Does this Budget Unlock the UK’s Opportunity to Lead in AI?
“Overall, we welcome the £20 billion investment in the ‘growth industries of the future’ and the increased investment in education and apprenticeships, but it was disappointing not to have more detail about how this investment will support the Government’s AI Opportunities Action Plan. Regional investment is vital to put the AI sector at the heart of the future economic growth and social progress of the UK, but there was surprisingly little new investment in regional clusters, developing the physical and social infrastructure that is required.” Tim Flagg, COO, UKAI The UK is a global leader in AI, but we’re at a crossroads. Today’s budget set out the Government’s economic plan. As the voice of the AI sector, UKAI champions pro-AI, pro-business policies. We’ve analysed the budget and its impact on the AI sector. [UKAI members can schedule a full budget briefing]. 1. Economic Growth: Supporting SMEs The minimum wage for over 21s, known as the National Living Wage, will increase by 6.7% to £12.21 from April 2025. Employer’s National Insurance will increase from 13.8% to 15% from April 2025 and this will become payable at the lower threshold of £5,000 (previously £9,100). Many smaller businesses can claim the Employment Allowance on National Insurance, which the Government is increasing from £5,000 to £10,500. They estimate this means 865,000 small business employers won’t pay any national insurance at all, and one million are expected to pay the same as they did previously. What this means for the AI Sector Whilst the Government has tried to offset the increase of Employer’s National Insurance with the Employment Allowance, the increase in minimum wage will still be an additional cost to smaller AI businesses. The net result is making ‘offshoring’ more attractive for cash-strapped businesses that need additional resources to grow. 2. Skills & Education £6.7bn extra investment in schools. £300m extra for further education. Increase in the minimum wage for apprentices from £6.40 to £7.55. What this means the AI Sector There was very little detail in this Budget on where and how this investment will be allocated. This could be a valuable investment in the future talent that the country needs, particularly if there is a focus on the mathematical and technical skills required by our sector. The increase in minimum wage for apprentices is also welcomed: AI and technology specific apprenticeships are an important way to develop future talent with up-to-date skills. 3. Regional Development Greater control to regional mayors with ‘Integrated Settlements’ for Greater Manchester and the West Midlands. Allocation of funding (part of the £20bn for Innovation) to extend the Innovation Accelerators in West Midlands, Glasgow and Manchester. £500m to improve broadband connectivity across the country. What this means the AI Sector This signals the Government’s intent to see greater regional development. However, it was rather lacking in ambition and scope. We expected to see greater focus on building regional clusters around technology hubs, attracting further private sector investment and creating greater physical and social infrastructure, across more regions. 4. Innovation £20bn for the Growth Industries of the Future. Including £6.1bn for Engineering, Biotechnology and Medical Science Research England and £500m for Life Sciences. What this means the AI Sector It’s still quite unclear what will be included in this £20bn investment and how it will be allocated across different industries. Hopefully a significant proportion of this will be directed to the AI sector, beyond those in the Biotechnology and Medical Science sectors. 5. Investment Lower rate of Capital Gains Tax to increase by 80% (10% to 18%). Higher rate to increase by 20% (20% to 24%). Tax on carried interest, affecting private equity investors, will increase from 28% to 32% in April. What this means the AI Sector This will have an impact on both the angel investors and venture capitalists that fund many high growth businesses, potentially reducing their appetite for investment. These increased taxes will also be a consideration for business founders. Many scaling businesses have also indicated that this tax increase will make UK businesses less attractive when trying to attract senior global talent, because it will effectively mean that their stock-options are now worth less. 6. Absence of AI Industrial Strategy The Government has previously talked about putting AI at heart of its economic plans, so it was disappointing that there was a noticeable absence of AI specific investment, or the Government’s AI Opportunities Action Plan. We hope that further detail will be forthcoming on the £20bn investment in the ‘Growth Industries of the Future’, which will provide further clarity.