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The UK government plans to support R&D-focused businesses with up to £500 million a year as part of its spring budget, but it is standing by its controversial pledge to make cuts to R&D tax credits.

UK finance minister Jeremy Hunt said the budget is part of a broader plan to stimulate growth and make the UK—which narrowly avoided a technical recession this year—a "science and technology superpower."

As for the new plan, eligible R&D-intensive small and medium-sized enterprises in areas like AI and life sciences will be able to claim £27 from HM Revenue and Customs for every £100 of R&D investment. The government says that total R&D support as a proportion of GDP is forecast to increase to around 1% in 2024-2025.

Despite lobbying from startups and tech groups, the government has decided against a reversal of its controversial cuts to the R&D tax credit plan, which will go into effect next month.

"The changes to the [R&D] tax credit scheme are an example of giving with one hand while taking away with the other," Praetura Ventures director Jonathan Prescott said. "It's not yet clear which businesses will qualify for the enhanced credit package, so it's likely huge swaths of Britain's SME community that would otherwise be primed to invest in innovation will now have limited access to the support."

Prescott added that by incentivizing larger businesses more than the wider startup community, the government risks undermining its ambition to make the UK the "next Silicon Valley."

The sentiment was echoed by Michael Moore, the director-general of the British Venture Capital Association. 

"The sharper focus on knowledge-intensive sectors for R&D tax credits is important," said Moore in a statement, adding that the changes to R&D tax credits scheme in last year's autumn statement were disappointing and "potentially damaging" to the UK's high-growth startups in the short term.

Some VCs still consider the new scheme to at least be a step in the right direction. Haakon Overli, co-founder of Dawn Capital, said: "While not as generous as the previous scheme, and how well they work in practice is yet to be seen, the partial reversal indicates that the Government has listened to the start-up community on this issue.";

The government, which created its first dedicated ministry for science, innovation and technology last month, also pledged £2.5 billion for quantum technologies as part of the new national strategy for the next 10 years—double the amount previously promised.

Hunt also put forward plans to boost the UK's AI sector, including the launch of an AI sandbox to accelerate go-to-market for cutting-edge technology and clearer IP rules for generative AI companies. Another £900 million has been dedicated for an AI research resource and an exascale computer, as well as a 10-year competition that will grant £1 million to individuals or teams working on groundbreaking AI research. ‘Leveling up’ The government is also creating 12 new investment zones across the country as part of the UK's "leveling up" agenda.

The zones are designed to accelerate growth in high-tech industries with access to £80 million of support for a range of interventions including skills, infrastructure, tax relief and business rates retention.

In his budget speech, Hunt also mentioned the sale of Silicon Valley Bank UK to HSBC, saying the situation demonstrated the need for a larger and more diverse financing system in the UK "where the benefits of investment in high-growth firms are available to more investors."

The finance minister said he’ll detail a plan to achieve this in the autumn budget. It will include measures to "unlock productive investment" from defined contribution pension funds and other sources, make the London Stock Exchange a more attractive listing destination, and respond to the US Inflation Reduction Act.

Featured image of UK finance minister Jeremy Hunt by Dan Kitwood/Getty Images

This article originally appeared on PitchBook News