UK tech start-ups hasten overseas expansion after R&D tax cuts

UK tech start-ups hasten overseas expansion after R&D tax cuts

Leading UK start-ups are accelerating plans to broaden overseas as authorities cuts to analysis and growth tax credit and extra beneficiant assist elsewhere threaten the UK’s standing as a tech hub.

Half a dozen founders of early-stage British tech firms instructed the Financial Times that the cuts, alongside Brexit and a slowdown in enterprise capital funding, have led them to take a look at worldwide alternatives extra severely, with different nations now changing into more and more enticing locations to do enterprise.

Sylvera, a UK carbon credit start-up, is opening workplaces within the US and Asia-Pacific area this yr, a choice the corporate mentioned had been accelerated by current UK coverage.

Epoch Biodesign, which develops enzymes to interrupt down plastics, Ochre Bio, a start-up growing RNA medicines for liver illness, and Hoxton Farms, a maker of meat-free animal proteins, mentioned modifications to the R&D tax credit system, which come into impact from April 1, would make scaling manufacturing or labs within the UK much less enticing.

“We’re feeling the necessity to diversify a lot sooner than we might have,” mentioned Sam Gill, co-founder and president of Sylvera. “It’s about this drip, drip, drip of poor high quality [government] selections that collectively creates a way more hostile atmosphere.”

A survey of 267 UK tech start-ups final week discovered that 84 per cent mentioned they have been involved they must take a look at offshoring extra tech growth within the wake of the cuts, based on foyer group Coadec.

In November, chancellor Jeremy Hunt lower the rebates accessible to small and medium-sized companies in a bid to scale back fraudulent claims, whereas growing credit for bigger firms.

The transfer has significantly hit start-ups in strategically vital industries comparable to synthetic intelligence, biotechnology and local weather tech which can be sometimes lossmaking, as they provide companies again as much as a 3rd of their excessive analysis prices.

The authorities has tried to handle considerations, with Hunt acknowledging this month that there was “advantage to the case for additional assist” for research-intensive companies.

It has additionally launched a session on merging the R&D schemes for big and small companies, which it says would simplify the system and provides companies extra readability on how a lot they may obtain annually to assist with budgeting.

But funding will nonetheless be lowered from April. “[The] authorities ought to be in search of extra focused methods to assist R&D intensive SMEs develop and scale, not reducing its assist,” mentioned Alex Kendall, chief govt of autonomous automobile start-up Wayve.

While worldwide expansion is a pure a part of start-ups’ progress, start-up founders mentioned the cuts, together with different financial insurance policies, have been undermining the federal government’s ambitions to develop the UK’s tech sector.

“These [R&D] modifications solely make different nations extra enticing,” mentioned Jacob Nathan, co-founder of Epoch Biodesign. “I’m simply not satisfied we’re going to scale within the UK now. It simply doesn’t make sense”.

Tax credit have performed a powerful position in attracting worldwide traders to UK companies in addition to rising jobs within the nation, based on start-ups.

Ochre Bio obtained £1mn in tax credit in 2021 for its UK analysis, a determine it had anticipated to develop to £3mn in 2023 and 2024 earlier than the proposed cuts. It additionally has analysis amenities in New York and Taiwan.

Co-founder and chief govt Jack O’Meara mentioned Ochre Bio discovered it cheaper to rent in Taiwan however the UK’s tax credit score scheme had meant creating analysis jobs within the nation was nonetheless aggressive. “If that goes away, it kind of modifications the calculus . . . that profit is not realised within the UK,” he mentioned.

The UK has lengthy been the European hub for tech, with $19.2bn in enterprise capital invested in London in 2022, double the $9.9bn raised in second-placed Paris, based on Dealroom knowledge revealed by Atomico, the enterprise capital group.

Tech start-ups have warned that different nations may pull forward when it comes to attracting these future progress industries.

Businesses within the local weather tech sector with excessive manufacturing prices, together with Epoch Bio, pointed to the US’s Inflation Reduction Act as a lovely supply of funding. The $369bn local weather, healthcare and tax regulation supplies billions of {dollars} of subsidies to investments in clear vitality and decarbonisation.

South Korea’s Hanwha introduced plans this month to spend $2.5bn to broaden its photo voltaic panel manufacturing in Georgia, in an indication of how US president Joe Biden’s signature local weather coverage is attracting funding.

Governments in Asia are additionally launching concerted makes an attempt to draw British funding. Hoxton Farms mentioned it has held discussions with authorities our bodies in Japan and Singapore, including that town state is “on the forefront” of meals regulation, a degree echoed by Higher Steaks, a Cambridge-based synthetic meat maker.

Businesses additionally pointed to uncertainty over their entry to the EU’s €95bn Horizon grant programme following disputes over post-Brexit buying and selling agreements in Northern Ireland. Prime minister Rishi Sunak has charged science minister George Freeman with growing an alternate British plan.

Announcing its session on tax schemes, Victoria Atkins, monetary secretary to the Treasury, mentioned that “getting R&D tax aid proper and match for the long run sits on the coronary heart of creating positive the UK stays a aggressive location for innovative analysis — serving to new companies develop.” The Treasury declined to touch upon start-ups’ increasing past the UK.

Any worldwide strikes are unlikely to be quick however companies warned that the deteriorating coverage atmosphere would suck capital away from the UK.

“I used to be introduced up in London and we wish to be within the UK,” mentioned Ed Steele, co-founder of Hoxton Farms. “But we additionally should make financial selections.”