The Chancellor of the UK Government, Jeremy Hunt, has today announced the Spring 2023 Budget, which sadly made no mention of any extra support for gigabit broadband or 5G mobile deployments. But the new “full expensing” measure could help to bring down the cost of some related plant and machinery (capital expenses).
Firstly, we weren’t expecting to see any major “new” broadband and mobile related infrastructure funding announcements from the Government this time around, which is because they’re already running two such schemes. The first one is their £1bn Shared Rural Network project (progress update), which aims to extend geographic 4G based mobile (mobile broadband) coverage to 95% of the UK by end of 2025 (it will help 5G too).
Some 47% of the UK can currently access a “full fibre broadband
/B) network, which rises to 73.5% for “gigabit-capable broadband
” (both FTTP
/B and Hybrid Fibre Coax).
The second one is their £5bn Project Gigabit programme, which aims to make gigabit-capable (1Gbps+) broadband ISP networks available to at least 85% of UK premises by the end of 2025 and then “nationwide” by 2030 (Winter 2023 Progress Update). The project consists of several support schemes, including vouchers (£210m), funding to extend Dark Fibre in the public sector (£110m) and gap-funded deployments with suppliers (rest of the funding).
We should point out that commercial investment alone is largely expected to push gigabit connectivity to cover c.80% of UK premises by the end of 2025, with public funding only then being used to help upgrade those in the final 20% of hardest to reach premises (via gap-funded rollout contracts and demand-side interventions like vouchers).
Spring UK Budget 2023 Details
As expected, the Chancellor’s speech didn’t provide any new details on their broadband and mobile infrastructure programmes. Indeed, the official Spring Budget 2023 Document (PDF) does NOT contain even a single mention of the words “broadband“,”mobile“, “gigabit“, “5G” or “fibre“, which we found to be quite surprising (there’s usually at least some general info.).
In general, this meant the government missed another opportunity to reintroduce relief from business rates on new fibre and extend their “Super Deduction” policy for businesses that invest in new plant and machinery assets. But given the current economic climate, we can’t say we’re all that surprised.
However, the Chancellor did announce a new policy of “Full Expensing” (the first European country to do so), which is due to be introduced from 1st April. This will essentially offer 100% first-year relief to companies on qualifying new main rate plant and machinery investments from 1st April 2023 until 31st March 2026, although they “aim” to make this permanent (not making it permanent today risks a “cliff edge” scenario).
The change actually builds on the success of the prior super-deduction, which we know has benefitted the rollout of full fibre broadband across the UK. What this means is that every pound invested in IT equipment, plant or machinery can be deducted immediately from profits. The Chancellor said this could be worth £9bn a year, while the OBR predicts it will increase business investment by 3% every year.
Without this change, a network builder would otherwise only be able to deduct a small fraction of the cost of related investment each year over the accounting lifespan of that investment (inflation tends to erode the value of the money operators can claim back in future years). At the time of writing, we haven’t been able to canvass much opinion from fibre builders, but those we did engage seemed cautiously optimistic (i.e. they’re checking the fine print).
One possible catch here is that most new network builders, such as alternative networks, will already be running at a loss due to the high cost of network build (reaching payback will be years away). As such, this change may not benefit them as much as it might benefit more immediately profitable network operators and ISPs.
Catherine Colloms, Openreach MD for Corporate Affairs and Brand, said:
“The introduction of Full Expensing for three years, with the intention of making it permanent, is positive news for Openreach and many other businesses investing in national infrastructure projects. It’s what we’d called for, and it gives us a higher degree of certainty to back the plan we’re pursuing to fully fibre the UK.
The latest research from the Centre for Economics and Business Research predicts that our full fibre broadband network will help grow the UK economy by £72bn over the next few years, and we’re playing a huge role in that as we deliver ultrafast and ultra-reliable broadband in rural and urban areas.
Our network will bring thousands of people back into work and help to reignite the economy whilst simultaneously reducing carbon emissions. The budget also has some welcome measures for people all over the UK, including our 38,000 employees, and brings cause for some optimism as we continue to navigate the higher cost of living.”
Tristia Harrison, CEO of TalkTalk Group, said:
“For levelling up to work, local leaders need to be able to provide local solutions to grow the economy and answer their specific local challenges. So today’s measures are a welcome step in giving more responsibility for local economic development to local authorities and more certainty via multi-year funding settlements.
As a proud Greater Manchester based business, we look forward to continuing to play our part in growing both the local – and national – economy. Programmes such as ‘returnerships’ for over-50s will help to bring much-needed skills back into the workforce; and as a tech-based business, we also welcome the increased investment in AI and innovation accelerators, providing funds for both the businesses and job creation of the future.”
A spokesperson for Mobile UK said:
“The Spring Budget revealed that there is still a long way to go before adequate measures are in place to address the connectivity investment gap. And while the Chancellor outlined a new focus on AI and intelligent connectivity, it was disappointing that there was barely a reference to mobile and 4G connectivity, and a missed opportunity to announce much needed funding for local authority digital champions.
We hope to see the Government’s ambitions in this space in the much-anticipated Wireless Infrastructure Strategy, which is expected soon. And, we remain focused on fostering a great working relationship with the Government, to deliver world-class connectivity in the UK and meet its ambition for the nation.
Specifically, we hope to work with the Government to break down barriers and create a positive investment environment which supports the deployment of mobile infrastructure to help to sustain people’s ultra-connected lifestyles, along with the recruitment of Digital Champions within local authorities.”
