An insight into the London Business School Event

Last Tuesday evening, we sponsored an event hosted by London Business School which presented the findings of a project undertaken by Martin Veselinov (MiM2024), supervised by Keith Willey, Adjunct Associate Professor of Strategy and Entrepreneurship at London Business School. This project was a comparative study of R&D tax relief schemes across the OECD, which RCK Partners was proud to sponsor.?

Adjunct professor Keith Willey, opened and discussed how the research came to be, Martin Veselinov, a student at LBS who wrote the report, shared his findings on comparing the UK's R&D scheme in relation to other OECD countries. This was followed on by an insightful discussion by the Former Chancellor, Lord Hammond, on the impact of R&D tax credits on the UK economy. Lord Leigh of Hurley, Lord Leigh chaired the Select Committee on Economic Affairs group who provided a report covering the Government's draft Finance Bill 2022-2023 discussing R&D tax relief reforms. Lord Leigh spoke regarding tax reforms and his views on the recommendations proposed in from the report.

Key Insights from the report

The report explores the UK's R&D scheme in relation to comparable schemes offered across other OECD countries and examines the effects of the UK's recent reforms to its R&D scheme. The focus is on the effects of the merged Research and Development Expenditure Credit (RDEC) and Small and Medium-sized Enterprises (SME) schemes, fully implemented in 2024. While these changes aim to reduce fraud and error and simplify the system, in reality, they have significantly reduced the R&D tax benefits available to SMEs. Given that SMEs account for the majority of R&D claims in the UK, this shift poses a substantial risk to the UK's innovation-driven growth. The UK has historically offered one of the most favourable R&D tax relief schemes, particularly for SMEs. However, introducing a merged scheme has raised concerns about its competitiveness. The report examines the impact of recent changes to the UK's R&D tax policies and their potential implications for the country's global competitiveness. While addressing fraud and error, the merged scheme has reduced overall tax relief for SMEs, the largest claimants by volume of R&D tax credits. Compared to Germany and Sweden, the UK now lags in GERD and BERD as a % of GDP, and this decline in SME support could risk further undermining the UK's attractiveness to investment in R&D.

Recommendations offered:

1. ?Strengthening Compliance: To mitigate fraud and error while preserving the benefits of an R&D scheme, the government could adopt new or alternative compliance measures rather than cut tax relief. This approach would maintain the scheme's attractiveness for SMEs and ensure that genuine R&D activities are encouraged.?
2. Increase Support for R&D-Intensive SMEs: To maintain the UK’s competitive edge in innovation, the government could revisit the tax relief system and introduce targeted incentives for R&D-intensive SMEs.?
3. Align R&D Incentives with Industrial Strategy: To maintain the openness of the R&D tax scheme, the government could stimulate innovation in both traditional sectors and high-growth areas like AI, biotech, and cleantech. Expanding incentives for research and commercialisation can stimulate private-sector investment, foster job creation, and contribute to long-term economic growth.

If you are interested in reading the report please get in touch.

Thanks to all who attended and spoke at the event for a great evening!

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