Introduction
This paper explores the announcements made in the UK’s March 2023 Budget, given by Chancellor Jeremy Hunt, specifically focusing on public sector spending and any impact this may have on organisations bidding for public sector contracts.
The Spring Budget begins to implement the Chancellor’s strategy to deliver long-term sustainable growth, focusing on four key priorities: Employment, Education, Enterprise and Everywhere. Bidders should understand the meaning of these four priorities for their businesses and how to position themselves for strong growth.
Public sector net investment as a proportion of GDP will average 2.5% over the forecast period, delivering over £600 billion of planned public sector gross investment over the next five years.
Public Sector Spending
The 2023 Budget promised an increase in public sector spending in several key areas including:
- £5 billion for defence and national security priorities over the next two years, and £2 billion each year for defence for the remainder of the forecast period, totalling £11bn over the next five years. As set out in the ‘Integrated Review Refresh’, the government’s aspiration over the longer term is to invest 2.5% of GDP in defence, as the fiscal and economic circumstances allow. The government is providing an additional £33 million over the next three years to increase the service provided to veterans, including support for those with serious physical injury resulting from their service and increasing the availability of veteran housing.
- To increase resilience to future energy price shocks, the government is supporting investment in the energy system by launching Great British Nuclear to support new nuclear builds, making up to £20 billion available for Carbon Capture, Utilisation and Storage (CCUS), and extending the Climate Change Agreement scheme for a further two years to encourage energy efficiency. This will unlock private investment and job creation across the UK, particularly on the East Coast and in the North West of England and North Wales
- Local councils will receive £200m this year to help repair potholes, and an extra £10m over the next two years will be allocated to charities in England assisting in suicide prevention. For the leisure sector, £63m will be invested to assist leisure centres with increasing swimming pool heating costs and becoming more energy efficient.
- At Autumn Statement 2022, the government made available up to an additional £6.1 billion in 2023-24 and £8 billion in 2024-25 to support health and adult social care services, and an additional £2.3 billion in each of 2023-24 and 2024-25 for the core schools budget in England.
- The Spring Budget includes an additional £3.1 billion a year by 2024-25 rising to £5.2 billion at the end of the forecast period to help get more people into employment.
- Autumn Statement 2022 made available up to £8 billion of additional funding for the NHS and adult social care in England in 2024-25, with an additional £3.3 billion in each of 2023-24 and 2024-25 to support the NHS in England and up to £2.8 billion in 2023-24 and £4.7 billion in 2024-25 to support adult social care and discharge.
- The 2023 Budget’s changes to corporation tax rates, including an increase from 19% to 25% for businesses with taxable profits over £250,000, will affect companies bidding for public sector contracts . While this may reduce profitability for these companies, the changes to the tax incentives for research and development (R&D) could offset this. The incentives will now cover costs on data and cloud computing, providing a boost for companies that use modern R&D methods. However, the government’s intention to re-focus incentives on UK-based R&D could potentially impact businesses with international innovation supply chains
High growth sectors
The government states it will turn its vision for UK enterprise into reality by supporting growth in the sectors of the future including:
• Green Industries
• Digital technologies
• Life sciences
• Creative Industries
• Advanced Manufacturing
Recognising the importance of regulator behaviours for promoting growth, the government has asked Sir Patrick Vallance to report on how regulators can better support innovation. Additionally, the government will ask Professor Dame Angela McLean, to look at the regulator Growth Duty. Recommendations on these cross-cutting regulatory issues, and a government response, will be published by the summer.
Innovative companies across these high-growth sectors may need access to sufficient finance to be able to start, scale and stay in the UK. The government will work closely with industry and regulators to bring forward an ambitious package of measures by the autumn.
The Spring Budget signals the government’s ambition with an initial package:
• Increasing support for the UK’s most innovative companies by extending the British Patient Capital programme for a further 10 years until 2033-34 and increasing its focus on R&D-intensive industries, providing at least £3 billion in investment.
• Spurring the creation of new vehicles for investment into science and tech companies, tailored to the needs of UK DC pension schemes, through a new Long-term Investment for Technology and Science (LIFTS) initiative.
• Leading by example by pursuing accelerated transfer of the £364 billion Local Government Pension Scheme assets into pools to support increased investment in innovative companies and other productive assets.
Green industries
The Government states the transition to net zero is essential to long-term prosperity. Additionally, the Government states the war in Ukraine has highlighted the need for energy security. Within the budget the Government stated clean energy will be vital for both our security and net zero goals and presents an opportunity for growth. The government is therefore boosting longer-term public and private investment to ensure the country’s energy system is secure and clean, and to help meet the government’s 2050 net zero commitment.
To further leverage private investment into the UK’s secure and clean energy future, the government is launching Great British Nuclear (GBN) to address constraints in the nuclear market and support new nuclear builds as the government works towards net zero. GBN will launch the first staged competition for Small Modular Reactors, which is expected to attract the best designs from both domestic and international vendors. The government’s ambition is to select the leading technologies by the end of this year and if demonstrated to be viable, co-fund this exciting new technology in the UK.
