Government urged to ‘change course’ on its R&D relief scheme
Tens of thousands of innovative small firms are set to scale back investment if the government presses ahead with plans to slash R&D tax support for SMEs.
That is according to new research carried out by the Federation of Small Businesses (FSB), the UK’s largest business group.
It is urging the government to change course on its decision to gut the R&D tax relief scheme for small firms as announced in the Autumn Statement.
One in five small firms that have been supported through the scheme in the last three years say cuts to the tax relief rate will reduce their viability.
An overwhelming majority (64 per cent) of small firms which successfully applied for the tax credits in the last three years say they are now less likely to invest in innovation.
A quarter say they will be forced to turn to lower-risk projects and one in ten say they will have to make staff redundant or put recruitment plans on hold.
The FSB research shows the impact will be greatest in deterring new entrants. Since the scheme was introduced, around 30 per cent of small firms claiming R&D tax relief each year are new claimants.
The research indicates the long-time deterrent impact on potential innovators is even larger than on small firms already innovating, with four times as many firms not currently undertaking R&D saying they are now less likely to take the plunge.
The huge recent growth in UK R&D spending has been driven by additional small firms and start-ups setting up for the first time, with the number of small innovating firms more than doubling since the tax relief on R&D was increased to its current levels.
Martin McTague, who chairs the Blackpool headquartered FSB, said: “The UK risks being left in an innovation wasteland if Jeremy Hunt does not take control of Treasury innovation policy and restore the single most successful industrial policy of the last decade.
“Our findings are a reminder to the chancellor that the government still has time to do the right thing – delay or scrap the plan to cut R&D tax credits for small businesses from April.
“The chancellor’s decision to rely on estimates that exclude the impact on start-ups and new entrants in making this decision was incredibly disappointing.”
He added: “Our members tell us the tax credits scheme is more accessible and useful than grants in creating cutting-edge products and services in the UK.
“It means R&D is led by small firms who can react far quicker to new possibilities than public grant systems administered by quangos many inventors haven’t heard of, meaning time wasted writing bid applications instead of innovating.
“The SME R&D tax credits scheme has been brilliant in encouraging small businesses to invest for the first time in R&D and we must do everything we can to avoid throwing away ten years of small business progress.”
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