Overall, we weren’t expecting anything completely new from this budget for digital infrastructure, and in that respect, there were no real surprises. But the expenses change may have a benefit for some. We’ll end on a brief and rough recap of what the UK Government has already pledged for broadband infrastructure since 2010 (prior to that, broadband policy was still very much a work-in-progress).
Summary of Previous UK Broadband Developments
➤ The £2.5bn+ Superfast Broadband (SFBB) programme helped to put fixed line “superfast broadband” (24Mbps+) networks within reach of around 97-98% of premises. Openreach (BT) hold most of the contracts but a few AltNets were also involved in the later stages. More recent contracts targetted a slightly faster speed of 30Mbps+ and involved FTTP.
➤ £200m was put toward a Rural Gigabit Connectivity (RGC) programme, which ended in March 2021 and aimed to encourage an “outside-in” approach to building new ultrafast broadband ISP networks by focusing on helping to connect rural areas via gigabit vouchers and other schemes (here). Hundreds of rural schools were also upgraded to full fibre through this.
➤ The Government has worked to make it easier for “gigabit-capable” broadband ISPs and mobile network operators to access buildings – usually big apartment blocks (Multi-Dwelling Units) – where “rogue landlords” fail to respond (here). On top of that they’re also working to mandate Gigabit capable broadband connections for new build homes (here).
➤ The legally-binding and industry-funded Universal Service Obligation (USO) for broadband, which will offer a 10Mbps minimum download speed (1Mbps upload) to all – upon request – went live on 20th March 2020. Most of this is expected to be delivered via EE / BT’s 4G network, with only a little from fibre (FTTP), but there have been problems with high costs in very remote areas (here).
➤ £400m has been provided via the Digital Infrastructure Investment Fund (here), matched by private finance, to help invest in new “full fibre” (FTTP/B) networks until late 2021 (focused on helping to boost altnet providers). It’s hoped that this could foster FTTP capable connections for an extra 2 million premises by the end of 2020.
➤ £294m was set aside to support the Local Full Fibre Networks (LFFN) scheme (details, here, here and here), which is funding a programme of local projects to help accelerate market delivery of new “full fibre” broadband networks (e.g. connection vouchers for businesses, aggregated demand schemes, opening access to existing public sector infrastructure etc.). This is being extended via Project Gigabit.
➤ 100% business rates relief for new full-fibre infrastructure, backdated for a 5 year period from 1st April 2017. But this ended in March 2022 and doesn’t look likely to be extended. Scotland continues to apply a similar relief and that will run for many years longer.
➤ £200m to support a programme of 5G mobile / wireless technology trials and spectrum (here).
➤ Various local voucher / subsidy schemes are still on-going to help those areas that suffer slow broadband speeds, including under Project Gigabit.
➤ Ofcom’s regulatory changes are attempting to boost competition by making Openreach more independent from BT and giving rivals greater access to the operator’s national network of fibre optic cables and cable ducts/poles. Not to mention improving the overall quality of service (here).
➤ The Government and Ofcom are also supporting various other broadband related measures, such as automatic compensation from ISPs for service faults, improved / cheaper access to build new infrastructure on private land and more enhancements for consumer switching (adding support for FTTP etc.) and phone number portability (making it easier to adopt VoIP etc.).
➤ £75m was assigned to help improve broadband connectivity in hard to reach areas via the RDPE’s Rural Broadband Infrastructure Scheme (here).
➤ Part of the new £3.6bn Towns Fund is due to be used to help “improved broadband connectivity” cover selected towns (here). Exactly how much of this will go toward broadband remains unclear, but each town/city looks set to receive up to £25 million and most of that will probably be eaten up by improvements to local transport infrastructure.
➤ A small part of the £900m that has been committed via the Getting Building Fund (GBF) has also gone toward broadband improvements (here).
➤ The Government are also making other updates via the Product Security and Telecommunications Infrastructure Act (PSTI), which involves more changes to the ECC that will aim to make it easier for full fibre broadband and mobile operators to upgrade, share and deploy new infrastructure (here).
➤ A “super deduction” policy for businesses that invest in new plant and machinery assets was introduced in 2021, which is something that fibre optic network builders did benefit from. Effectively this allowed FTTP builders to reduce their tax bill by 25p for every £1 invested. But this is coming to an end in 2023 and is likely to be off-set by the subsequent increase in the corporation tax to 25% from April 2023.
We’ve added a comment from Mobile UK and TalkTalk above.
UPDATE 16th March 2023 @ 8:56am
We’ve added a comment from Openreach too above, and one from INCA below (putting it below to stop comment spam breaking up the main article).
Malcolm Corbett, INCA CEO, said:
“The Chancellor’s Spring budget is often used to provide eye-catching handouts for headline grabbing infrastructure projects. While the statement was light on new infrastructure spending, there are several existing areas of the economy looking for more of the taxpayer’s cash – the independent broadband sector isn’t one of them.
Over £20bn has been invested into the UK’s alt-nets recently. But this injection of capital, which can have a transformative impact on the UK’s digital landscape, must be protected by a regulatory environment which follows the Government’s stated policy aim of ensuring a continued competitive broadband market which provides a healthy level of consumer choice. Inaction against monopolistic behaviour like Equinox 2 – BT Openreach’s proposed pricing plan that will harm competition and raise prices for consumers in the long run – directly threatens the creation and maintenance of such a market.
An environment in which independent operators can flourish is the only way that the UK will achieve its goals of becoming a science and technology superpower, powered by ubiquitous broadband networks that match the demands of emergent technologies.”