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Manufacturing sector calls for tax reform to boost R&D investment

07 November 2011

Reforms to R&D tax credits could drive an increase in R&D investment in the UK and boost job creation, according to an independent report published on Monday (November 7). On the back of the report, EEF and SMMT are calling on government to create a truly internationally competitive R&D tax credit regime, by strengthening the link between the credit and R&D investment decisions, removing the link with corporation tax in favour of an ‘above the line’ credit.

Terry Scuolar
Terry Scuolar

The change would incentivise major private sector and foreign investment in UK manufacturing, create high-value jobs, support government’s move to rebalance the economy, enhance the UK’s global competitiveness and drive economic growth.

The report, commissioned by the Society of Motor Manufacturers & Traders (SMMT) and the Engineering Employers' Federation (EEF) and prepared by PricewaterhouseCoopers (PwC), involved discussions with over 30 key UK R&D investors across a range of business sectors and is being presented tomorrow at a briefing with MPs and government officials.

Based on the findings of the report, EEF and SMMT are urging government to introduce a cash benefit or redeemable credit at the point R&D costs arise, rather than providing a relatively opaque offset against corporation tax payments. The change will provide a stronger incentive for the UK’s biggest R&D spenders to increase investments here and attract new foreign investment to the UK.

The report estimates that the change could increase R&D investment in the UK by nearly £390 million per year and increase economic output by £665 million in the short-term, outstripping the £205 million net cost to the Exchequer by a factor of three.

“Measures to boost growth have to be the government’s number one priority given the weak state of the UK economy. Encouraging high value investment and innovation by UK-based companies as well as attracting foreign investment is crucial for ensuring UK manufacturing and the wider economy can continue to grow. Government must now seize the opportunity provided by its own consultation to make a big difference to the way the credit operates and send a strong signal about the UK’s commitment to R&D. By doing so it would stimulate private sector and foreign investment and help support long-term economic growth,” says EEF chief executive, Terry Scuoler (pictured).

“For UK manufacturing to take advantage of the global shift to a low carbon economy, we must secure an increased share of global R&D investment,” said Paul Everitt, SMMT Chief Executive. “Automotive is Europe’s largest investor in R&D and the changes proposed will encourage companies to invest even more. Many countries are keen to secure high value R&D investment and it is essential the UK business environment remains globally competitive and attractive to international investors.”

“An incentive which reduces the cost of R&D, directly affecting the budgets of individuals involved in R&D investment decisions, will be much more effective,” said Diarmuid MacDougall, R&D and Patent Box Partner at PwC.

Download the full report here.

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