Chancellor Jeremy Hunt sought to lure global enterprise back to Britain on Wednesday, in a budget aimed at catching up with major economies that have left the UK behind in investment and productivity.
Mr Hunt offered incentives to the financial, medical, energy and artificial intelligence industries in a bid to make Britain the “best place in Europe for companies to locate, invest and grow”.
His budget measures included tax deductions for information technology and machinery, a £1 million ($1.2 million) prize for AI breakthroughs and a promise that investment in nuclear power will be classed as environmentally friendly.
A plan for a dozen low-tax investment zones was described by Mr Hunt as a vision for “12 potential Canary Wharfs”, emulating the transformation of London’s former docklands into a major financial centre.
However, Mr Hunt disappointed some Conservatives by confirming that corporation tax will rise from 19 to 25 per cent from next month.
Reaction to the budget was mixed. The nuclear industry celebrated its new green badge, but retailers said too little was done to improve the skills of Britain’s workforce.
Mr Hunt said his incentives would narrow a gap in business investment that he blamed for a lack of British productivity, compared to the US, France and Germany.
“To be Europe’s biggest defender of democracy, we must build Europe’s most dynamic economy,” he told MPs after announcing an extra £11 billion ($13.24 billion) in defence spending.
The nuclear announcement means investors in atomic energy will be able to claim that their money is going towards a green cause.
This is because nuclear energy is to be included in the UK’s “green taxonomy” — a rule book on what counts as sustainable.
It follows a similar green designation by the EU last year, which passed despite fierce objections from campaigners.
The idea is to encourage investment in nuclear power and have it generate up to a quarter of the UK’s electricity by 2050, under the watch of a new body called Great British Nuclear.
Sam Richards, a former Downing Street adviser and the founder of pro-growth campaign group Britain Remade, said ministers should also speed up the approval process for reactors.
“All the money in the world won’t make a difference if it takes Great British Nuclear years to release a list of sites where small modular reactors could be built,” he said.
Mr Hunt’s vision is for eight investment zones in England and four in the rest of the UK, with an especially favourable business climate.
They are separate from the freeports set up with simpler customs laws by Prime Minister Rishi Sunak when he held Mr Hunt’s job, such as the UAE-backed Thames Freeport.
Under the new programme, areas will be invited to apply for £80 million in funding that they could use to reduce local tax rates or invest in skills and businesses.
Applicants will have to show how they intend to foster innovation in Britain and contribute to the UK’s climate change goals.
The idea is not new — Tory MPs fought to take credit for it during last year’s leadership race — but it has been “refocused” on 12 areas under Mr Hunt.
Past projects such as Canary Wharf “showed what’s possible when entrepreneurs, government and local communities come together”, Mr Hunt said.
“Today, I announce that we will deliver 12 new investment zones — 12 potential Canary Wharfs.”
Mr Hunt announced “around £900 million” ($1.1 million) in funding for a single, highly powerful supercomputer.
Known as an exascale computer, it could make as many calculations in a second as a person could do in 32 billion years.
The aim is to give British scientists the “computing horsepower” they need to make AI breakthroughs and put the UK “at the forefront” of technology such as ChatGPT, the government said.
A prize of £1 million a year will be awarded for the next decade to the scientists who produce “the most ground-breaking AI research”, Mr Hunt said.
Spring budget 2023 — in pictures
Another flagship sector, life sciences, was offered tax relief by Mr Hunt as part of the government’s plan to make Britain a “science superpower”.
Mr Hunt announced a package worth £500 million ($601.3 million) in support for businesses with large research and development costs, such as cancer drug companies.
However, Mark Smith, an R&D expert at consultancy Ayming, said only about 8,000 businesses would benefit from an initiative that would leave some companies with a “cliff edge of funding”.
The medicines regulator that examined Britain’s Covid-19 vaccines will, meanwhile, be given £10 million ($12 million) in extra funding to speed up its approval process, Mr Hunt said.
Not on the table in Mr Hunt’s budget were headline tax cuts of the type promised last autumn, then aborted, after they caused such chaos that Liz Truss had to resign as prime minister after 49 days in office.
It means corporation tax will rise, but Mr Hunt offered a sweetener in the form of a “full expensing” policy that means 100 per cent of money spent on IT equipment or machinery can be deducted from taxable profits.
The three-year offer replaces a “super deduction” of 130 per cent that was due to expire this month.
Mr Richards of Britain Remade said the deduction could boost investment in wind and solar power, at a time when the US and EU are planning to spend heavily on renewables.
“But investments require planning,” he said. “Businesses need to know they can rely on investment relief being there in three years’ time. This is why the Chancellor should move quickly to make the new system permanent.”