Chancellor Rachel Reeves delivered her inaugural Budget speech on Wednesday, and referred to the fact that technology and digital innovation should serve as crucial catalysts for economic recovery and growth. In addressing the substantial £22 billion shortfall in public finances, Reeves laid out a forward-looking strategy that seeks to leverage technological advancements to enhance productivity and competitiveness across the UK.
A central theme of the Chancellor’s address was a tech-driven economic recovery. To bridge the financial gap, several initiatives were unveiled that aim to propel the UK economy into a new era of innovation. Among the most significant announcements was a £2 billion investment in artificial intelligence and machine learning research. This ambitious plan is designed to position the UK as a global leader in these transformative technologies. The investment will fund the establishment of AI research centres across the country, provide scholarships for students in AI and data science, and foster partnerships with leading tech companies to create AI innovation hubs.
Reeves also allocated substantial funds to upgrade the nation’s digital infrastructure, with a focus on ensuring that all citizens can benefit from these advancements. A notable £5billion is earmarked for the nationwide rollout of 5G, targeting 95% coverage by 2026. Additionally, £3billion is set aside for expanding fibre broadband access in rural areas, while smart city initiatives will be launched in major urban centres to enhance connectivity and efficiency.
In a bid to tackle both economic and environmental challenges, the Chancellor announced a £4 billion grant programme aimed at supporting green technology startups that focus on renewable energy and carbon capture. This commitment to sustainability extends to tax incentives for companies investing in electric vehicle technology and production, as well as funding for research into sustainable agricultural technologies, including vertical farming.
Recognising the increasing importance of digital security, the budget also includes £1.5 billion dedicated to strengthening the nation’s cybersecurity infrastructure. This funding will help establish a National Cyber Force tasked with protecting critical digital assets, alongside grants for small businesses to improve their cybersecurity measures.
To ensure that the workforce is equipped to thrive in this tech-centric future, Reeves outlined plans to enhance skills and education. Initiatives include the introduction of coding classes in primary schools, the expansion of digital skills boot camps for adults, and increased funding for STEM subjects in universities.
While technology took centre stage, traditional fiscal measures were also addressed. A new “tech giant tax” aimed at large digital platforms was announced and the Chancellor also promised streamlined visa processes for highly skilled tech workers, making it easier for the UK to attract the talent necessary for its ambitious plans. Perhaps the biggest sigh of relief was heard across the tech sector when it was confirmed that existing rates of R&D tax relief will remain unchanged for the duration of this Parliament.
Tech companies who are employers will be affected by the proposed increase in National Insurance contributions, effective from 6 April 2025, which will raise the rate from 13.8% to 15%, alongside a significant drop in the threshold for contributions from £9,100 to £5,000 per year. For example, employing someone on a salary of £30,000 will result in an additional cost of approximately £866 due to these increased contributions.
To offset these changes, the Employment Allowance will rise from £5,000 to £10,500, and the Government will eliminate the qualifying threshold that previously barred employers with a NIC liability over £100,000 from claiming the allowance. As a result, an estimated 865,000 employers will not pay any NICs next year. While there were speculations about applying Employers NI to pension contributions, this was not announced.
For businesses affected by these changes exploring pension salary sacrifice arrangements could be beneficial, and businesses may want to consider accelerating bonus payments scheduled for April to avoid the rate increase. Owner-managers should also re-visit their remuneration strategies in light of these changes.
Through this comprehensive focus on technology, Chancellor Reeves seeks to not only mitigate the immediate financial shortfall but also to establish the UK as a global tech leader, driving long-term economic growth and innovation. This tech-centric approach marks a significant shift in fiscal policy, signalling a bold commitment to digital transformation as the key to the UK’s economic future.
