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Innovation statistics: the government could do better says GovGrant

The Chancellor has announced that Budget day 2018, one of the busiest news days in the financial calendar, will be earlier than expected, on 29 October.

Expect a flurry of pre-Budget speculation during October, including from our sector, which enjoyed its own ‘Budget day’ equivalent on 27 September, when the HMRC released its annual tax credit and patent Box statistics.

The stats illustrated that the government is giving more of a boost than ever before to the UK’s most innovative companies.

More than 43,000 businesses claimed tax credits for research and development (up 22% on the previous year. The total amount of R&D support claimed increased by 25% to £3.7bn. 75% of claims are under £50,000 and the average claim to date is £53,000.

The greatest volume of claims continued to come from three sectors – Manufacturing; Professional, Scientific and Technical; and Information and Communication – which accounted for 71% of claims and 75% of the total amount claimed.

The good news, therefore, is that there is a continued upward trend in the number of claims from innovative businesses. HMRC reports that a significant increase 16% of companies making a claim for the first time in 2016.

The less good news is that, despite the increasing number of innovative businesses taking advantage of the scheme, there is a still a shocking lack of knowledge among businesses of the advantages of innovation tax credits and the role tax breaks can play in delivering future success.

According to the government’s own statistics, the £2.9bn of tax relief claimed in 2015-16 stimulated up to £6.8bn of additional R&D investment, so this is key to the UK’s economic future post-Brexit. The plain fact is that tax credits for innovation create more innovation, benefitting the UK’s economic performance, so the Chancellor must do more to encourage take-up, and the Budget is a perfect opportunity to do so.

The UK economy is going to go through a bumpy ride post Brexit, and politics aside, it’s clear the government must simulate the economy to safeguard jobs and growth, and ensure that the UK remains a destination of choice for innovation.

The government’s current policy focus is outlined in the Industrial Strategy, launched to great fanfare last year, but while it’s heart is in the right place, it does not have enough ambition. The core aim of investing 2.4% of GDP in R&D by 2027 is where Germany is currently, and, post Brexit, the EU 27 will be even more of a competitor than at present.

The Budget is just a month away, but these latest tax credit figures must act as a catalyst to the Chancellor to give a further boost to innovation, both by improving the awareness of the various schemes, but also doing more to champion intellectual property. Britain is great at inventing things, but not so good at supporting them, and the latest figures on the Patent Box are concerning.

Patent Box is a scheme enabling companies to apply a lower rate of corporation tax to profits from their patented inventions and intellectual property. They show a 16% increase in companies claiming for the first time, but an 11.6% drop in the total number of claims.

However, the Patent Box statistics stated that SMEs only benefited by £42m, a relatively small proportion of the total claimed (£945m), with 96% of total relief claimed going to large companies.

And the Information and Communication sector accounts for only 10% of the total claimed – this doesn’t align to the UK’s strategy to focus on a data-driven society.”

If the government is serious about championing innovation, it needs to change the direction of travel for patents, firstly by encouraging more claims, secondly by making the system open and transparent, and thirdly by providing the resources to defend UK patents against raids from foreign competitors.

Every budget is said to be critical, but where R&D and intellectual property is concerned, the chancellor needs to send a strong signal that he will give concrete support to the nation’s entrepreneurs and innovators.

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