Subsidies? All UK Chip Industry Needs Is Tax, Rule Tweaks, Claims Rightwing Thinktank

A report by the Centre for Policy Studies (CPS) claims the UK can support a local chip industry without engaging in a "subsidy arms race" with other nations and proposes measures government should instead be taking.

While the US and the EU are moving forward with plans to pump tens of billions of investment into boosting semiconductor design and fabrication facilities within their regions, the UK should play to its strengths and support the industry with market-led measures, a report by the think tank suggests.

However, it should be noted that the CPS was founded by Sir Keith Joseph and former PM Margaret Thatcher and styles itself as "Britain’s leading centre-right thinktank," and so almost any kind of public spending on projects is likely to be anathema to its policy wonks.

It is also ranked as "one of the four least transparent think tanks in the UK in relation to funding" by Transparify, which provides a global rating of the financial transparency of such bodies.

The report, "Cashing in our Chips: How to strengthen the UK’s semiconductor sector" [PDF] says the 2021 Innovation Strategy identified semiconductors as one of several potential areas of opportunity for the UK, but limited action has been taken to follow up on those ambitions.

In particular, the government has yet to publish its long-awaited semiconductor strategy. It also recently carried out a reshuffle that saw the former Department for Business, Energy and Industrial Strategy (BEIS) split into several other departments, one of which – the Department for Science, Innovation and Technology (DSIT) – combines the science and technology functions from BEIS with the digital bits previously overseen by the current DCMS.

However, it isn't clear whether this means that the newly minted DSIT has now assumed responsibility for the semiconductor strategy. When The Register asked the DCMS for clarification, its spokesperson merely directed us to the mission statement for the new department.

As for actions that should be taken, the CPS argues that Britain should not simply copy the approaches being followed by Taiwan or the US, not least because of, as it points out, "the UK's severe fiscal constraints."

The report authors say the UK has a nascent semiconductor sector, but is not a major player in traditional silicon chips, and it is "extremely unlikely" that the UK government could nurture a home-grown champion to displace the likes of Taiwan's TSMC, or match that company's $36 billion in annual capital expenditure.

Instead Britain should "double down on our existing advantages," which the report identifies as early-stage R&D, basic IP and chip design, and suggests the island nation needs to create a conducive environment for next-generation semiconductor technologies.

For specific measures, the CPS recommends the UK government should introduce tax and investment incentives for high-intensity R&D industries; make it easier for highly skilled workers to come to the UK; and change the planning system to encourage the construction of scientific and industrial infrastructure.

On tax and investment, the government should offer a bespoke R&D tax credit for companies operating within identified areas of opportunity for the UK, as well as establishing an Emerging Technologies Strategic Investment Fund to attract international capital to the UK's emerging technology industries.

It also recommends full expensing for key industry sectors, covering non R&D plant and machinery spending, in addition to structures and buildings.

Improving the immigration system for highly skilled workers naturally means those from "allied countries and blocs," such as the European Union, USA, "other Five Eyes countries," and Taiwan, according to the report's authors.

The CPS also wants to see planning restrictions relaxed so that national development policies affecting laboratory and industrial development should override local plans, which sounds like a real vote winner to us.

There should be a presumption in favor of laboratory development within three miles (4.8km) of university campuses, and local authority discretion over information requirements for laboratory or industrial planning applications should be reduced.

"None of these recommendations requires new primary legislation beyond existing law or what is currently before Parliament," the report states.

The only exceptions are the suggested tax measures, which could be implemented via the usual budget processes, all of which mean that the government should be able to act immediately to adopt nearly all of these proposals, the report claims, adding "We encourage them to do so."

A strengthened focus on semiconductor policy within Whitehall, was additionally one of the recommendations put forward. The CPS reckons the Science Secretary should ensure that UK Research and Innovation and Innovate UK create a specific multi-year fund for the semiconductor sector. This should use money already allocated in the 2021 spending review, but be matched with private investment.

Scott White, CEO of Pragmatic Semiconductor - UK-based maker of thin-film semiconductors - welcomed the report.

"As the report highlights the need to focus on key areas that play to the UK's existing advantages, the government should prioritize areas of the industry where innovation is the driving factor for success," he said.

"In contrast, investment in traditional silicon chip manufacturing would require billions of pounds and is unlikely to achieve the success needed."p>

The report by the CPS follows an open letter last month from a number of tech industry leaders asking the UK Prime Minister to stop delaying and deliver his government's strategy for the future of the country's semiconductor sector.

• US minister invokes Maggie Thatcher, says she would have halted Huawei 5G rollout
• Chipmakers to spend $500b on 84 new fabs by 2024 despite shaky economy
• GlobalFoundries plans up to 800 layoffs despite reporting record profits
• Congress continues playing hot potato with $52b CHIPS Act subsidies
• TSMC reports record profits as customers hoard chips

This also followed a report from the cross-party Business, Energy and Industrial Strategy (BEIS) Committee last year which complained that the UK is missing out on investment in the semiconductor industry because of the lack of a strategy.

Gartner vice president for semiconductors and electronics Richard Gordon said of the report that the incentives mentioned – taxation credits/reliefs, lowering barriers to skilled immigration, and cutting planning red tape – were "table stakes." He added: "They should be doing this anyway for any industry they want to encourage."

"In the current environment of EU Chips Act and USA Chips Act subsidies, the UK is not going to compete to attract any major semiconductor capital investment."

In a nutshell? "The UK is going to remain a very small niche player, focused on specialist technology, e.g. Compound Semiconductors. They may be able to throw a few tens of millions at this but it's tiny in the great scheme of things."

He went on to say: "I get the impression that they want to be able to say that they are supporting 'a semiconductor industry' in the UK, which is true but very narrowly scoped and targeted."

He added that while he did not disagree with the strategy – which he characterized as "probably the only one available," he felt that the public should "not be fooled into thinking the UK is going to be a major player in the global semiconductor industry."

A representative of the US Semiconductor Industry Association told us that committee decisions were being made "right now" by companies on where to locate manufacturing over the next five to 10 years, and that it was "very urgent" that countries should consider whether or not they wanted to play a part in the global supply chain. ®