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Pressure is mounting on the Chancellor to scrap changes to research and development (R&D) tax credits in next week’s budget as over 150 start-ups and Britain’s biggest small business body launch a fresh offensive on the Treasury.
In an open letter published last night, the group of start-ups wrote to Chancellor Jeremy Hunt warning that planned cuts to the R&D credits, outlined in the Autumn statement in November, will “significantly damage the UK’s start-up ecosystem”.
Hunt’s plans will see the the breadth of the existing scheme scaled back from the start of April and will slash the amount of R&D spend that start-ups can claim back from 33 per cent to 18.6 per cent.
The Sunday Times reported last weekend that Hunt is set to press ahead with the measures, with only small tweaks made for sectors like artificial intelligence and biotechnology to be outlined in the budget next week.
The changes have drawn the ire of start-ups across the UK, who argue that scaling back the scheme will hammer innovation investment just as government mounts a push to make Britain a “tech and science superpower”.
Coadec and signatories of the letter have now called on the Chancellor to scrap the plans and reveal more support in the budget next week.
“Government-backing twinned with British entrepreneurship has built one of the best start-up ecosystems in the world, but these R&D changes put it at risk,” said Dom Hallas, executive director of Coadec.
“The planned R&D tax credit cuts will mean less money for tech start-ups, less hiring and less innovation.”
Hallas added that if the government wants to “build the next Silicon Valley” it needs to provide start-ups with the “help they need to do it.”
The calls come as the Federation of Small Business launched a fresh offensive against the changes today, after warning last month that the plans risked turning Britain into an “innovation wasteland”.
Research from the FSB last month found that 64 per cent of of the firms to have earned the tax credits in the last three years would now rein in their innovation investment in light of the changes, equivalent to 50,000 small firms.
A quarter of firms surveyed by the FSB said they would refocus their efforts on “lower-risk” projects in light of the move while 12 per cent have frozen recruitment and begun laying off staff as a result of the changes.
FSB national chair Martin McTague has said the changes were not the recipe we need for a “pro-growth agenda.”
“There should be no iota of doubt tax credits been fundamental to recent tech success,” he said. “Government simply cannot predict the future – it needs to back the small businesses taking huge risks to create it.”
The FSB warned last month that the plans risked turning Britain into an “innovation wasteland”. The Treasury was contacted for comment.
A government spokesperson said: “The government recognises the hugely important role that R&D and innovation play for the economy and society. At Autumn Statement, the government recommitted to increasing R&D spending to £20bn per year by 2024/25 – a cash increase of 30% from 2021/22 – the highest level of R&D this country has ever seen.
“Our ongoing R&D tax reliefs review will ensure taxpayer’s money is spent as effectively as possible while improving the competitiveness of the Research and Development Expenditure Credit (RDEC) scheme, as well as taking a step towards a simplified, merged RDEC-like scheme.”
