Budget bets big on tech and business investment to drive UK growth over traditional industries
At a glance
This was billed as a ‘Growth Budget’, expectations that growth would be driven primarily by enabling high-technology sectors and industries, and with investment in communities across England, Scotland, Wales and Northern Ireland.
We welcome this highly targeted approach and the plans for it to be supplemented by serious reforms to increase labour supply broadly for UK businesses. We know, alongside our clients, that there are challenges of attracting and retaining talent and hope that the changes in taxation and childcare, for example, offer us the chance to draw even more from the untapped potential, skills and knowledge of those currently outside of the workforce in regions across the country.
The positive news is that the UK has narrowly avoided the ‘long shallow recession’ predicted by the Bank of England, something that should be considered in light of the forecasted GDP which is still expected to decline in 2023, with modest growth into 2024. In the months ahead we’ll be working with our clients to ensure their businesses remain resilient and thrive considering potential market disruption.
How the budget does this more broadly appeared to be a twofold solution; to grow those industries that already have high labour productivity, and to increase the attractiveness of the UK as a place to do business. For our clients in energy, environment, water, transport, and property and buildings markets, we welcome the possibilities of supporting this growth.
The challenge of realising the Levelling-Up agenda
The 12 new £80 million low-tax investment zones centered on research and development (R&D) being spread around the UK aligns and is a further step forward for the UK’s Levelling-Up strategy. The continued devolution towards Combined Authorities is a positive step in the right direction and will provide a strategic focus rather than a scatter-gun approach at Local Authority level. We’re seeing the need for communities to be connected, productive and inspired, but key to this becoming a reality is how public and private industry work together to drive long-term community benefit.
To best benefit the local communities receiving this investment, we need to be thinking outside the box about how the new regeneration zones come together to connect the right sustainable infrastructure and provision of appropriate supply chain, marrying the current and future needs of the communities. We can see how this will certainly be helped by the £8.8 billion city regional transportation improvement fund, further enhancing the attractiveness for private investors to these investment zones, for example like we've seen with Canary Wharf. We will be looking to work with stakeholders across these communities to help achieve future success stories.
Investment-enabled labour drive
To improve the UK’s business and economic strength, the budget introduces enhanced tax relief on business investment to replace the outgoing Covid-era super-deduction and makes significant supply side labour reforms. Access to labour is a key challenge for UK businesses currently, and labour interventions outlined focused on parents and those taking early retirement.
In delivering technical and professional services for our clients, we know that the UK must address the opportunities to increase the talent and resources that industry can call from. Skills, often with a background in STEAM subjects, are in shortage and that’s why we’ve been investing in STEAM activities to support communities to develop the future workforce. Proposals in the budget today mean that there are hopefully even greater incentives for talent to remain or return to our industries and to help achieve the economic growth the chancellor is aspiring for.
We also note that with the funding packages for AI and quantum computing, the government is looking to position the UK as a home for high technology and we can see the advantages for clients to call from, and work with, businesses in these areas.
Improving the domestic energy landscape
The interventions made around net zero, including the £20 billion on Carbon Capture, the launch of Great British Nuclear, and the reclassification of Nuclear as environmentally sustainable, are positive steps, but they do not represent enough of a step change for progress towards the 2050 target. Whilst the chancellor might be betting on the fact that greater investment in high-tech sectors could unlock a more cost-effective, scalable solution to reaching UK net zero goals and greater domestic security, the challenge remains around taking action that won’t require generation-defining public spending on new infrastructure. Hopefully the UK’s role as an international leader in offshore wind and third largest technology investment market will put us in good stead for overseas interest in supporting renewables infrastructure, particularly in areas such as hydrogen, offshore wind and energy systems integration.
Is the future bright?
While setting a growth agenda, it is targeting this through a range of fiscal interventions and adjustments that will take time to translate into economic performance. There were no major game changers for the infrastructure and development sectors, with both levelling up and investment zones building on previously articulated policies. That being said, with the introduction of these new low-tax investment zones, there is an opportunity to completely redefine what UK future communities look like, and the subsequent impact on the local and national economies.
Where we and others share some disappointment is on the degree of intent for decarbonisation and the energy transition. However, there may be opportunities to show the UK's mandate and commitments at the UN Climate Summit COP28 later this year and we expect greater scrutiny and more focused decarbonisation and future energy policies to be top of the agenda.
In the next few weeks, we’ll be talking to our clients and the market about the ways in which we can help UK regions capitalise on the proposed investment and deliver communities of the future, as well as help drive the energy transition and future growth of a sustainable, secure UK energy market.
We look forward to discussing the topic in more detail and welcome your response to our commentary.