Autumn Statement & Spending Review 2015 - impact on R&D funding for innovative businesses
Dr Caroline Elston-Giroud, European Grants Manager, shares her concerns on the Government’s plans to decrease backing for R&D grants and introduce R&D loans.
Today’s announcement threatens to strangle the significant role R&D can play in helping cutting-edge businesses improve productivity and gain competitive advantage - both here in the UK and across the globe.
Under the current R&D grant system estimates show private rates of return for R&D investment of around 30%* - a key driver for building a strong foundation for economic security. The positive impact of the current R&D funding shouldn’t be ignored when it clearly provides a valuable opportunity for businesses to bolster their financial position and, in turn, aid the UK’s long-term economic success.
INTRODUCTION OF R&D LOANS
Many businesses lack the upfront capital to invest as much as they would like into R&D, meaning they can’t fully benefit from the innovation pound. Swapping R&D grants for interest-paying loans will only escalate this issue, strangling innovation by placing a huge amount of risk to the user, particularly those businesses that need vital support in the early stages of their R&D programmes.
The introduction of R&D loans throws up all sorts of ramifications and, as always, the devil will be in the detail. The questions that urgently need to be addressed are whether the new R&D reform will make it even harder, more complex and more time consuming for SMEs to manage. For example:
- If you get a loan how will it be tracked correctly in accounting terms with regards to R&D tax relief?
- At what date will it then be reimbursed back to Innovate UK?
- What are the criteria for reimbursement? Who will track this? How?
- With regards to R&D tax relief, how will this impact be taken in to consideration if the loan money is transient?
- At the moment if SMEs receive grants, it removes the special SME rate to the less favourable large company rate. Will this still be the case?
The attraction and retention of talent is critical to fostering innovation and building a competitive and modern economy. However, today’s announcement will clearly impact jobs through the migration of critical skills and investment to other parts of the world that lead on innovation and have more favourable R&D initiatives. For example, in France there is a system of repayable loans for R&D, where companies only pay back if the project is successful - something the Chancellor failed to reference!
R&D is like a well-balanced ecosystem, and any changes can be like throwing a stone in a lake. We fear these changes risk damaging the tangible reward that has so successfully driven UK innovation.