Give R&D credit

The Government's R&D tax credit is not delivering to its full potential, according to a new survey published by the

, in collaboration with the

.

The CBI report reveals that whilst there is a high take-up of the credits - two thirds of firms surveyed had already claimed, with 86% expecting to do so in the future - it was only reducing R&D costs by an average of 4%, well below what is needed.

The release of the survey coincides with the Goverment's first annual report on its 10 Year Science and Innovation Investment Framework and its consultation on improving the R&D tax credit.

R&D tax credits have a key role to play for business, providing long-term support for research and development in the UK. A fully effective tax credit would help to build and retain UK-based activity and is also likely to attract R&D to the UK from overseas.

The CBI survey confirms that the scheme has achieved an impact, with 18 per cent of companies so far able to increase their R&D spending as a direct result of the tax credit.

However the actual financial benefit realised could be improved significantly. On average, companies reported that the R&D tax credit has reduced their overall R&D costs by around four per cent. The CBI has recommended that the tax credit should aim to reduce overall R&D costs by ten per cent.

Many companies believe the scheme should be extended to improve its effectiveness. Fifty per cent said the tax credit rate should increase, and 44 per cent thought there should be a wider range of eligible costs.

There are also clear problems with the scheme's administration, with 54 per cent concerned about the cost of claiming. Small and medium-sized companies (SMEs) had particular issues over the application process, with the ease of claiming rated 'unacceptable' by 40 per cent, and the handling of their claims by the Inland Revenue regarded as 'unacceptable' by 30 per cent.

John Cridland, Deputy Director-General at the CBI, said: "We fought hard for the R&D tax credit and we will keep on fighting to ensure it meets its full potential. Companies are experiencing too much uncertainty and inconsistency in its application. That has to change if the Government is to achieve its target of R&D spending at 2.5 per cent of GDP by 2014.

"The ten year investment framework is a once-in-a-lifetime opportunity for the UK. Although it is still early days, we welcome the actions that have been taken so far, in particular the establishment of the Technology Strategy Board and the UK Science Forum. However implementation of the framework needs to build in momentum, and it must deliver for business as well as for the science base."

Steve Radley, EEF Chief Economist, added: "The R&D tax credit is a vital tool in boosting the UK's innovation performance. If we are to safeguard the future of high value manufacturing it is essential that the government's approach to R & D also recognises the key role that design and product development play in delivering market winning products."