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Budget 2020 in tech: splashes cash on broadband and R&D while trying to limit impact of COVID-19 outbreak

But a 2% digital services tax may rankle giants across the pond

The UK government has announced a multibillion-pound package of measures designed to boost investment in computing, digital services and science.

In his 2020 Budget, freshly appointed Chancellor of the Exchequer Rishi Sunak said that £5bn would go towards getting gigabit broadband in the most difficult-to-reach 20 per cent of the country, as well as announcing a £22bn increase in public sector R&D investment and a zero rate of VAT on e-publications - this covers e-books, e-newspapers, e-magazines and academic e-journals.

Although planned since prime minister Boris Johnson's government took power, the measures are now positioned as being part of a broad fiscal package designed to limit the COVID-19 virus's impact on the economy.

More controversially, the UK government has pushed ahead with a 2 per cent digital services tax, which has provoked the ire of politicians, lobbies and digital industry giants based in the US.

Chris Sanger, EY’s Head of Tax Policy, commented: “The Chancellor chose to proceed with the new Digital Services Tax that was invented under his predecessor’s predecessor. There has been much speculation that the Chancellor might defer the introduction, having seen the debate between the US and France. Following the threat of tariffs, the French government agreed to defer collection [of] DST on this year’s revenue until 2021.

“Despite the government’s own scorecard showing the advancing of the liability due to the way that the government accounts for tax, the Chancellor has followed his French counterpart by deferring payment into 2021. More widely, despite the changes since the tax was introduced, it still seems that the Exchequer believes it will raise £440m per year.”

The IR35 tax reforms, which will affect self-employed IT professionals, are also going ahead, much to the disgruntlement of affected parties.

The Association of Independent Professionals and the Self-Employed (IPSE) commented: "Despite positive measures to temporarily support the self-employed through the coronavirus outbreak, what Mr Sunak did not say in his Budget speech was that the government has confirmed today that it will push ahead with the changes to IR35.

“By forging ahead with these disastrous changes, the government risks hollowing out the UK contracting industry. Already, many companies across the UK have either declared all their contractors 'inside IR35' or scrapped their flexible workforce altogether."

The commitment to digital connectivity includes the Local Full Fibre Networks Challenge Fund with multimillion-pound investments in various regions up and down the country, as well as a £510m investment in the Shared Rural Network, which will be more than matched by industry and means 95 per cent of the UK's landmass will get 4G coverage by 2025.

Annabel Finlay, head of telecoms, media and technology at Lloyds Bank, commented: "Digital infrastructure is a national as well as a global game. Our cities are competing against peers across the world and broadband is a key factor for inward investors. Meanwhile, some of our rural communities have been unable to fulfil their potential because of broadband that's not previously been suitable for the global, tech-focused world we live in today. This announcement sends out an important signal that ministers are committed to supporting the fibre network rollout across the country."

R&D in science and technology was another focus of the government's efforts to boost the economy. It said the aim was to increase investment to £22bn per year by 2024-25, which would put the UK ahead of the USA, Japan, France and China in terms of investment as a proportion of GDP.

The government is set to provide £400m in 2020-21 for research, infrastructure and equipment targeted at research institutes and universities across the UK, particularly in basic research and physical sciences.

A UK Arpa...

It is to spend £300m for experimental mathematical research over the next five years. Sunak said the government would spend at least £800m in a new "blue-skies funding agency" based on the US agency ARPA – the Advanced Research Projects Agency, the organisation behind Arpanet and early iterations of the internet.

Number 10 advisor Dominic Cummings has been keen on creating a UK ARPA and mentioned it in his blog in 2018.

Other measures introduced in the budget include cutting the tax on e-publications from 1 December 2020, making e-books, e-newspapers, e-magazines and academic e-journals entitled to the same VAT treatment as paper-based media.

To boost technology exports, the Department for International Trade and the Department for Digital, Culture, Media and Sport will pilot a Digital Trade Network in the Asia Pacific region, "helping innovative UK companies to access opportunities in major new markets".

The Budget committed to a review of the UK fintech sector led by Ron Kalifa, former CEO of WorldPay, to "support growth and competitiveness".

Caroline Le Jeune, a partner at London tax and advisory firm Blick Rothenberg, commented: "The Chancellor needs to borrow significantly to support his dramatic high-spending budget." She added: "The tax changes he announced will not be sufficient to bridge the gap." ®

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