The Chancellor stated that the UK has the second-highest R&D relief spending in the world ‘but it is not working.’ He stated that businesses claimed £48bn in the tax relief last year but nearly half of this was not conducted in the UK, with only £22bn invested here.
The relief criteria is also expanding to cover cloud computing and data R&D.
The Chancellor also confirmed that the government will increase research and development (R&D) spending to £20bn a year by 2024-25, with the spending also including funding for EU programmes.
The government plans to increase the R&D spending from £14.8bn this year to 16.1bn in 2022-23, to 19.4bn in 2023-24.
The spending for the Department for Business, Energy and Industrial Strategy (BEIS) the spending is split into the groups which are core research, innovate UK and EU programmes Association.
Overall, this government department is planning to have £14.2bn to spend in 2024-25. This rises from £11.3bn in 2020-21, to £11.9bn in 2022-23.
The Department for Health and social care is also planning to have £2bn to spend by 2024-25. This is a rise from £2.1bn in 2020-21 to £2.8bn in 2023-24.
The investment for R&D funding is aimed to help the UK ‘better support cutting-edge research methods’ and ‘refocus government support towards innovation’.
In addition, Sunak announced that the government’s spending on R&D has reached 20%.
The Chancellor stated that this combined with the government’s direct spending on R&D with the support for the tax relief, total R&D support as a proportion of GDP is forecasted to increase from 0.7% to 1.1% in 2024-25, which the Chancellor stated was ‘well above the latest OECD average of 0.7%.’
This announcement is the next step the government is taking to achieve an increased R&D spending to £22bn by 2026-27 and drive economy-wide R&D investment to 2.4% of GDP by 2027.
Alex Henderson, senior tax partner at PwC, said: ‘One of the most significant announcements was the restriction of R&D relief to innovation developed in the UK.
‘While it might incentivise multinationals to do more R&D on our shores, the signal it sends on UK international connectivity should not be underestimated.’
