “Some of the most common challenges UK tech businesses face were not adequately addressed – namely, accessibility of funding for scaling businesses and helping plug the tech skills shortage that holds back so many digital companies.

“The current axis we have in 10 and 11 Downing Street should give tech companies cause for optimism, but their rhetoric of wanting to make the UK a ’tech superpower’ still requires more substance.”