Brexit ‘significantly’ increases need for industrial strategy investment say UK business leaders

Brexit woes

The majority of UK business leaders agree Brexit increases the importance of the government’s proposed Industrial Strategy, but start-ups and SMEs will benefit the least, a report published today highlights. 

The study of 1,000 senior UK business figures by R&D tax credit consultancy ForrestBrown also found that 40 per cent of firms will be in a position to increase R&D activity as a result of the government’s proposals, which include an additional £4.7bn investment (£2bn a year by 2020) to support innovation. 

The report, Igniting Innovation, revealed that almost three quarters (73 per cent) believe there is a greater need for the additional investment in innovation because of Brexit, with 32 per cent agreeing there was a ‘significantly’ greater need. 

Big business to benefit: is the Strategy fit for purpose? 

Over half of survey respondents (55 per cent) said that assisting start-ups, as opposed to established SMEs or large companies, should be the government’s priority. But the report found that, conversely, smaller companies make use of existing government funding far less, and are also less likely to make use of future funding than large corporates. 

Just one in ten businesses employing up to 50 staff had already made use of grant funding and only five per cent had used R&D tax credits. This compares to businesses with 500 or more staff, 45 per cent of which had used grants and 50 per cent of which had used R&D tax credits. 

Despite businesses on the whole saying they would be able to innovate further as a result of the additional funding, there was a marked difference in the perceived benefit between large and small businesses that mirrored the uptake of existing incentives. 

While 84 per cent of business with 500+ employees stated that innovation was already either essential or a high priority, only 48 per cent businesses who employ fewer than 50 staff said this was the case.  

This is significant given more than twice as many large (500 +) businesses said that they would innovate further as a result of the proposed package than small companies and start-ups (60 per cent as compared to 28 per cent).

Jenny Tragner, director at ForrestBrown and member of HMRC’s R&D Consultative Committee, said: “The UK is a hugely innovative place, but incentives must be put in the right places to allow us to build and grow, especially in light of the challenges Brexit might bring.

“Incentives are currently benefitting larger companies that have the resources and know-how to be able to identify and access them, but smaller companies are being left behind through a lack of awareness. The government has stated that supporting innovative start-ups is a crucial part of the Industrial Strategy, and so these firms need to be shown how the additional funding and resources, when they materialise, will support them, and how to use them.” 

Consultation 

The Industrial Strategy is under consultation until 17 April, allowing businesses and other stakeholders to provide feedback on where government support should be focused.

As part of the Igniting Innovation study, business leaders were asked where the government should focus its extra investment. They supported funding for targeted incentives as opposed to universal support for all.

Overall, additional grant funding was the most favoured area for direct support, closely followed by tax incentives for R&D, with lower corporation tax only the third most popular choice.

However, there was again a discrepancy based on business size, with businesses employing fewer than 50 staff favouring lower corporation tax overall, while large businesses (over 500 employees) prioritised R&D tax incentives, followed by grant funding. Tragner commented: “The fact that small businesses favour lower corporation tax could indicate that they don’t have the time or resources to access targeted schemes, which further supports the need for greater simplicity.”

In terms of indirect support, boosting the UK workforce was unanimously the most favoured option across all business sizes, followed by investment in future transport and infrastructure projects.

On the importance of the workforce, Tragner said: “Nurturing talent is one of the most important challenges the UK faces, and it’s great to see that businesses unanimously acknowledge that doing so will help businesses to grow and make the UK a more competitive place to do business globally.”

Asked to determine at which stage of research and development government support should be targeted, product development was most favoured overall, followed by concept development testing, and then idea generation. Despite the Industrial Strategy emphasising the commercialisation of products and services as a means to drive growth, this area was favoured the least, with only 16 per cent selecting it as top priority.

Tragner commented: “The research confirms our experience that R&D tax incentives need to be simplified so that smaller companies who may not have access to the same level as advice as larger ones are not put off by the complexity, or by the eligibility rules.”

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