UK industry leaders call for reform to outdated R&D tax rules

The report explains: “There is one fundamental flaw in the UK’s approach to encouraging R&D. Unlike countries such as France, Spain and Japan, the UK does not fully recognise capital expenditure – such as on labs and buildings – within its R&D tax credits system. In other words, there are far stronger incentives to physically locate new research facilities in other countries. The UK cannot be ‘the best place in the world’ for scientific research, as the Prime Minster desires, if incentives for investing in it are suboptimal compared to elsewhere.”

The proposal to enhance R&D tax credits means the actual sites and machinery used for the R&D would be included. The report says that this would create a powerful new incentive for UK-based investment, which would drive big benefits and rapidly pay for the cost of the policy:

• In a 10-year forecast on the impact of the policy, the report shows it would be adding £4 billion a year to the economy within that timeframe
• At least 12,000 jobs would be created, mostly in high-skilled manufacturing areas such as new medicines, robotics and clean energy
• The policy would also drive higher wages, as well as jobs and growth, in some of the regions most in need of levelling up, including in the North of England and Midlands
• By year seven, the £430 million a year cost to the Exchequer (in foregone revenue from the tax relief) is paid up in full and the policy is producing a net gain to government in tax receipts.

The report states: “The move to include capital expenditure allowances in R&D tax credits would be very simple to implement, would make the UK a better place to invest in, would drive jobs and growth across the regions that need levelling up; and would help government deliver on their pledges and ambitions.”

Commenting on the report, Richard Torbett, Chief Executive of the ABPI, said: “This report shows just how critical R&D will be to our recovery, but also how we do not have the incentives other countries do to attract more investment and job creation in the UK. We are calling on the Chancellor to reform tax credits and give a real kick-start to the recovery.”