Budget 2023 – UK to strengthen position in AI and quantum computing

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The UK Budget, unveiled by Chancellor Jeremy Hunt, sought to deliver stability and reassurance while endeavouring to revitalise a stagnant UK economy.

The Chancellor delivered a number of significant measures that aimed to boost investment, using corporate tax breaks, and encourage people of working age to return to work through improved support for childcare and pension reform.

In terms of technology, he said that the UK would strengthen its position in artificial intelligence, where it already hosts one-third of all European companies, and that the government was accepting all nine of the digital technology recommendations made by Sir Patrick Vallance and will launch an AI sandbox to trial new, faster approaches to help innovators get cutting-edge products to the market.

Hunt also announced that the government would be working with the Intellectual Property Office to provide clarity on IP rules for generative AI companies and while noting that further investment would be needed in infrastructure for research and innovation if the UK is was going to be a “science superpower”, and pointing to the relative lack of UK supercomputing power, Hunt promised £900 million of funding to build an exascale supercomputer as well as to establish a new AI Research Resource.

“In line with two of the key recommendations of the Future of Compute Review, the government will invest, subject to the usual business case processes, in the region of £900 million to build an exascale supercomputer and to establish a new AI Research Resource, with initial investments starting this year,” Hunt said.

Funding was also made available for quantum computing, with Hunt unveils a £2.5 billion Research and Innovation Programme.

The Chancellor also unveiled a  £1 million prize that will run every year for the next 10 years and will be awarded to a person or team that does the most ground-breaking British AI research, called the Manchester Prize.

The UK government said that it wanted to make the UK the best place in Europe for companies to locate, invest and grow by investing in technology and lifestyle sectors, as well as energy security, so for every single pound a company invests in IT equipment, plant or machinery, this can now be deducted in full and immediately from taxable profits.

According to Hunt this represents a corporation tax cut worth an average of £9bn a year for every year it is in place.

Commenting on the Budget Statement, Stephen Phipson, Chief Executive of Make UK, said: “Given the limited headroom the Chancellor had, his pursuit of continued stability and reassurance is understandable. Within this he was right to focus on significant measures to boost investment and the welcome support for childcare.”

He did suggest that companies would be disappointed, however, in that there was no extension of support for energy with the rapidly approaching cliff edge of the current scheme ending.

“Looking forward, given the bigger picture at play and, in the face of the firepower that the US and EU are bringing to bear with their huge incentive programmes to bolster onshore manufacturing, the UK needs transformational reforms that look to the long term, with the aim of equipping businesses and individuals for the scale and pace of the challenge we are facing,” Phipson added.

“This can only be done through building on the Chancellors’ five key areas of growth with a radical, ambitious modern industrial strategy and policy agenda that has science, technology and innovation at its heart. Industry will welcome his reference to ‘Industrial Strategy’ and stands ready to work with and, support him, to reshape our economy and boost growth.”

Dr Daniel Rathbone, Assistant Director, Campaign for Science and Engineering (CaSE) said “I am pleased that once again science and innovation are at the heart of the Government’s plans for the economy. Lives and livelihoods will be improved by science and innovation through investment zones, R&D tax credits for cutting edge businesses, and investing in future technologies.

“However, I am disappointed about the continued silence on the £1.6bn of R&D funding taken back by the Treasury last month, and when the money will be returned to the science budget.”

In terms of the Investment Zones programme, Hunt said that the plan was to catalyse 12 growth clusters across the UK, including four across Scotland, Wales and Northern Ireland with each cluster driving growth in key future sectors and bringing investment to the local area.

Twelve investment zones were announced eight of which will be located in England in the West Midlands, Greater Manchester, the north-east, South Yorkshire, West Yorkshire, East Midlands, Teesside, and Liverpool.

Ritam Gandhi, founder and director of Studio Graphene, said: “This Budget was a mixed bag. The PM 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.

“Yes, there were positives: there were boosts for AI companies. Tax cuts for R&D and those investing in IT and machinery in the UK are to be welcomed. And the investment zones sound promising, but exactly how and where the £80 million of funding will be spent in those 12 hubs remains to be seen. In the meantime, some of the most common challenges UK tech businesses face were not adequately addressed – namely, accessibility of funding for scaling businesses (kicked down the road to the Autumn Statement) and helping plug the tech skills shortage that holds back so many digital companies.“

A Quantum Strategy was also mentioned that will look to set out a “new and ambitious quantum research and innovation programme”. It will see £2.5 billion invested over 10 years, focusing on realising four goals: ensuring the UK is home to world-leading quantum science and engineering; supporting businesses through innovation funding opportunities and by providing access to world-leading R&D facilities; driving the use of quantum technologies in the UK; and creating a national and international regulatory framework.

The government also allocated £100 million funding for the UK’s Innovation Accelerators programme.

“This includes the Manchester Turing Innovation Hub led by the University of Manchester, 2 quantum projects in Glasgow led by the University of Glasgow and M-Squared Lasers Limited, and a project to accelerate new health and medical technologies led by the University of Birmingham.”

Commenting on R&D changes, Verity Davidge, Director of Policy, at Make UK said, “While the Chancellor set out big and ambitious plans for AI and quantum, the focus on diffusion and adoption of digital adoption overall is lacking. R&D tax credit policy keeps chopping and changing and many businesses will struggle to keep up. Large swathes of small and medium sized manufacturers will find themselves out of pocket when the new changes come in in April this year and we were looking to the Chancellor to delay, or even better, reverse these changes to boost R&D across all of manufacturing.”

The government said that the findings of its Technologies Review, announced in 2022, would be fully implemented.

“At Autumn Statement 2022 the government asked Sir Patrick Vallance to lead the Pro-innovation Regulation of Technologies Review. The government is taking forward all Sir Patrick’s recommendations on the regulation of emerging digital technologies, published alongside Spring Budget.”

Sir Patrick will now report on how regulators “can better support innovation, and the government’s new Chief Scientific Adviser, Professor Dame Angela McLean, will oversee future reviews into creative industries, advanced manufacturing, and the regulator growth duty.”

There was also a promise to speed the approvals process for medicines and technologies.

“Based on Sir Patrick’s interim findings on life sciences, the government is providing extra funding for the Medicines and Healthcare products Regulatory Agency (MHRA) to help it maximise use of its Brexit freedoms and accelerate patient access to treatments,” said Hunt.

The MHRA is to explore partnerships with trusted international agencies, such as in the US, Europe and Japan, in order to provide simple, rapid approvals for medicines and technologies that have received their approval from 2024.

The MHRA will also have a fully operational swift approval process in place from 2024 for the most impactful new medicines and technologies – such as cancer vaccines and AI therapeutics for mental health, said Hunt.