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NEWS: Dull and ‘lacklustre’ R&D expenditure has been described as a cause for concern.

Posted on September 6, 2021

An unpromising increase reported in the amount of money UK businesses are spending on R&D activity is a cause for concern. This is due to the Government’s plans of increasing total investment in Research & Development to 2.4% by 2027, and with just a 0.02% rise in 2019 (1.74% overall), the Government knows that they have a long road ahead of them. In fact, the 0.02% rise is the lowest percentage of R&D expenditure growth the UK Government has seen since 2013…

The detrimental effects from the Covid-19 pandemic have meant that increasing R&D investment is at the heart of driving the UK through its post-covid recovery. A significant focus should be given to R&D Tax Relief schemes to entice more UK businesses and innovators to invest in R&D, and by incentivizing the investment it offers businesses a return on expenditure spent on any activity that can be classed as overcoming a technological or scientific uncertainty. R&D Projects can often be expensive and time-consuming, so incentivizing the projects will ensure no businesses are discouraged by the aftermath of risk-taking. 

The R&D Tax Relief scheme is currently being reviewed to ensure that the “UK remains a competitive location for cutting edge research, that the reliefs continue to be fit for purpose and that taxpayer money is effectively targeted.” as stated by the UK Government itself. The scope of the review consisted of considering whether to expand the definition of R&D, whether to continue maintaining two schemes for different-sized businesses (SME and RDEC), changes to how the system is administered, and territoriality requirements making the reliefs more targeted.

Although there are numerous positive changes to the scheme, territoriality restrictions would be problematic for small start-ups due to it being vital for them to subcontract their R&D, restricting this could create issues. Life sciences sectors, as UK life sciences businesses often engage in overseas research and clinical trials to develop new medicines, so by restricting this area of the R&D Scheme could mean that R&D activity is too costly for them to continue. 

It should be paramount for the UK Government to make the scheme highly accessible for start-ups and small businesses, if not then the scheme could act as a deterrent for businesses to want to invest in R&D if there is no safety blanket offered. This would therefore result in the UK Government being nowhere near close to their 2.4% increase of total investment in 2027.