Chancellor’s R&D tax relief cut for startups jeopardises UK innovation funding
Most of the UK’s spending on research and development (R&D) hangs on the shoulders of businesses, leaving a sour taste in the mouths of startups following the Chancellor’s latest budget.
The business sector contributed £44bn – the equivalent of 71 per cent – of R&D funding in 2020, followed by universities, which pumped in £13.9bn, or 22 per cent.
The government, including its research funding body UK Research and Innovation (UKRI), supported just five per cent of funding in the year the Covid-19 pandemic hit the country, injecting £3.1bn into R&D.
“This should have been a moment of triumph for the small business community and the UK economy. But the Chancellor has turned triumph to disaster, with the self-inflicted R&D credit crunch set to cut a swathe through start-ups, spin-out and advanced engineering companies,” said Tina McKenzie, advocacy chair of the Federation of Small Businesses. “Driving small R&D firms out of business is economic vandalism.”
Last week, new Chancellor Jeremy Hunt cut the rate of R&D tax relief for small businesses in his Autumn budget, in a “hugely disappointing” move for startups.
“The Prime Minister and the Chancellor are saying one thing on R&D and doing another,” added McKenzie.
“The Prime Minister’s call yesterday to “harness innovation to drive economic growth” is quite the opposite of what he and his Chancellor proposed last week, who decided now is the time to undo the UKs success and kill innovation by slashing support for innovative but under-resourced small businesses with less than six months’ notice.”
Legal director at law firm Pinsent Masons, Penny Simmons, said tax reliefs for SMEs can provide a “vital source” of financing to start-ups
“Without access to the cash repayment, many start-ups may struggle to secure adequate funding to progress R&D and ultimately new UK based innovations,” she said at the time.