As the Chancellor prepares for her crucial Budget, a leading R&D funding specialist warns that unless more is done to support innovation, the UK will continue to struggle for growth.
If forecasts are correct, then there will be no change to the government’s existing R&D schemes in the forthcoming budget. While it seems certain that Rachel Reeves will attempt to balance the books without her preferred option of raising income tax rates, the view is that her fresh calculations will not come at the expense of investment in research and development.
However, Adam Pearce, director, Minerva Innovation Group, remains deeply concerned that current UK rates remain uncompetitive and that other measures the Chancellor may announce on Wednesday, 26 November, will have a negative impact on innovation across many key business sectors.
Minerva Innovation Group are R&D funding specialists, working with companies across the UK and Ireland, assisting them to navigate the funding landscape and Pearce will be a member of the panel analysing the outcomes at The Herald Budget Briefing, which will take place on Thursday, 27 November at the Scottish Events Campus. Joining him in the discussion are: Zoe Graham, head of financial risk solutions, Virgin Money; Michelle Ferguson, director - Scotland, CBI; and João Sousa deputy director, University of Strathclyde, Fraser of Allander Institute.
At this event, which is open to all businesses, delegates will hear from industry experts as well as from The Herald’s political columnist, Brian Taylor, and Pearce will be analysing the impact that Reeves measures will have on innovation.
Even before the results have been announced, however, he is doubtful that his sector will remain unaffected, spelling out negative impact that additional tax burdens are already having on research and development.
“In the year ending 2021 there were approximately 90,000 claims for the Government’s R&D funding schemes, but by last year that figure had fallen to approximately 46,000.”
“The trend is no surprise given the UK government has reduced its return on investment rate from about 33% to about 15-20% at the same time as the Irish government has increased theirs from 30% to 35%. There is a huge lost opportunity for UK businesses as well as an increasing move for firms to move base to Ireland to take advantage of their rates.” He argues that anything that makes life more difficult for businesses, including HMRC inefficiencies and last year’s increase in employers’ NI contributions, results in a reduction in investment in innovation.
“When times are tough, the focus moves to protecting the core business and it is the research teams that suffer. Yet innovation is a key driver of much needed economic growth.”
Then there is the threat that any new taxation introduced in the Budget will also add to an already overwhelming administrative load.
“There needs to be a move towards cutting red tape and not increasing it.”
He has witnessed how, within the R&D sector, increasing administration is deterring companies from pursuing claims.
“Originally, to make a claim, you had to produce an R&D report. Now, with the requirement to submit a pre-claim and an additional information form, the amount of red tape has grown considerably and some businesses are concluding that it is simply not worth the effort, despite the fact that SMEs can claim tens-of-thousands of pounds each year.”
What he does want Reeves to do is to live up to her promise, made in a speech earlier this month, to deliver: "a Budget that supports businesses to create new jobs and to innovate.”
In particular, Pearce is hoping for additional support for the new business sector.
“When you are new you have to be competitive. New businesses are responsible for a lot of innovation, but since the Pandemic there has been a fall-off in the number of new starts.”
Since 2000 the Government’s R&D tax schemes have offered reductions in Corporation Tax bill and cash credit sums of up to up to 33% and generous as this sounds, Pearce says that the UK is now lagging significantly behind other countries in incentives for innovation, citing Ireland as a good example of an economy that is making innovation work for them.
“In the UK, for every £100,000 of Research and Development spending, companies are getting between £15,000 to £20,000 in tax relief. In Ireland that figure is £30,000 and they are now increasing it to £35,000.”
Because of this, the Minerva Innovation Group has now expanded its own operations into Ireland, where the stability of the scheme and lower administrative burden is benefiting companies to galvanise their operations with new products and services.
“While there has been a decrease in the UK R&D return on investment for companies, it is still a hugely lucrative financial avenue to pursue. On average, we are able to generate cash benefits equal to 2.72% of the turnover and 7.30% of the wage bill of UK companies, delivering sector-leading results for clients across veterinary medicine, and sustainable energy, amongst others.”
“Importantly, we are able to do the leg work for our clients and conduct the necessary analysis and filing to ensure that they can continue to run their business and innovate.”
From its bases, both here and in Dublin, Ireland, Minerva continues to support companies that are making significant strides across sectors, including architecture, where the demand for acoustic and net-zero construction methods and materials is driving innovation, and in veterinary and equine medicine, where new methods are improving fertility through artificial insemination and enhancing well-being through feed optimisations.
Join The Herald with sponsors Minerva Innovation Group, Virgin Money and LOCALiQ at the free-to-attend Budget Briefing on Thursday, November 27th from 9am. Registration is found at https://newsquestscotlandevents.com/events/budget-briefing-breakfast-autumn25/
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