UK can support semiconductor industry without triggering a subsidy arms race

2 mins read

A new report from the Centre for Policy Studies has suggested that amid immense international competition and with increasing geopolitical instability impacting global supply chains, the UK needs to adopt supportive measures to help the domestic semiconductor industry.

However, it also makes the point that those ‘supportive measures’ don’t mean that the UK needs to engage in a 'subsidy arms race'.

Due to the fiscal constraints facing the UK government, 'Cashing in our Chips: How to strengthen the UK’s semiconductor sector' sets out a series of proposals that could help to boost this key industry that play to the UK’s existing advantages, which have low upfront costs and can be implemented almost immediately.

An additional advantage of these measures is that they would benefit other R&D intensive industries and emerging technologies, beyond simply semiconductor manufacturing.

 In light of the recent reshuffle and the creation of a new Department of Science, Innovation, and Technology to - in the words of the Downing Street announcement - 'drive innovation, create new better-paid jobs, and grow the economy' the government is now ideally placed to drive forward support for the semiconductor sector, according to the report.

The report calls on the Government to introduce a range of tax and investment incentives for high-intensity R&D industries such as:

  • A bespoke R&D tax credit for companies in sectors that fall within the 'families of UK strength and opportunity' as set out in the Innovation Strategy.
  • Full expensing for non-R&D plant and machinery, in addition to structures and buildings, for key sectors.
  • Establishing an Emerging Technologies Strategic Investment Fund (ETSIF) within the British Business Bank to court international capital for the UK’s emerging technology industries
  • Improve the immigration system for highly skilled STEM graduates and emerging technology firm workers.
  • Add flexibility to the planning system to encourage the construction of scientific infrastructure such as laboratories and manufacturing plants.
  • Strengthen the focus on semiconductor policy within Whitehall.

While the government has yet to publish its long-awaited semiconductor strategy, they have identified the sector as high-growth and been clear that semiconductor supply is a national security issue.

This has been echoed by Foreign Affairs Select Committee Chair Alicia Kearns MP in her foreword when she says thinking strategically about how the UK can grow the semiconductor sector is 'the obvious choice', adding that these proposals allow the UK to '[reduce] dependence and [deliver] policies that strengthen the British economy in the long run.'

Gerard B. Lyons, CPS Business Researcher and co-author of the report, said: “If the UK wants to continue supporting a vital sector and onshore as much of the supply-chain as possible, we need to play our hand right. The US and EU - among others - have put their cards on the table with their subsidy arms race, but a market-led, investment-friendly, approach is the ace Britain can - and should only - play to support our fledgling domestic semiconductor sector and capitalise on our existing strengths in this strategic industry.”

However, according to Zachary Spiro, co-author of the report, “The window of opportunity for the UK setting out its stall in the global chip race is closing, and we risk falling behind our international competitors. By taking decisive action now, we can cement advantage not just in semiconductors, but an entire range of industries that Britain could lead the world in. The policies set out in this report would, at little cost to the Exchequer, provide the support and security firms around the world are looking for when deciding where to invest.”

Alicia Kearns MP, Chair of the Foreign Affairs Select Committee, said: “This report sets out clear steps the UK government can take to support our domestic semiconductor industry and work with allies to reduce the numerous national security concerns and vulnerabilities within our current supply chain.

“These creative market-driven solutions are not the industrial strategy of old, they simply allow sectors the Government has rightly recognised as critical to our economic and technological growth to thrive, without creating an uncompetitive market dominated by stagnating firms that survive off government handouts.”

'Cashing in our Chips: How to strengthen the UK’s semiconductor sector' by Gerard B. Lyons and Zachary Spiro, can be downloaded by following the link below.