When Jeremy Hunt unveiled his Autumn Statement on Thursday, he declared he wanted to turn the UK into the “world’s next Silicon Valley.”

He believed we need to be better at turning world class innovation into world class companies, which is a view that will be shared by many.

The Chancellor also mentioned that the UK Government continues to see innovation as one of the three pillars for economic growth, which will have come as welcome news to the wider tech sector.

But do Mr Hunt’s tax announcements help move us closer to becoming a tech powerhouse in Scotland and across the UK, and is the aim more generally achievable?

The Next Silicon Valley

On the tax side of things, increasing the rate of Research and Development Expenditure Credit, which is the form of relief most commonly claimed by large companies, will be a real boost to companies claiming at this rate.

But in a surprise move, Mr Hunt cut the rate of R&D tax relief available for Small and Medium sized Enterprises (SMEs).

This will negatively impact SMEs, particularly start up pre-revenue companies, who often find the relief invaluable in assisting in the journey to market.

We understand The Chancellor’s stated intention – to reduce much publicised issues with fraud in the R&D tax relief space – but we wonder whether allowing the compliance changes previously announced to come into force, whilst maintaining the top rate, might have been a more effective move.

Critics may believe this makes it harder for start-up tech companies to fund their early development, as well as penalising legitimate claimants, which will negatively impact speed to market, a key factor in Silicon Valley’s success.

The wider topic on how we turn world class innovation into world class companies has been a key discussion point with our firm’s Tech Advisory Board, which features some of Scotland’s leading tech figures and advises our clients on achieving growth and expanding overseas.

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Silicon Valley is such a success story because there’s such a thriving start-up and scale-up environment. There are lots of companies coming up, and funding readily available to them.

Our Board has noted how the average fundraise for a tech start-up in Silicon Valley is many multiples of that in Scotland, which can mean that Scottish tech start-ups, even those with exciting and potentially disruptive IP, have to scrape by from raise to raise.

With much smaller funding, the business inevitably becomes more focused on ‘how can we cut costs?’, rather than how we can be innovative and creative.

The depth of funding and talent available in the US creates a thriving tech-start up eco-system. As with any thriving tech scene, only a fraction of the companies succeed but the easy flow of money allows for funders and innovators to adapt and evolve, even when previous ventures have failed.

But do we have the range and depth of skills available to facilitate this in the UK? Do we have the funding available, especially given the ongoing economic crisis, and do we have the tax structure here to make up for what we might be lacking?

On a positive note, it’s great to hear such ambition from the Chancellor, and it is true that in a creative sense we’re second to none. There’s fantastic work going on inside, and outside, universities across the country.

It’s taking that innovation and making it into successful companies that is the challenge. Sales skills are imperative, as is managing to retain your best and most experienced talent, who will have vital knowledge of how to succeed in the wider market.

There’s a lot of work to be done to translate our talent into commercial success in the UK and it will be interesting to see if Mr Hunt’s announcement helps address that.

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