Eight industry leaders unite behind call on Chancellor to reform outdated R&D rules to release £4bn of growth every year

• New report by former Bank of England economist is backed by the ABPI, CBI, Tech UK, UKspace, ABHI, ADS Group, Food and Drink Federation and Make UK.

• Analysis shows how reforms to R&D tax credits would kickstart recovery and create at least 12,000 new jobs in tech and advanced manufacturing.

The Chancellor is being urged by a coalition of top industry leaders to kickstart the recovery and levelling up by allowing capital expenditure to qualify for R&D tax credits. 

The group, comprising eight of the UK’s principal trade bodies, have backed a new report warning that outdated R&D rules are standing in the way of the Government’s ambition for the UK to become a science superpower.

The report is authored by a former Bank of England economist and 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. Enhancing R&D tax credits to better recognise capital is a policy that would not only help the ‘science superpower’ ambition to be achieved, it would have a raft of much-needed economic benefits.”

The report’s executive summary is below and a link to the full copy is here.

The proposal to enhance R&D tax credits means the actual sites and machinery used for the R&D would be included. The report shows how 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 £430m 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. All for a policy that is self-financing. It should be adopted as an immediate priority.”

Commenting on the report, Richard Torbett, Chief Executive of the Association of British Pharmaceutical Industry, 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.”

Report author, former Bank of England economist Steve Hughes, said:

“Of all the options the Chancellor has at his disposal to reboot the economy, this is the no-brainer. The Treasury makes a net gain and it drives growth, jobs and higher wages in some of the regions most in need of levelling up.”