Budget's R&D plan receives mixed reviews

Research and development funding in Gordon Brown's latest and most likely last budget has received a warm welcome from scientists but mixed reviews from business.

In his UK budget presentation to the House of Commons, the chancellor announced a 25 per cent increase in science spending, a 100 million one-off boost to technology development and increases in research and development (R&D) tax credits.

"My view is that in all advanced economies, public and private investment in the great new drivers of growth, innovation and education, will need to rise towards 10 per cent of national income," Brown told MPs.

Public investment in science will rise from 5 billion to 6.3 billion by 2010, Brown said. He also announced an extra 100 million in funding to the Technology Strategy Board to encourage collaboration between academic researchers and industry. While 40 per cent of the money is going to the aerospace, transport and energy sector, 8 million will go to develop information and communication technologies.

"It is wonderful news that the chancellor has given such a positive message of support for the UK research base," said Professor Ian Diamond, speaking on behalf of Research Councils UK.

R&D tax credits were boosted to 130 per cent from 125 per cent for large corporations and 175 per cent from 150 per cent for small and medium businesses. Brown claimed that would provide an additional 100 million in credit to UK businesses.

"If the UK's economy is to succeed in the coming years and decades, we need to ensure that this country is seen by science and engineering-based business as an attractive and competitive place to come," said Peter Cotgreave, the director of the Campaign for Science and Engineering in the UK. "That means competitive tax rates and a world-beating science base."

While Intellect, the trade association for the IT industry, welcomed the increase for small businesses, it said the tax credits for large corporations do not go far enough.

According to Tom Wills-Sandford, the deputy director general of Intellect, Brown has set a target that 2.5 per cent of the UK's GDP should be spent on R&D by 2014. Currently, it's at about 1.9 per cent, he said.

"To get to that target, we need to attract R&D from large multi-national corporations who have a choice where to go," said Wills-Sandford. "Small and medium companies are going to do their research and development in the UK - they're not going to do it in Vietnam."

As many R&D costs are not eligible for the credit, so the real value of the 130 per cent tax credit is about four per cent in real value - an increase of half a per cent from the last budget.

"If you're a company in New York or Mumbai, a rebate increasing from 3.75 per cent to 4.25 isn't a big enough incentive," to move conduct R&D in the UK said Wills-Sanford.

Intellect has called on the R&D tax credit to be raised to at least 150 per cent for large companies, which would be about six to eight per cent in real terms, the body said.

But the head of R&D tax at Deloitte said the budget "reflects the government's enthusiasm for encouraging innovative activities in the UK", even in light of other changes to corporation tax rates and capital allowances.

"This has gone further than we expected," said David Cobb. "Even after taking into account the various changes in the corporation tax rates in the coming years, the net benefit of the relief should be greater for SMEs and large companies.