In the 2021 Autumn Budget the government announced reforms to:
- support modern research methods by expanding qualifying expenditure to include data and cloud costs
- more effectively capture the spill over benefits of R&D funded by the reliefs through refocusing support towards innovation in the UK
- target abuse and improve compliance
Since then Rishi Sunak has made it clear that he doesn’t necessarily think these changes go far enough.
In his Mais lecture at Bayes Business School on 24 February, the Chancellor said:
“And, of course, we will deliver our pledge to increase public investment in R&D to £22bn a year. As it is, total UK fiscal support for R&D, at 0.9% of GDP, is already in line with the OECD average, but it will increase by 50%], and is forecast to move to the top quartile over this Parliament.
But the target for government investment in R&D is only part of the story. In fact, our overriding challenge is increasing the amount of business investment in R&D. It is this investment that will ultimately drive the jobs, productivity, and growth of the future, and here we are significantly lagging. Self-financed business R&D as a % of GDP is less than half the OECD average. And as Cambridge economist Dr David Connell’s research shows, whilst other nations’ businesses have increased the share of GDP they devote to R&D investment by 50% in recent decades, UK business investment in R&D has stayed flat or even fallen.
So what should we do to support greater private sector investment in R&D? One obvious answer is to look at our tax regime. On the face of it, we have one of the most generous tax regimes for R&D investment anywhere in the world, measured by how much we spend on it compared to other nations. But in spite of spending huge and rapidly growing sums, clearly it is not working as well as it should. In the UK, business spending on R&D amounts to just four times the value of R&D tax relief. The OECD average? 15 times.
So as I deliver the tax strategy for the years ahead, it would be sensible to make sure our tax regime for innovation is globally competitive and so properly incentivises higher business investment in R&D”
So, further overhauls of ‘UKs Flagship Industrial Policy’ to address this are being considered.
The chancellor is planning tax reforms to boost investment and encourage companies to spend on training and R&D. Government insiders say that Sunak wants to get more “bang for his buck” and that reforms to the tax credits would go beyond some preliminary measures announced in last October’s Budget.
HMT and DCMS have both expressed interest in hearing from the industry and MSC will be actively involved in the debate over the Summer prior to the Autumn Budget.
