UK tech gives mixed reaction to Labour’s first budget

The UK government has released its first budget statement, which introduces tax increases for employers, an uptick in public spending, and a renewed commitment to focus on growth. This has prompted a mixed reaction from the tech sector.

Chancellor Rachel Reeves delivered her statement, which sets out the Labour government’s financial plans for the next 12 months, in front of a packed House of Commons yesterday.

Key investment announcements included £2 billion and £1 billion of funding for the automotive and aerospace industries, respectively, as part of a wider green tech pledge.

It also included £520 million for a new Life Sciences Innovative Manufacturing Fund, and £500m to boost 5G and fibre deployments in rural areas.

Reeves also revealed significant tax hikes for employers.

“The only way to improve living standards, and the only way to drive economic growth is to invest, invest, invest,” Reeves said. “There are no shortcuts, and to deliver that investment, we must restore economic stability and turn the page on the last 14 years.”

The investments were welcomed by many across the tech industry, including Ten10 chief academy officer Ash Gawthorp.

“Labour’s industrial strategy shows promise for growth, especially with allocated budgets for key sectors such as aerospace, automotive, life sciences, and creative industries, but the talent gap remains a critical obstacle to fully realising these ambitions,” said Gawthorp.

“Earlier cuts to AI funding had cast doubt on the government’s commitment to tech, and businesses were looking for renewed support for the UK’s tech ecosystem. Today’s commitment to protecting government investment in research and development, with over £20bn in funding, including £6.1bn for core research in engineering, biotechnology, and medical sciences, is a positive step towards addressing these gaps and restoring confidence in the sector.”

Owen Ensor, CEO and founder of UK’s only regulatory approved cultivated meat company Meatly, called the budget “measured” and said it “sends a message of hope.”

“It’s great to see the retention of Entrepreneurs’ Relief, and also hugely encouraging to see further support and investment given to sectors such as life sciences and biotechnology, as well as the maintenance of the R&D tax credit,” he said.

“These changes should give start-ups and founders working within climate tech further confidence that the UK is serious about supporting these burgeoning industries.”

Other key announcements included a cross-departmental review of technology adoption for growth, innovation and productivity.

The review will be led by the government’s chief scientific adviser, Professor Dame Angela McLean, with national technology adviser, Dr Dave Smith.

It also mentioned modernising HMRC’s IT and data systems, protecting the UK’s research and development budget, a £300m commitment to Skills England to address a skills gap in the economy, and plans to publish the Artificial Intelligence Opportunities Action Plan, the UK’s roadmap for AI growth.

Missed opportunities

However, the government was also accused of missing opportunities to invest in the tech sector and support entrepreneurs and innovators looking to grow their businesses.

Matt Harris, SVP and managing director, UKIMEA at Hewlett Packard Enterprise, said Reeves should have reinstated investment plans for the UK’s computing capabilities.

“The UK’s position as a world leader in research and innovation is dependent on having world-class research infrastructure to enable our scientists and businesses to solve challenges at a societal and global scale.

“A lack of investment now, at a time when the European Union and nations such as the US, China, and Japan are making extensive investments into their own computing and AI infrastructure, risks the UK’s ability to nurture and attract top talent and to deliver innovation and breakthroughs in science and industry.

“The Government should capitalise on the UK’s existing strengths and reconsider committing funding for AI and computing infrastructure.

“Government funding is key as projects of this size go beyond the capability of any single company. Only this way will the government be able to secure Britain’s position as a world leader in science, innovation and research,” he said.

The lack of focus on emerging technologies, such as AI, also raised eyebrows among senior tech figures, including CyberArk president of EMEA Rich Turner.

Turner said the UK is “far from prepared” to deal with the security threats posed by the growth of AI, with research from CyberArk finding AI identities will triple in volume at over 47% of organisations in the next year.

He added: “We’re all excited about AI’s potential to transform how we work, but we need to get serious about managing the identities that AI programmes create in vast numbers. Huge numbers of businesses are already giving AI agents sensitive and privileged access to data — like customer information and IP — leaving a lot of digital doors open for cyber-attackers.

“We need to get this right so the race for innovation doesn’t fall flat at the first cybersecurity hurdle. Machine identity security has to be a priority in that context alongside state investment in innovation, AI and cybersecurity,” he concluded. 

SMB tax concerns

The Government also announced £40bn in tax rises. Reeves claimed the rises were necessary due to an alleged £22bn budgetary black hole left by the previous government, which was voted out of office after 14 years of rule as part of July’s general election.

In his response to the Budget, Conservative leader Rishi Sunak accused Reeves of “hobbling” economic growth.

“They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it,” the former Prime Minister told MPs in his final Commons appearance as leader of the opposition.

The tax rises mainly fell on employers who saw an increase in National Insurance contributions on their workers’ earnings, raising the government up to £25bn a year.

There will also be an increase in Capital Gains Tax on share sales and a freeze on inheritance tax thresholds.

Some in the sector, such as Sage CEO Steve Hare, claimed the budget introduces significant challenges for UK businesses, especially small and medium-sized companies.

They will be the ones who “face the impact of rising employer National Insurance contributions and minimum wage increases in the months ahead,” he added.

Many businesses, however, will welcome the longer-term certainty and clarity provided by the budget, allowing them to plan and adapt effectively.

“Now, more than ever, SMBs need to leverage digital tools to boost productivity and profitability. I’m encouraged by the government’s commitment to the digital economy through initiatives like Making Tax Digital and e-invoicing. These are vital steps toward building a resilient, future-ready economy,” Hare said.

Some were even more negative. The budget announcement “paints a bleak picture” for the UK business sector, claimed Commercetools VP of EMEA Neerav Shah.

He added: “A tax hike on employer National Insurance contributions and higher minimum wage thresholds will ask companies to do more with less.

“This pressure will dampen growth plans, which puts investment in crucial areas like digital transformation at risk. Those already invested in new technologies will fare better in today’s economic climate, especially larger enterprises with the capital to innovate and the infrastructure to integrate digital tools effectively,” he said.

“Others will face pressure to adopt new digital solutions that optimise efficiency, reduce costs, and bridge operational gaps,” he added.

“There’s a pressing need to invest in new digital solutions and tools to drive efficiency, agility and growth. Ignoring this need will lead to stagnation, with companies forced to choose between survival and costly modernisation without relief when we need momentum the most.”