Source · Select Committees · Business and Trade Committee
Recommendation 1
1
Accepted
Paragraph: 17
Part of the reason why the UK achieves lower productivity rates than other advanced economies...
Conclusion
Part of the reason why the UK achieves lower productivity rates than other advanced economies is that levels of business investment and research and development investment have fallen behind.
Government Response Summary
The government outlines ongoing reviews and changes to R&D tax reliefs aimed at supporting innovation, including increasing the R&D Expenditure Credit rate and introducing a new rate for R&D intensive SMEs.
Paragraph Reference:
17
Government Response
Accepted
HM Government
Accepted
The R&D tax reliefs review is ongoing. At Autumn Statement 2022 the Chancellor announced that, as part of the ongoing R&D tax reliefs review, the Government would rebalance the R&D tax reliefs to ensure taxpayers’ money is used as effectively as possible to support innovation. The permanent increase from 13% to 20% for the R&D Expenditure Credit rate from 1 April 2023 means the UK now has the joint highest uncapped headline rate of tax relief in the G7 for large companies. The Government also committed to considering the case for further support for R&D intensive SMEs. The Government announced at Spring Budget 2023 a new permanent rate of relief for the most R&D intensive loss-making SMEs, worth around £500m p.a. We expect that by the end of the score card in financial year 2027/28, around 20,000 SMEs will benefit from this scheme each year. This builds on previously announced changes to support modern research methods by expanding the scope of qualifying expenditure for R&D reliefs to include data & cloud computing costs. As committed to at Spring Budget 2023, on 18 July the Government published a Summary of Responses to the consultation on a potential merged R&D scheme that combines the existing RDEC and SME schemes, as well as draft legislation setting out the proposed design of such a scheme. Merging schemes would be a significant opportunity for tax simplification, provide more clarity and certainty to SMEs, and help to drive innovation in the UK. The Government has not yet taken a decision on whether to merge schemes and intends to keep open the option of doing so from 2024. A decision on whether to merge scheme will be made at the next fiscal event. R&D reliefs will support an estimated £60 billion of business R&D expenditure in 2027/28, a 50% increase from £40 billion in 2020/21. Expenditure on R&D reliefs is forecast to increase in every year of the scorecard period. The Government keeps all tax reliefs under review and measures the impact of tax reliefs through monitoring and evaluation.