Weekly Rundown - 19.03.23

Last week was significant for a number of reasons, but one of the major events was the Spring Budget 2023.

It's worth noting that HSBC's recent acquisition of Silicon Valley Bank's UK operations was a significant move for the bank to become a more dominant player in the technology and life sciences sectors, with the deal worth ￡3.3 billion. While the UK arm of SVB only had just over 3,000 business customers, its collapse would have presented a risk for a sector seen as pivotal to the UK's future economic success. The deal was led by the government and the Bank of England, and did not involve any taxpayer money. HSBC is funding the ￡20 million in bonuses given to UK staff following the acquisition, which are said to be intended to keep key employees from leaving.

The Spring Budget 2023 highlights:

For me, it is definitely true that attempting to grasp the budget can be daunting due to the sheer volume of information and details being circulated, and this likely applies to others as well. The Spring Budget 2023 builds upon the Autumn Statement 2022, with a focus on delivering on three key priorities set out by the Prime Minister, namely to halve inflation, grow the economy and get debt falling. The budget includes some highly debated highlights such as the government's plan to maintain the Energy Price Guarantee (EPG) at ￡2,500 for another three months starting in April, as well as allocating over ￡5 billion to maintain fuel duty at current levels. While the budget includes significant measures to support families with child care costs, some people were disappointed to learn that it will be rolled out in phases starting from April 2024. The government is expanding support for working parents by introducing 30 hours of free childcare per week for eligible parents of children aged 9 months to 3 years. As a dad of a two-year-old, I was initially thrilled to hear the news. However, my excitement turned to disappointment as my wife and I delved into the finer details. While we understood the reason for the phased roll-out, we couldn't help feeling underwhelmed. In addition to the previously mentioned measures to support families with childcare costs, the government is implementing further reforms to address this issue. These include an increase in the child element of Universal Credit, making more families eligible for Tax-Free Childcare, and providing extra funding for local authorities to improve the quality and availability of childcare. These measures are designed to alleviate the financial burden of childcare for families and to facilitate parents' return to work or an increase in their working hours.

Spring Budget 2023 & Medtech

The budget made a notable mention of Medicines and Healthcare products Regulatory Agency (MHRA), which is a rare occurrence. The UK government is providing support to the agency to improve its efficiency in approving medicines and technologies (including medical devices). The MHRA will be given an additional ￡10 million in funding over the next two years to take advantage of Brexit freedoms and hasten patient access to treatments. According to MHRA's 2021/22 Annual Report and Accounts, the agency's total income for the year was ￡194.7 million, with approximately 36% of this coming from fees and charges paid by the companies that the MHRA regulates. The remaining 64% comes from a Grant-in-Aid funding from the UK government, which is used to fund specific regulatory activities that are not covered by fees and charges. While the ￡10 million funding may not be significant in terms of the overall budget of MHRA, it is a valuable investment that will help the agency to carry out its important work more efficiently and effectively.

The MHRA is currently exploring potential partnerships with international agencies to provide faster and easier approvals for medicines and technologies. By 2024, the MHRA will have established a fully operational fast-track approval process for the most impactful new medicines and technologies, including cancer vaccines and AI-based therapeutics for mental health. Couple of weeks ago MHRA shared a brief about the possible implications of EU MDR extension. The impact of the extension of the medical device regulations transitional period and the validity of certificates in the EU on MHRA's work is not clear. However, it is likely that the extension will provide more time for the MHRA to establish partnerships with international agencies and align their regulations and approval processes. This could potentially help to accelerate the approval of medical devices and technologies and improve patient access to innovative treatments.

The government is committed to creating a competitive business tax regime to encourage investment. In the Autumn Statement of 2022, the Research & Development Expenditure Credit (RDEC) rate for large companies was increased from 13% to 20%, making it the joint highest uncapped headline rate in the G7. From 1 April 2023, the government will introduce an increased rate of relief for loss-making R&D intensive SMEs, providing ￡27 from HMRC for every ￡100 of R&D investment. Additionally, the government has introduced full expensing, a 100% First Year Allowance, from 1 April 2023 until 31 March 2026, meaning companies across the UK can write off the full cost of qualifying plant and machinery investment in the year of investment, making the UK's plant and machinery allowances joint first in the OECD in Net Present Value terms.

Data provided in a recently released Medical Technology Strategy suggests that SMEs make up 96% of the UK medtech. As SMEs are more likely to be involved in the development of novel technologies, with almost 90% of patent applications originating from SMEs, the government plans to support R&D and innovation through increased investment in science and technology, as well as tax incentives. Businesses that develop valuable IP can benefit from tax incentives such as the Patent Box scheme, which provides a lower tax rate for profits generated from patented inventions.

The government plans to support growth in the sectors of the future, including green industries, digital technologies, life sciences, creative industries, and advanced manufacturing. Sir Patrick Vallance has published an interim report on the regulation of emerging digital technologies and made recommendations on life sciences. The government has asked Sir Patrick Vallance to report on how regulators can better support innovation, and Professor Dame Angela McLean will look at the regulator Growth Duty. The government aims to increase investment into innovative scale-up companies and unlock defined contribution (DC) pension fund investment into the UK's innovative firms. The government will extend the British Patient Capital program until 2033-34 and increase its focus on R&D intensive industries, providing at least ￡3 billion in investment. Additionally, the government will pursue accelerated transfer of the ￡364 billion Local Government Pension Scheme assets into pools to support increased investment in innovative companies and other productive assets.

Overall, the Spring Budget 2023 provides a foundation for long-term sustainable growth, with a focus on four key priorities: employment, education, enterprise, and everywhere. The government is supporting investment in the energy system by launching Great British Nuclear to support new nuclear builds, making up to ￡20 billion available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years to encourage energy efficiency. The government is also providing additional funding for education, skills, and infrastructure, among other areas, to strengthen the economy.

Reactions

You can read the reactions of various experts to the UK government's plans to boost the economy. Many welcomed the plans for investment in infrastructure, education, and R&D, but some criticized the lack of concrete action on climate change and social inequality. Questions are raised rea potential impacts of the budget on businesses, particularly SMEs, as well as the challenges faced by the government in balancing economic recovery with long-term sustainability. Overall, the experts agree that the budget represents a significant opportunity for the UK to address some of its economic and social challenges, but more work will need to be done to ensure that the benefits are felt by all sectors of society. In their response, The Institute for Fiscal Studies (IFS) raised concerns about the long-term sustainability of the UK's public finances, noting that there is still much uncertainty around the future economic outlook and the potential impact of demographic changes on public spending. Additionally, the IFS argues that the budget does not go far enough in addressing some of the key challenges facing the UK, such as the need to transition to a low-carbon economy and to address regional disparities in economic growth. The NIESR also welcomed the government's increased investment in infrastructure, skills, and research and development. However, they raised concerns about the government's lack of clarity on how it plans to meet its net-zero targets, which could impact long-term growth prospects.

While I personally have mixed feelings about the budget, there were certain aspects that initially excited me, but upon closer examination of the specifics, my enthusiasm waned. Nonetheless, as someone who believes in the potential of the UK's economy, I view this budget as an incremental step towards achieving the goals outlined in several policies released this year. However, in times of immediate need, it can be difficult to maintain patience.