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ForrestBrown partners with leading think tank to seek consensus for R&D reform

Jenny Tragner
(Last updated on )
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The role of R&D in tackling the UK’s biggest challenges has been a central tenet of flagship government policies in recent years, from levelling up to net zero. The ambition to be the most innovative economy in the world by driving up business investment in R&D is seen as key to delivering on these high-profile agendas.

Recognition of the important role of R&D is clearly welcome, yet despite this high-level backing and comparatively generous tax incentives, the UK’s expenditure on R&D remains low relative to many of our global competitors. To tackle this and other related topics, ForrestBrown recently partnered with the think tank, Bright Blue, to bring together policymakers, academics and industry experts for a roundtable discussion on ‘Financing the future: reforming R&D’.

Support for private sector investment in R&D

Held in the heart of Westminster, the roundtable focused on the challenges and opportunities presented by the current system of R&D tax reliefs. While views differed on the level of effectiveness of current incentives, there was wide agreement that encouraging private sector investment in innovation was the right objective, with a key role to play in the success of flagship policies such as levelling up and net zero.

At ForrestBrown we are passionate believers in the transformational impact R&D tax reliefs have for our clients across the country. But the roundtable concluded that perceptions of R&D fraud, error and low reported levels of additionality risk clouding this positive picture. HMRC has an understandable focus on compliance, and it is right that HM Treasury should be aiming to close the gap between R&D tax relief figures and R&D investment reported by the ONS. However, shining the spotlight on abuse and boundary-pushing has created a narrative at odds with the overall policy goal of increasing investment in innovation.

A better understanding of R&D data

It was agreed that understanding why there are discrepancies in the data and addressing the lack of a single point of truth would be a helpful first step towards aligning the policy goals with the implementation of R&D tax reliefs. This would also better inform the debate around place-based R&D.

This was an area of focus for the roundtable, but currently data is skewed because it relies on the location of a company’s registered office rather than where the R&D actually takes place. A clearer picture of where R&D is taking place is required before contemplating policy interventions which could needlessly distort the market. Some argued that focusing on existing clusters – such as emerging technology hubs in Glasgow and Manchester – would help to address regional disparities. However, direct funding may be a more effective way to target regional discrepancies in R&D investment.

Bridging the divide between policy and implementation

This disconnect between the political support for R&D and the messages being sent by those responsible for its implementation is relevant because it hampers the effectiveness of R&D tax incentives as a driver of business behaviour. Finding a way for positive commitments from politicians to filter down into everyday interactions between businesses, agents and HMRC is critical if we are to make the most of the catalytic effect of R&D tax relief.

Encouragingly, plenty of ideas for improving the incentive were put forward from around the table – from incorporating innovation training to focusing on high-growth sectors such as digital. But if different stakeholders have conflicting ideas about the goal of the incentives, we risk a lack of coherence in any reforms implemented. We can’t all move in the same direction if we’re not sure we’re all heading for the same place.

This roundtable was a starting point in bringing together different viewpoints. The challenge for the government is to focus on the big picture as well as piecemeal reforms as it continues to review R&D tax reliefs. We urge the government to prioritise creating a coherent, long-term platform for the relief with greater flexibility to adapt as priorities change; more effective and precise targeting to maximise additionality and reduce wastage; and providing certainty to businesses by simplifying the administration of the relief. This three-pronged approach will ensure R&D tax reliefs remain fit for the future, supporting the UK’s ambition to be a science superpower.

Read more policy-level insight from ForrestBrown in our R&D consultation responses.