Key Highlights:
- The Chancellor pledged to fund Britain’s membership of Horizon, the European Union’s research and innovation programme, which is worth more than £80 billion to Britain’s science and technology sectors.
- The government’s flagship announcement for the sector was £520 million for a new life sciences manufacturing fund. It also protected the £20.4 billion allocated for R&D in 2025/26, including £6.1 billion to fund core research in sectors including biotech.
- Employers’ national insurance contribution is to rise by 1.2% to 15%, but businesses’ employment allowance will rise from £5,000 to £10,500, meaning many small life science businesses will not pay any national insurance at all.
Katy Balls/Getty Images
This week’s budget saw several major announcements for the UK life sciences sector. Yogan Patel, head of life sciences for MHA, the UK member firm of the global Baker Tilly network, explores what’s been announced and what it means for the industry.
This week’s announcements by Rachel Reeves matter for UK life sciences.
Over the last few years, several governments have highlighted the importance of the sector for economic growth, and even promised increased investment and tax breaks. Much of this promise failed to materialise due to political instability and changes of administration. This week’s budget broke that cycle by promising long-term change, which thanks to the government’s large majority stands a better chance of being delivered than ever.
The news has not been entirely positive though, with unwelcome tax rises and missed opportunities which will restrict entrepreneurs and stunt growth. Not good news for pharma companies wanting to scale up.
Here are the key takeaways for the sector from today’s announcements.
R&D: Funding & tax credits
The government’s flagship announcement for the sector was £520 million for a new life sciences manufacturing fund. It also protected the £20.4 billion allocated for R&D in 2025/26, including £6.1 billion to fund core research in sectors including biotech.
Yogan Patel, head of life sciences for MHA
These announcements are welcome news for the sector, which has been recognised by the government as critical to broader economic growth, and will facilitate further innovation.
There were no new announcements of tax credits for R&D, which was a missed opportunity. The government’s recent industrial strategy green paper categorised life sciences as a priority “growth-driving sector,” but the industry will not reach its full growth potential unless there are clear incentives for private investors to fund R&D.
Today’s research and development creates tomorrow’s unicorns, so it’s important for the government to facilitate a strong pipeline in this area.
Capital gains tax rise
The higher rate of capital gains tax is set to rise by four percent on the sale of shares. The lower rate will rise by eight percent. This will disappoint many, who will see it as a major disincentive to make risky investments, a must if we’re to maintain a vibrant life sciences sector. Fortunately, EIS and SEIS have been retained, meaning investors will still receive tax breaks for some investments, limiting the impact of the increase.
As I’ve previously warned, by raising tax without the addition of any new incentives, the financial inclination of investors to take a risk on a life sciences startup will diminish and diminish quickly. This could lead to serious funding shortages for the perilous but pioneering projects which often make the biggest breakthroughs.
Without alternative incentives to invest in risky biotech startups, the sector believes that it will not make the breakthroughs it needs to generate further success, and the government needs to improve public health.
Funding horizon
The Chancellor pledged to fund Britain’s membership of Horizon, the European Union’s research and innovation programme, which is worth more than £80 billion to Britain’s science and technology sectors.
The programme allows British researchers to collaborate with others across Europe, facilitating valuable innovation and the development of new therapies with the potential to scale and grow.
Supporting spinouts
The government will provide £40 million over 5 years for proof-of-concept funding and improvements to support UK university spinouts. They will also encourage pension funds to invest in high growth potential companies including spinouts through the British Growth Partnership.
This will help boost companies with the potential to become economic powerhouses at their most vulnerable stage. Supporting and accelerating the growth of spinouts can only be a good thing, particularly given the strength of research underway in British universities.
Infrastructure investment
The government announced a consultation on East-West rail to connect Oxford, Milton Keynes, and Cambridge. This will create the infrastructure and free up land required to support Cambridge’s life sciences cluster.
Specialist lab space and strong rail links are crucial to the operation of life sciences. Investing in more of these is necessary to facilitate the expansion of the sector and the cultivation of new companies.
Employer national insurance rise
Employers’ national insurance contribution is to rise by 1.2% to 15%, but businesses’ employment allowance will rise from £5,000 to £10,500. This means 865,000 of Britain’s smallest businesses, including many life sciences startups and spinouts, will not pay any national insurance at all.
Staffing is a big cost for many life science companies, so the rise in employer contributions should not be welcomed. However, the allowance rise will have a significant impact on many companies, which will be able to grow to a reasonable size without the burden of National Insurance.
Removing some of this pressure will make small companies more likely to succeed, grow quickly, and become extremely successful.
The announcements made this week will have a tangible and long-term impact on growth in the life sciences sector, for good and, in the case of tax rises, for bad. While it’s impossible to understand the full consequences yet, by sending clear signals of support for the sector, life sciences businesses should feel promise about the prospect of growth and investment.