R&D scheme failing to support more established industries
The Manufacturing sector has suffered the largest variation in performance when compared to other sectors. Since 2014, it experienced a 5% drop in the value of allocated cost. On the contrary, Information & Communication and Professional, Scientific & Technical sectors have shown a slight increase in benefit for the same period. This again suggests R&D tax credits are following investment rather than supporting a rebalancing of the economy.
We can think of two reasons why these changes may be happening, but it’s likely the drivers are complex. Firstly, Manufacturing is focused on the regions where we don’t see growth in R&D claims. As such, the scheme doesn’t stimulate innovation in the regions where older industries operate, and lacks the flexibility to focus incentives by sector. Secondly, there could well have been more investment in IT R&D claims compared to Manufacturing due to an overall change in business and market needs since the start of COVID-19 pandemic. Nevertheless, as a result our home grown manufacturing businesses will struggle to keep up while overseas competitors are investing faster.
Both are worrying changes. We recommend companies in these sectors look to make sure they are making best use of the R&D incentives available from the UK government. We still find businesses that are unaware of the scheme, which, set against the upward trend in claims, shows they are clearly missing out. Additionally we recommend these businesses also look more broadly at grants and other incentives available, which may assist in making a major business decision to invest in innovation or new technology.