Budget_2015_Osborne_600This Parliament’s final Budget

In his announcement at lunchtime today Chancellor George Osborne set out the final Budget of this Parliament. Although this Bill will be delivered, debated and voted on in the form of the Finance Bill (to be published next Tuesday 24 March), an emergency Budget will follow the General Election so the significance of this Budget and pledges made within it – whether they will be upheld or rewritten – will not be certain until after the election.

Some general measures that had been doing the rounds on the rumour mill materialised, including an increase in the personal tax allowance (to £10,800 in 2016 and £11,000 in 2017), the 40p threshold to rise above inflation to £43,300 by 2017/18, a new Help to Buy ISA and the abolition of the annual tax return.

These announcements had to an extent the feel of the usual giveaways one would expect ahead of a General Election. However the Chancellor continued to tread the established narrative of responsible economic management, highlighted the £30 billion of further savings to be made by 2017/8 (through a combination of government cuts, reduction in welfare spending and aggressive tax planning) and seemed to make a stark warning of the need to stay on this fiscal path, come what may in the General Election.

Devolution was also a key theme, extending the overarching political narrative with the “Northern Powerhouse” theme holding pride of place with separate devolutions of powers to other parts of the United Kingdom including corporation tax to Northern Ireland, a devolution deal to West Yorkshire covering skills, business support and transport and further powers for the Mayor of London in regards to skills and planning.

From a life sciences perspective, there were some notable “wins” off the back of previous BIA lobbying (see our earlier press release on wins on advance assurance and the operation of tax advantaged venture capital schemes). However for a Budget that declared it was making new investments in science and manufacturing, some of the wider science community were left a bit wanting.

To hear or take part in the discussion on what this Budget means for the sector, join our next BIA Webinar ‘The 2015 Budget Update: What this means for the sector’ on 26 March (11am) – register here. In the interim, we hope this is helpful and do get in touch with questions or thoughts. Full documentation from today’s Budget can be found here.

Good news for the life sciences sector

topline_Budget2015Items of more specific interest to the life sciences sector, and to be welcomed, include supportive Government funds, measures to enable and improve investment, a supportive tax environment, and regional initiatives.

Government funding support

Around a rhetoric of investing in the UK’s future scientific success, Osborne set out a number of areas of government support.

  1. ‘To improve access to finance for smaller firms, theBritish Business Bank is launching a pilot ‘Help to Grow’ programme to increase the supply of growth loans to firms that need between £500,000 and £2 million to achieve their potential. Budget 2015 announces a request for proposals to deliver the pilot, which will facilitate up to £100 million of finance for growing businesses.’
  2. Having already made major investments in science in London, the government will ‘reinvest up to £30 million from the sale of Medical Research Council assets to support research at the Francis Crick Institute, with matched funding from Cancer Research UK and the Wellcome Trust’ in an extra boost to the project’s long term security.
  3. Government ‘will commit £400 million to 2020-21 for the next round of funding for cutting-edge scientific infrastructure’ through a competitive fund based on scientific excellence across the UK. These Grand Challenge projects will seek matched funding from industry and charities.
  4. A further £100 million will be invested in cutting-edge research projects through the current UK Research Partnership Investment Fund round. Current funded projects, including many in biomedicine, ‘will leverage over £350 million of private sector investment and are being led by universities from across the UK.’
  5. Postgraduate loans: Following on from the Autumn Statement announcement of loans for postgraduate Master’s degrees, the Budget announced strengthened support for postgraduate research. Acknowledging that ‘demand for individuals with doctorates is outstripping supply, both inPG_loans_Budget2015 the UK and internationally’, the government proposes to introduce income-contingent loans of up to £25,000 to support PhDs and research-based masters degrees, and launch a review into how they can ‘strengthen funding for postgraduate research’, assessing options around partnerships and co-funding between government, industry and charities.

Enabling investment

  1. In line with the BIA’s recommendations, in respect of the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs) government announced that it will bring the schemes into line with the latest state aid rules and support high growth companies by:
  • requiring that companies must be less than 12 years old when receiving their first EIS or VCT investment, except where the investment will lead to a substantial change in the company’s activity;
  • introducing a cap on total investment received under the tax-advantaged venture capital schemes of £15 million, increasing to £20 million for knowledge-intensive companies;
  • increasing the employee limit for knowledge-intensive companies to 499 employees, from the current limit of 249 employees;
  • and smoothing the interactions between the schemes by removing the requirement that 70% of the funds raised under SEIS must have been spent before EIS or VCT funding can be raised.
  1. Osborne made a soft commitment on the Annual Investment Allowance (which allows companies to claim tax relief on capital investments such as plant and machinery) saying that, although this was a discussion for the next Autumn Statement, he knew there was significant opposition to dropping the allowance back to £25,000 (as scheduled following a temporary increase to £500,000 last March).
  2. Government will extend the list of qualifying investments for ISAs to include ‘small and medium sized enterprise (SME) securities (not just equities) admitted to trading on a recognised stock exchange’ from summer 2015, and will make ISAs more flexible from autumn 2015 following consultation with ISA providers.

