UK-India relations through the lens of the UK Budget

By Aditi Banerjee

In his Spring Statement on 23 March, the UK’S Chancellor, Rishi Sunak laid-out a series of measures that are relevant for Indian companies. And, with Prime Minister Boris Johnson due to visit India this week, there is clearly continued impetus to expand the trade and investment relationship between the UK and India.

Challenging Context for the Chancellor’s Spring Statement

With the global whirlwinds of high inflation, supply disruptions, an energy crisis, the war in Ukraine, and increasing personal taxes, the UK’s Chancellor presented his “mini-budget” in a challenging context.

Nevertheless, the economy, overall, is rebounding strongly from the pandemic. The UK’s real GDP growth in 2021 stood at 7.5 per cent, the highest among the G7. Growth is expected to be 3.8 per cent in 2022, with the unemployment rate already descending to pre-pandemic levels.

The Statement set-out the Government’s priorities in a three-pronged approach of ‘People, Capital and Ideas’, with the aim of supporting economic growth, encouraging investments and enhancing productivity.

People

With the headwinds mentioned above, Mr Sunak sought to ease cost of living pressures for people in the UK, with announcements including a fuel duty cut, no Value Added Tax (VAT) on households using energy saving materials such as solar panels, heat pumps or insulation, and doubling of the government’s household support fund to £1 billion.

Giving people the education and skills needed for them, and, as a result, businesses and the country to succeed was a particular focus of Mr Sunak’s Statement.

Importantly for Indian businesses, he highlighted the role of highly skilled immigration driving innovation in the UK and the need to create a visa regime which not only attracts skilled talent but also entrepreneurs from across the world. The Chancellor also said the government wants to promote more flexible and quality-driven apprenticeship training models for learners across all age groups and career paths.

As Indian companies secured 40% of all work visas issued by the UK last year – almost as much as the rest of the world combined – and Indian companies employ over 100,000 people in the UK, these statements on skilled immigration and apprenticeships are significant.

Capital

During the pandemic, in the UK and globally, business investment and sentiment remained largely muted. The UK’s business investment accounted for just 10 per cent of GDP, lower than the OECD average. With business sentiments expected to normalise this year, combined with the super-deduction incentives in place until next year, there is an expectation that businesses will invest in 2022-23, not least in digital technologies to improve productivity.

Given that Indian ICT businesses are world leaders and already very successful in the UK, this should open new and exciting opportunities for growth.

addition, the Government looks forward to working with business during the summer to delve more deeply on tax reforms to attract greater investments and ensuring productivity led growth.

Ideas

From an international investor perspective, opportunities are being created to make the UK globally competitive and help build stronger ties with the rest of the world. A priority is stimulating innovations in the UK through incentivising and channelising greater Research and Development (R&D) investment. Some of the ways in which the UK is looking at increasing R&D investment is by providing tax relief on cloud computing costs in R&D, including storage.

Additionally, to support the development of areas such as Artificial Intelligence (AI), quantum computing and robotics, as well as existing sectors such as manufacturing and design, the Chancellor is extending tax relief to R&D in mathematics.

Importantly, tax relief is also being extended to cover R&D conducted overseas, which could further enhance the R&D-driven investments by UK businesses in India, including the co-creation of new technology with Indian partners. The scenario in India indicates that the R&D expenditure across different industries is led in health, defence, agriculture, industrial production and technology, space, transport and energy – all areas of relevance to the UK.

In a further sign that the UK Government is majoring on science and innovation, an AI centre for doctoral training is being established in a partnership with academia and industry. The underlying objective being the creation of AI-led research to tap AI- related opportunities across different sectors in the economy.

Conclusion

Given that the UK and India both thrive on digital and other advanced technologies, and that there is such an important flow of skilled talent between both countries, Mr Sunak’s Statement is important for Indian businesses and policy makers to consider.

With PM Johnson due in India this week, and the UK-India FTA negotiations advancing with such pace and positivity, there are real opportunities for our two countries to partner to accelerate and solidify a world-leading role in developing and commercialising new technologies that can not only create growth, jobs and prosperity, but also solve societal challenges.

 

[1] From 1 April 2021 until 31 March 2023, companies investing in qualifying new plant and machinery assets will be able to claim: a 130% super-deduction capital allowance on qualifying plant and machinery investments, a 50% first-year allowance for qualifying special rate assets. The super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive.


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