UK tech firms flock to Labour as frustrations grow over government R&D tax credits policies

UK map concept art showing digitized UK landmass outline in blue.
(Image credit: Getty Images)

A survey from innovation funding consultancy Ayming UK found overwhelming support for Labour, with only 9% saying that they expect the impact of a Labour government to be negative.  

The survey revealed that 'driving innovation' was the second biggest priority for tech businesses behind 'enhancing operational efficiency'.

The UK’s R&D landscape has suffered some setbacks in recent years. And with HMRC having pursued an aggressive compliance programme in reaction to cases of fraud over the R&D tax credit, businesses are wary.

Two-fifths said that HMRC has put them off from claiming R&D tax credits, and 17% said they are no longer sure what is eligible, and so won't be claiming.

Meanwhile, 62% of businesses aren't even aware of the reforms to the UK’s R&D tax credit scheme - which Ayming said is likely to cause further friction when the rules change on April 1st.

"Beyond this, there has also been a lack of stability. The UK’s temporary exclusion from Horizon Europe stopped British firms from both receiving funding and being involved in prestigious international collaborations," researchers said.

"In addition, the last detailed Innovation Strategy was published three years ago, and since then there have been two changes of government, five different ministers responsible for innovation, and the department that published the initial strategy has been disbanded as part of reforms."

On average, the sector is spending 5.3% of revenue on R&D, with R&D tax credits the most popular source of funding, used by 29% of the industry.

Half of tech businesses are outsourcing R&D projects – around the same as the cross-sector average. However, tech firms are the least likely to collaborate, the study found, with 34% collaborating compared to the cross-sector average of 42%.

Meanwhile, more than six-in-ten firms are undertaking R&D activity in Europe, with nearly one-third citing a desire to move activity closer to head offices.

The biggest obstacle to securing grant funding for the technology sector is 'expertise in applying', with nearly a fifth of businesses citing this as their main barrier. 

Government action that tech firms think is most important to support UK innovation is to increase the generosity of R&D tax credits, with 95% seeing it as important.

"With nine-in-ten technology businesses offshoring R&D, it’s clear the UK has to seriously rethink its innovation strategy. The UK prides itself on its homegrown tech firms, but the reality is that R&D in the tech sector can be easily moved to other regions," said Mark Herrity, senior manager at Ayming UK.

"If it wants to compete with international rivals and stem the outflow of talent to the US and Europe, we need to do everything we can to encourage tech firms to do their R&D in the UK. Above all, it’s essential that tech companies can rely on all-important government funding."

Emma Woollacott

Emma Woollacott is a freelance journalist writing for publications including the BBC, Private Eye, Forbes, Raconteur and specialist technology titles.