While the initial focus of GBN will be on Small Modular Reactors, further large Gigawatt-scale projects will also be considered subject to value for money, relevant approvals and technology readiness and maturity, to help deliver net zero.
Nuclear energy will also be included in the green taxonomy, subject to consultation, encouraging private investment.
Digital technologies
The Government stated further investment is needed in infrastructure for research and innovation in the UK. Powerful computing capability is an essential component of being a global hub for innovation and achieving the UK’s ambition to be a science superpower. In line with two of the key recommendations of the Future of Compute Review, the government will invest, subject to the usual business case processes, in the region of £900 million to build an exascale supercomputer and to establish a new AI Research Resource, with initial investments starting this year. Together, these will provide significant computing capacity to our AI community and provide scientists with access to cutting-edge computing power.
Recent developments in AI, such as the launch of ChatGPT and the announcement of Google Bard, have shown the powerful potential for technologies which are based upon foundation models, including large language models. As announced alongside the refresh of the Integrated Review, the government will establish a task force to advance UK sovereign capability in foundation models, including large language models, and provide direct advice to ministers, to ensure that the UK is at the forefront of this technology. The government has committed to lead on the regulation of AI and on the future of web technology, sometimes
known as Web 3 or the Metaverse.
The government will invest a total of £2.5 billion over 10 years, focusing on realising 4 goals of its Quantum Strategy:
• Ensuring the UK is home to world-leading quantum science and engineering
• Supporting businesses through innovation funding opportunities and by providing access to world-leading R&D facilities
• Driving the use of quantum technologies in the UK
• Creating a national and international regulatory framework
The government has allocated £100 million in funding for the Innovation Accelerators programme to 26 transformative R&D projects. This will accelerate the growth of 3 high potential innovation clusters and support Levelling Up. This includes the Manchester Turing Innovation Hub led by the University of Manchester, 2 quantum projects in Glasgow led by the University of Glasgow and M-Squared Lasers Limited, and a project to accelerate new health and medical technologies led by the University of Birmingham.
Life sciences
The UK is arguably a world leader in the life sciences industry, with significant R&D hubs such as Cambridge’s Biomedical Campus. East West Rail is the rail line joining Oxford and Cambridge and will support further growth in life sciences and other high-productivity sectors across the region, connecting businesses and talent. The government will confirm the route for the new Bedford-Cambridge section and will provide capacity funding to support local authorities in developing their plans for strategic economic growth around new stations.
Boosting the supply of commercial development, in particular lab space, is key to supporting R&D needs and driving investment into high-value industries across England, such as the life sciences and advanced manufacturing sectors in the Oxford-Cambridge corridor.
Based on interim recommendations from Sir Patrick’s regulatory review of life sciences, the government is supporting the Medicines and Healthcare Products Regulatory Agency (MHRA), to become faster and nimbler. With £10 million extra funding announced over the next 2 years, the MHRA will accelerate patient access to treatments. The MHRA is exploring partnerships with international agencies, such as in the US, Europe and Japan, to provide simple, rapid approvals for medicines and technologies that have received their approval from 2024. The MHRA will also have a fully operational swift approval process in place from 2024 for the most impactful new medicines and technologies – such as cancer vaccines and AI therapeutics for mental health.
Creative industries and advanced manufacturing
AI Challenge Prize – The government will award a £1 million prize every year for the next 10 years to researchers who drive progress in critical areas of AI.
Innovation Accelerators – The government has allocated £100 million in funding for the Innovation Accelerators programme and will shortly publish the details of the 26 transformative R&D projects in the Glasgow City Region, Greater Manchester and the West Midlands.
AI Foundation Models Taskforce – As announced alongside the refresh of the Integrated Review, the government is establishing a task force to advance UK sovereign capability in foundation models, including large language models, and provide direct advice to ministers, to ensure that the UK is at the forefront of this technology.
Conclusion
The 2023 Budget brings a mixed bag for public sector spending, procurement, and companies vying for public sector contracts. While increased spending in areas such as defence, energy, and infrastructure suggests more procurement opportunities, changes to the corporate tax regime and R&D tax incentives may affect the profitability and competitiveness of businesses in the public contract space. Companies will need to adapt their strategies to align with these changes, focusing on sustainable and innovative solutions, to remain successful in the evolving landscape of public sector procurement.
Understanding the routes to market will be essential in locking in significant growth which can be achieved by using the Contracts Advance software to fully understand the frameworks and procurement methods that may be used to transact public sector business over the next 5 years and unlock access to the additional funds highlighted in this paper.
Once the route to market is understood, bidders should begin pre-bid activity for each opportunity, looking to gain a competitive advantage through the analysis of market, competitor, customer and internal data available through Contracts Advance and market/industry reports.
Those organisations that are bid-ready are likely to succeed and strengthen their position in the market, laying the foundations for a sustainable future.