Let's use this Budget to reform R&D tax credits and kickstart a recovery for British manufacturing
We need to harness the energy of British science for the task of rebuilding our economy. Bringing capital expenditure into R&D tax credits is a simple, rapidly self-financing way to kick-start growth.
The world leading speed of Britain’s vaccination programme is testament to the strength of our NHS and life sciences industry.
Working together, we set a global pace for the development of the science that will beat this pandemic.
The world doesn’t stand still, though.
Not only will we need constant innovation to keep coronavirus at bay, we also need to harness the energy of British science for the task of rebuilding our economy. And if we get this right, the benefits could be huge.
So, I was delighted to hear the Prime Minister say he wants the UK to become a ‘science superpower’: a global leader in science and technology, where home-grown discoveries and innovations drive new jobs, growth and levelling up.
We simply cannot become the global innovation leader the Prime Minister wants if our R&D investment incentives lag behind those of our competitors.
The key issue in all this is R&D.
Making the UK the best place in the world for commercial R&D in areas like advanced manufacturing, clean energy and medicines.
It was under this call that eight of the country’s leading trade groups, including the CBI, Tech UK, and my organisation, the Association of the British Pharmaceutical Industry (ABPI), have come together to release a new report on how to make this a reality.
The big issue it highlights is how little R&D the UK economy supports compared to our competitors, at only 1.7% of national income, compared to the OECD average of 2.4%. The key reason for this is that there is simply too little incentive for businesses and investors to make the UK their R&D base.
That is why we are all calling on the Chancellor for a simple change of policy to allow capital expenditure for research sites, factories, laboratories and machinery to qualify for R&D tax credits.
Tax credits are already used to help businesses claim tax relief for other R&D costs, but the cost of the actual facilities to conduct the work are excluded for most firms.
This contrasts with the approach of France, Spain and Japan among others, so creates a potential reason not to do R&D in the UK.
Our analysis shows that if allowed, this relief would more than pay for itself because of the substantial economic benefits it produces.
We project that it would become a net revenue raiser for the Exchequer in just seven years, and by year 10, would be adding £4bn a year to the economy.
Best of all, however, the policy would create serious numbers of jobs – an additional 12,000 over the initial period, mainly in high-skilled manufacturing, plus spillover jobs across industry. And the real boon for the Government is that these benefits would cluster in the UK’s industrial heartlands in the North of England and West Midlands, giving a major boost to the levelling up agenda.
R&D is especially important for levelling up because research-related jobs pay comparatively more in the regional economies outside the south east.
The average salary of somebody working in R&D in the East Midlands, for example, is 52% higher than that across all jobs in the region. Yet the average salary of somebody working in London in the same occupation is two percent below the average there.
For all these reasons, we are urging the Chancellor to reform tax credits to create this place-based incentive to invest in R&D here in the UK.
We simply cannot become the global innovation leader the Prime Minister wants if our R&D investment incentives lag behind those of our competitors.
Bringing capital expenditure into R&D tax credits is a simple, rapidly self-financing way to kick-start growth.
It would also send a bold and very loud signal to investors and boardrooms around the world that the Government is serious about its vision for a ‘Global Britain’ and we really could become the science superpower the Prime Minister envisions.
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