The tax environment

  1. Following the BIA’s submission to a recent HM Revenue and Customs (HMRC) consultation calling for an extended advance assurance scheme for SMEs, the Chancellor has today announced that government will introduce voluntary advance assurances lasting 3 years for smaller businesses making a first R&D tax credit claim from autumn 2015 and reduce the time taken to process a claim from 2016. There will also be new standalone guidance aimed specifically at smaller companies.
  2. There were also new announcements regarding entrepreneurs’ relief. The government would like to ensure that academics and researchers are appropriately rewarded when they contribute towards valuable intellectual property used in spin out companies. The government will therefore review the availability of capital gains tax (CGT) entrepreneurs’ relief on disposals by academics of shares in such companies. The government has also announced that to ensure the relief remains well-targeted, it will target structures set up so that people with only a small indirect stake in a trading company can benefit from the relief. The government will also ensure that entrepreneurs’ relief on the disposal of personal assets used in a business is only available when someone is making a meaningful withdrawal from that business.
  3. Tackling tax avoidance was a key theme of the Budget with the government stating that it will legislate next week on the Diverted Profits Tax aimed at multinationals shifting profits offshore, and bring it into effect at the start of April. Tax rules are to be tightened to prevent contrived loss arrangements, use of foreign branches to reclaim VAT on overheads and there will be a clampdown on “umbrella companies”. Measures on tax avoidance and evasion are set to raise £3.1 billion over the forecast period.
  4. The Chancellor has confirmed that the corporation tax rate will be cut to 20% effective April 2015.
  5. A major review of business rates was announced with pilots underway (see regional support section for pilots in east and north of England).
  6. The Budget statement confirmed that the timescale was on track to devolve corporation tax to Northern Ireland by the end of this Parliament.

Regional support

Building on the Northern Powerhouse announcements made in the Autumn Statement, this Budget sets out further measures for national recovery ‘by investing in infrastructure, housing, science and innovation across the whole of the UK’.

  1. In the Northern Powerhouse, the Government has committed ‘£20 million to Health North, to enable better care for patients, and to promote innovation through analysis of data on the effectiveness of different drugs, treatments and health pathways.’ The government will also provide £3.5 million of funding in 2015-16 to deliver a series of overseas trade and investment missions in key sectors, focusing on the north.
  2. The Budget builds upon the devolution of skills, transport and health budgets to Manchester with a pilot scheme to enable Greater Manchester and Cheshire to retain 100% of additional growth in business rates.
  3. In the East, the business rates 100% retention pilot will also apply to Cambridgeshire and Peterborough, and Osborne noted that his ‘door is open’ to other regions interested in this scheme which promises that local areas ‘will see the full benefits of policy decisions that increase the local growth rate and business rate revenues, sharpening incentives to boost jobs and growth.’
  4. The government aims to build on strengths in the South East by extending the Enterprise Zone for BIA member Discovery Park, subject to a business case, to allow it to expand its operations in life sciences and environmental technologies.
  5. There’s good news for another BIA member too as government commits to provide £1 million to the Centre for Process Innovation (CPI) to support innovation and knowledge transfer in the North East’s chemicals sector.

Other areas of relevance

A number of other measures that may have indirect benefits for the life sciences industry spanned the disparate areas of export, removing barriers to innovation, antimicrobial resistance and gift aid.

  1. Export: Towards improving economic ties with major emerging markets, UK Trade and Investment will receive a near doubling of funding to £7.5 million in 2015-16 for activities in China, including a focus on the advanced manufacturing, healthcare and life sciences sectors.
  2. Removing barriers to innovation: In order to ensure that regulations do not restrict the creation of valuable and innovative products, services and business models, government will engage with industry ‘to determine where regulations inhibit innovation, including disruptive technologies, and develop a programme for addressing this in the next Parliament.’
  3. Research Councils: Government will also remove some central controls to provide greater freedoms to Research Institutes on how they spend their current budgets ‘to ensure they can attract the brightest minds, make timely investments in cutting edge equipment and re-invest commercial income.’
  4. Antimicrobial resistance: In response to initial recommendations of the O’Neill review on antimicrobial resistance, ‘the government will work with the Wellcome Trust, the Bill and Melinda Gates Foundation, the Institut Pasteur International Network and other partners to launch a ‘Fleming Fund’ with a total of £195 million of overseas development aid over the next 5 years to build laboratory capacity and surveillance networks in developing countries to address the issue of antimicrobial resistance and infectious diseases which threaten us all.’
  5. Gift Aid for charities: In a move that will be welcomed by medical research charities, secondary legislation will be introduced to increase the maximum annual donation amount which can be claimed through the Gift Aid Small Donations Scheme to £8,000 with effect from April 2016.