Growth in R&D spending stagnating despite Tory pledge, Manchester based tax specialist warns

Spending on research and development (R&D) by UK businesses has stagnated since the EU referendum and needs a major boost to hit the Government’s target of 2.4% GDP by 2027, Manchester-based tax relief specialist Catax warns.

R&D spending in UK businesses has hovered at just 1.1% of GDP for more than 10 years despite the introduction of R&D tax credits designed to reward and encourage innovation in 2000. Earlier this year it emerged the UK ranked 11th in the EU for R&D spend as a share of GDP.

But the growth of R&D spending has slowed dramatically in real terms since the Brexit vote two years ago, down to just 3.3 per cent in 2016 then 2.9 per cent in 2017, compared to healthier annual growth of between five and six per cent in the preceding five years.

The latest figures released last month showed spending on R&D by UK businesses rose by £1.1 billion to £23.7 billion in 2017, a total increase of 4.9%. However, that only equates to 2.9% when inflation is factored in. This is the smallest increase, in real terms for several years.

With investment growth in R&D slowing over the past two years, the Government needs to need to do much more if it is to achieve this target.

Mark Tighe, CEO of R&D tax relief specialist Catax, warns: “Whatever the government is doing to reach this target, it is clearly not enough.

“There is a clear slow down in R&D investment growth since 2016 which is a worrying sign as the UK speeds towards Brexit.

“This slow-down could be linked to the EU referendum and all the uncertainty that has followed it, causing businesses to show greater unwillingness to invest heavily in new ideas.

“If Britain is going to succeed on its own it needs to supercharge innovation among UK businesses to ensure a thriving future proof economy.

“The recent reintroduction of a PAYE restriction on SME R&D tax relief was designed to prevent abuse but it sends out the wrong message to SMEs we are relying on to innovate, and will particularly affect the genuine claims of technology start-ups whose payroll costs are low.”