Chancellor Rachel Reeves unveiled her first budget amid a backdrop of tax hikes and increased capital investment. The plan raises taxes by £40 billion, yet promises a £100 billion boost in capital investment over five years. Reeves reaffirmed her commitment to existing support for the tech sector and emphasized the critical role of digital transformation in enhancing public services.
For victims of the Post Office scandal, she shared encouraging news—an increase in compensation funding from £1.2 billion to £1.8 billion. The Department for Science, Innovation and Technology (DSIT) will also see its budget grow from £12.7 billion to £15.1 billion over the next three years, representing a 6.5% average increase.
Reeves set a goal for government departments to improve their efficiency by 2%, heavily relying on better technology use. “Today we are setting a 2% productivity, efficiency and savings target for all departments to meet next year by using technology more effectively and joining up services across government,” she stated during her speech in the House of Commons.
The government is charting out a plan to boost civil service efficiency through enhanced skills and digital technology. As part of this aim, DSIT plans to invest £80 million to upgrade corporate functions like HR and finance. We can expect a Digital Transformation Roadmap for HM Revenue & Customs by spring 2025, with the goal of turning the department into a “digital-first organization.” In line with the NHS’s ten-year health plan, the government will allocate over £2 billion to enhance technology and digital capabilities in healthcare.
Recognizing the hurdles businesses face in tech adoption, Reeves announced a review targeting the digitalization challenges for small and medium-sized enterprises (SMEs). The UK’s productivity rates suffer due to these issues, as highlighted in the World Intellectual Property Organization’s 2024 global innovation index, where the UK ranked fifth but only 31st in knowledge absorption.
“The UK lags behind every other G7 country when it comes to business investment as a share of our economy. That matters,” Reeves pointed out. The review, led by chief scientific adviser Angela McLean and national technology adviser Dave Smith, aims to provide actionable recommendations to help businesses thrive.
The Department for Business and Trade is set to unveil details of a £4 million package to promote tech adoption among SMEs. Additionally, funding for the Made Smarter Adoption program will double to £16 million in 2025-26, helping more small manufacturing firms embrace digital technologies. The SME Digital Adoption Taskforce will also extend its work, delivering an interim report in early 2025.
In the broader vision outlined in the government’s Industrial Strategy greenpaper, the digital and technologies sector is earmarked for growth. The budget signals a £500 million investment for Project Gigabit and the Shared Rural Network, aiming for full gigabit broadband coverage by 2030. The government has committed to maintaining research and development funding, with £20.4 billion allocated in 2025-26.
Moreover, the government will kick off a multi-year R&D Missions Programme with a minimum investment of £25 million, designed to attract private and third-sector investment for solving targeted challenges. An upcoming Artificial Intelligence Opportunities Action Plan will map out strategies to leverage AI for growth and improved public services.
TechUK CEO Julian David voiced some concerns about tax increases but found promise in Reeves’ technology policies. “The chancellor has listened to the technology business community. Improving digital adoption in public services and SMEs are critical steps for UK growth,” he noted.
Among the tech startup community, there were fears about potential tax hikes dissuading investment. However, Dom Hallas, from the Startup Coalition, appreciated the balance struck in the budget, acknowledging that while tax increases are tough for entrepreneurs, vital R&D investments remain intact.
In a supporting statement, the government emphasized its mission-led approach, balancing challenging decisions in tax and spending to promote future investments and growth for the country.