UK budget could have ‘detrimental’ impact on the Scottish tech sector, says expert

ScotlandIS chief executive Karen Meechan has told Holyrood that Labour’s first budget in 14 years was one of “mixed implications” for the Scottish tech sector.

Yesterday afternoon, Chancellor Rachel Reeves announced her first budget, which she pledged will put “more pounds in people’s pockets”.

Reeves confirmed funding pledges for technology research and development (R&D), adding that this holds an important role across “all of the government’s missions”.

The Department for Science, Technology and Innovation’s (DSIT) economic resources are set to grow to £15.1bn in the 2025/26 financial year, marking an average increase of 6.5 per cent in its spending over three years.

However, the autumn budget was equally “encouraging” and “disappointing”, Meechan said, adding that some measures introduced could significantly hinder the Scottish tech sector’s growth potential over the next year.

She said: “The devil will be in the detail but, on first reflection, [the] budget was one of mixed implications for the Scottish tech sector. While it was encouraging to hear there will be a focus on economic stability, it was disappointing to see measures introduced that could have a detrimental impact on the sector’s ability to thrive in the next 12 months.”

 “For instance, despite an increase in employment allowance, the overall impact of the changes to national insurance contributions should not be underestimated. It’s a move that will make it more difficult for Scottish tech businesses to compete for the very best talent from both the UK and further afield and could curtail the growth of some or our most ambitious companies.”

From April 2025, employers’ National Insurance contributions will raise from 13.8 per cent to 15 per cent and Reeves has lowered the threshold for contributions.

It is understood that these measures will raise £25bn by the end of the year to help plug the economic black hole.

Meechan continued: “On a more positive note, it was good to see additional details on the ‘modern industrial strategy’ and a focus on increased funding to support innovation and R&D. In particular, it was encouraging to see continued backing for Glasgow’s Innovation Accelerator Programme confirmed.

“Some of the commitments made to improving education appear to be good news for the overall pipeline of skilled tech workers and it was promising to see a broader pledge to unlocking the potential of the devolved nations.”

The budget allocated £20.4bn to R&D investment and pledged to continued supporting Glasgow’s Innovation Accelerator Programme, which is one of three pilot areas across the UK sharing £100m of government funding to become a high-growth innovation cluster.

It also confirmed an additional £300m for further education to “ensure young people are developing the skills they need to succeed”.

Meechan also welcomed the extra £3.4bn for the Scottish Government through Barnett consequentials, but added “we will need to wait” until the Scottish budget, expected to be delivered on 4 December, to see if the extra funds will benefit tech businesses.

Meechan added: “Before the Chancellor took to the dispatch box, I was pleased to hear the prime minister being so vocal in his support of the UK’s technology industry. The coming months will tell whether or not the government will collectively back those words up.”

During PMQs ahead of the budget, Prime Minister Keir Starmer, said artificial intelligence (AI) had a “huge potential” for the UK’s public services, adding the “whole house” should support emerging British tech business and strive to establish the country as a hub for AI growth and innovation.