The UK government has said it will invest an additional £500 million ($626 million) in computing infrastructure for AI over the next two financial years, in addition to implementing tax reforms and educational investments to help boost the country’s technology industry.
In Wednesday’s Autumn Statement, Chancellor of the Exchequer Jeremy Hunt said the government will use the additional investment to fund more innovation centers to help make the UK an “AI powerhouse.” The financial support for the sector, which now totals around £1.5 billion, will be used to help fund the research and development of new foundation models that maximize the UK’s potential in AI, enabling the discovery of new drugs, for example.
Off the back of what Hunt described as “the success of the supercomputing centers in Edinburgh and Bristol,” the money will also be used to build more supercomputers, although no further details about these potential machines were forthcoming.
The UK government will also launch the first AI Safety Institute, an initiative that was first announced at the global AI Safety Summit hosted at Bletchley Park at the start of November. The Safety Institute will be backed by an initial £100 million investment.
“When it comes to tech, we know that AI will be at the heart of any growth,” said Hunt. “I want to make sure our universities and startups have access to the compute they need.”
According to the Department for Science, Innovation, and Technology, the UK’s AI sector contributes around £3.7 billion to the economy and employs 50,000 people across the country.
The announcements in the budget are welcome for the AI industry as they show that the government recognizes much of what industry has been calling for — investment, access to capital, and access to computing capability, said Tom Whittaker, senior associate at UK law firm Burges Salmon.
However, Whittaker said that while the announcements provide the sector with some much needed capital, the industry is still calling for the government to go even further and make changes to investment schemes, offer visa systems that will help attract more global talent, and improve technology education at all levels.
Despite the expectation that additional funding for a number of quantum computing projects would also be announced, no mention of the technology was made by chancellor in his speech. The government has however published information about a number of quantum computing missions, which includes having accessible, UK-based quantum computers capable of running 1 trillion operations by 2035. Other missions focus on quantum networks, medical applications, navigation, and sensors for infrastructure.
In March, Hunt announced that £2.5 billion of government funding would be made available to support the UK’s 10-year quantum strategy, launched in February 2022 by former Prime Minister Boris Johnson.
The government has also launched a Catalyst fund to bring together quantum innovators and government departments to identify and develop near- and long-term application projects, although no financial commitment has been attached to this announcement.
Tax reform for the tech sector
During his March Spring Statement, Hunt said the government would be overhauling the R&D tax relief system, which had been deeply unpopular among industry experts who believed they punished some of the UK’s most innovative startups.
In Wednesday’s statement, the chancellor announced he would reform the system yet again, merging the R&D Expenditure Credit (RDEC) and SME schemes to create a more simplified system. The government will also reduce the rate at which loss-making companies are taxed from 25% to 19%.
Furthermore, Hunt said an additional 5,000 SMEs will become eligible for R&D tax relief through a reduction in the intensity threshold — the ratio of the company’s qualifying R&D expenditure to overall expenditures — from 40% to 30%. There will also be a one-year grace period for companies that fall below the 30% threshold.
Taken together, the government said that these changes will provide £280 million of additional relief per year by 2028-29 to help drive innovation in the UK.
The chancellor also confirmed that the existing sunset clause for the EIS (Enterprise Investment Scheme) and VCT (Venture Capital Trust) schemes will be extended from 6 April 2025 until 6 April 2035. These government-backed schemes give tax breaks to startups and investors during the early stages of their venture lifecycle.
Plugging the technology skills gap
In addition to the technology-specific funding announcements, Hunt also announced initiatives that build on some of the reskilling measures announced during his Spring Statement by providing additional funding and schemes to boost STEM (science, technology, engineering, and mathematics) careers.
The government pledged £50 million in funding over the next two years to increase the number of apprentices in engineering and “other key growth sectors,” such as digital technology, green industries, life sciences, and advanced manufacturing.
A fellowship course targeting mid-career science and technology venture capital investors was also announced. Set to be operational in 2024, the government said this will produce “the next generation of world-leading UK VC investors to support the UK’s most innovative high-growth companies.”
Hunt also outlined plans to set up a task force that will work with industry to explore how best to support small and midsize enterprises to adopt digital technology to improve their productivity.
“The critical importance of upskilling and providing support to individuals returning to the workforce, equipping them with the necessary skills for the digital era cannot be overlooked,” said Alexia Pedersen, vice president of EMEA at business education company O’Reilly.
She added that the much-discussed talent gap between available jobs and required skills demonstrates the need for government investment in education and upskilling programs to support emerging technologies.
“Strengthening the connection between businesses, individuals, and education is crucial to fostering a lifelong learning and development culture. By providing individuals with hands-on experience through partnerships with businesses, we can reap greater long-term benefits for the job market,” Pedersen said.
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