As the UK clambers out of its deepest recession for 100 years and the tax burden approaches its highest level since the post-war government of Clement Atlee – the key question on business leaders’ lips is ‘how can we jump start growth?’
The economy is forecast to expand by a strong 6.9% per cent this year, slowing to 4.7% next year and a more mediocre 2.1% in 2023. At this stage it will rank towards the lower end of the pack among OECD countries.
London and the southeast account for about £4 in every £10 produced. Tories won the 2019 election partly thanks to a levelling up promise Britain’s regions with the affluent capital and surrounding areas. After the recent HS2 disappointments on rail, a white paper is expected in the new year. This is tipped to include plans for American style governors in rural areas where local mayors are deemed inappropriate.
Cluster Effect
The ‘golden triangle’ between Cambridge, London and Oxford is often held up as a model for the UK’s future growth – home to 5 top universities, several research hospitals and 3,700 companies.
Clusters are key to economic growth – whether it is high finance in the City and Canary Wharf, financial services in Bournemouth and Leeds, fast-fashion and tech in Manchester, or computer gaming around Newcastle. There are levelling up calls to create more, including a northern answer to the golden triangle. Supporters say a focus on cancer therapies, infectious diseases, diagnostics and AI could boost the north’s life sciences productivity from £5.2bn to £16.5bn by 2040. Others argue that the UK should double down on already successful areas rather than artificially creating clusters.
R&D Deficit
In the first two budgets this year, the chancellor unveiled his ‘super deduction’, a special two-year offer giving companies 130% relief on purchases of equipment.
In the second budget, in October, Rishi Sunak tried to boost investment in R&D by extending reliefs to spending on cloud computing and data. However he also moved to exclude R&D carried out overseas from reliefs, which will hit bigger companies reliant on international collaboration.
In the recently published HM Treasury R&D Tax Reliefs Report, the focus is very strongly on reducing the level of fraud – increasing compliance criteria and requiring more supporting information. This is welcome if it means this valuable support goes to the right companies and encourages further investment.
The UK spends just 1.7% of GDP on R&D – well below the OECD average of 2.4% – a level similar to countries like Spain and Italy. It originally pledged to meet the OECD average by 2027 – a promise that has now been pushed back by two years.
In the meantime, the government has been accused of underfunding regional R&D by £4bn. Research suggested that if per-capita public spending were adjusted nationally to match London levels, the north would receive £1.6bn a year extra, the Midlands £1.4bn, the southwest £580m, Wales £420m and Northern Ireland £250m. And, since the private sector tends to invest on average twice as much as public spending, those regions are also missing out on a further £8bn.
Investment community focus
A focus on dividends rather than growth is another increasing barrier to investment in growth. Almost a third of the £744bn of equity funds overseen by the Investment Association are UK income-related. Boards paying out ever-increasing dividends have ultimately given up on growth.
Measures are being introduced to change this, but will take time to kick in.
Whilst at the macro (government policy) level, getting the economy going and levelling up seems to be a bit – ‘2 steps forward, 1 sideways and 1 back’ – it is worth noting that there are already in place a number of regional incentives and funds/grants designed to support tech businesses and help them grow.
At MSC R&D we focus on delivering the best R&D Tax Credit service to companies across the UK. A vital source of R&D funding – and one you are ‘guaranteed’ to get if you abide by the rules.
We can support you throughout the innovation life cycle.
Whilst you may not be able to rely on the government turbo charging the economy in the short term, you can rely on MSC R&D to turbo charge your tech business.
(article source : https://www.thetimes.co.uk/ )
