A recent report by David Connell, Senior Research Associate, Centre for Business Research Cambridge Judge Business School, seeks to reappraise the objectives of the R&D tax credit and Patent Box schemes.
Knowing how UK businesses work
However, I struggle with this report. The focus is to challenge econometric modelling and to suggest other channels that would be better, such as direct matched funding. For me, it does not give enough focus to the accessibility of funds and lacks any critique of the direct funding models which are often considered bureaucratic by UK businesses.
I wholeheartedly agree that the R&D tax credit and Patent Box schemes need to be changed to help lock in the payback. But herein lies my biggest issue in this report – it is not pragmatic or realistic in how business act.
R&D tax credits and Patent Box – what cost to the UK taxpayer
On the final page in cost is perhaps the best. Yes reduce any fraud associated with the schemes– not a single person would argue. I agree with the intention to support UK only costs. However, I also recognise that excluding any overseas costs may have a material impact on UK businesses that have a global network or supply chain, and have the potential to negatively impact inward foreign investment.
I have to disagree with the BERD expenditure point, defining R&D in a practical way to support the industrial strategy is challenging. Almost certainly it will be to the detriment, confusion and additional costs to business. HMRC would need to take on even more resource to police, educate and manage that definition. Additional costs would mean that there won’t be a £358m saving. I would also press on where the £358m figure came from….
And what about the alternatives?
The success rate of Innovate UK is woefully low and we know from experience that it is very difficult to support and advise businesses to help them understand and access these funds. Believe you me, if I could see a way to help bridge the adoption gap and make some money in the middle, I would take it – but quite frankly, it’s an almost impossible place to help.
R&D tax credits and Patent Box – already under review
The report also ignores the fact that there is a root and branch review of R&D going on and gathering feedback from all stakeholders to make sure we lock in the spillover and additionality benefits.
Right now Patent Box doesn’t work as well as it could do and deserves a solid review. BUT, removing this incentive to businesses to secure IP rights is a monumental step backwards. As per our CBI report, Prosperity Pending, the presence of a Patent Box scheme on its own doesn’t ensure better adoption of patents for the UK. But it does serve as a clear, achievable, value-led outcome to what can be a very challenging path to walk down.