The Chancellor’s Autumn Statement was an opportunity for the government to show that it recognises the challenges faced by the UK’s semiconductor manufacturing sector and to propose meaningful interventions in support of this strategic industry, as indicated in their strategy published in May. However, the fiscal package they laid out offers little to support the growth and global success of the sector, even whilst they profess the UK to be a global tech superpower!
In the paper we published last week in advance of the statement, we urged the chancellor to act now, to deliver meaningful support to enable the UK sector to remain competitive on the global stage and avoid our industry sliding into irrelevance. UK companies currently lead the world in specific innovations, but, as a country, we fail to invest deeply and for long enough to scale these innovations into long-term globally successful organisations with UK roots and significant UK economic contributions.
The UK has a vibrant ecosystem of more than 20 commercially successful chip fabs which supply uniquely innovative and valuable products across the globe, such as compound semiconductors for power electronics in EVs & renewable energy, photonics for augmented reality & high-performance computing and MEMS (nanoscale structures) for sensors in life science & automotive. The UK has world-leading innovation in these areas and already exports many millions of such devices. To avoid these national assets being ‘picked-off’ by foreign acquirers, these companies need to scale their manufacturing, which in turn allows the UK to reap the full economic and labour-force rewards.
The issue today, is that to stay competitive, chip producers must expand their capacity, continuing to keep their facilities full and operating efficiently as they follow the global market growth. They achieve this through periodic upgrades and capacity expansion. Although significantly less than the original investment to build the fab, they are not trivial and can often be as much as £20 – £30 million every few years. However, these investments are currently not readily fundable through existing debt or equity avenues in the UK.
Techworks Semiconductor Leadership Group called for one of the following straightforward interventions to enable full capex recovery for chip manufacturers investing in specific scale-up activities to remain competitive:
Innovation and R&D schemes (UKRI and R&D Tax Credits)
Increased funding from UKRI / InnovateUK for manufacturing enhancements
Creating a matched funding or a lead investor scheme through BBB or UKIB
The semiconductor business is a long game (5 – 10 years) and thus beyond the horizon of any single government. However, all developed nations globally are working to support and grow their national industries, whilst in the UK, we largely talk about it. The UK needs a long-term plan and bi-partisan commitment to ensure we maintain a credible capability, resilient national security and a seat at the table globally, where possessing a realistic semiconductor industry is rapidly becoming a major entry ticket.
There are two further proposals we made earlier in the year, in response to the government’s semiconductor strategy, which are worth repeating here:
Incentivise the domestic market to create local supply chains and industrial critical mass, which build national resilience and retain more value within the economy.
Increase the supply of truly patient/long-term capital from investors with real-world semiconductor experience and understanding. Not least to reduce the number of businesses being acquired by overseas owners and exiting the UK.
With regard to the Autumn Statement, I summarise the key points below with my thoughts:
New sources of finance for advanced manufacturing. The UK Infrastructure Bank is now able to invest in critical supply chains where it meets the Bank’s strategic objectives, including semiconductor manufacturing and critical minerals.
We are already in discussion with the UKIB. However, there are several issues here; their minimum ticket value is somewhat above the level of investment needed and they aim to co-invest putting these investments potentially out of scope. Also, they can still only invest in semiconductors where the investment also meets the other bank objectives, such as NetZero.
Full (tax credit) expensing of capital investments to be made permanent.
Although this has received a positive response from many in business, it is only relevant to companies with sufficient taxable income and, of course, only delivers a % of recovery.
Additional funding into Investment Zones and engineering apprenticeships
This appears useful, but there is little detail at present.
The government will shortly set out more on its actions to support investment and growth in the manufacturing sector with the publication of the Advanced Manufacturing Plan and UK Battery Strategy.
Interesting, but no further detail provided yet, and appears to be heavily industry-aligned.
It is also interesting to see that the government have announced a further investment of £500m to fund AI innovation centres and £4.5bn in manufacturing between 2025 and 2030 for zero-emission vehicles, battery technology, aerospace, life sciences and clean energy but nothing specific for Semiconductor.
Techworks is the UK trade association for Semiconductors and Deep Tech companies, consisting of 270 member companies involved in Semiconductor design and manufacturing, Automotive Electronics, IoT and Cyber Security. Our Semiconductor Leadership Group consists of executives from across the UK semiconductor value chain and we aim to work with the Government to help identify the strengths and opportunities which face the UK semiconductor sector and provide expert advice and recommendations for direct action which can deliver the most positive impact.