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Budget 2021: What does it mean for R&D and innovation?

The Chancellor of the Exchequer, Rishi Sunak, presented his Autumn Budget and Spending Review to Parliament on Wednesday 27 October 2021. There were very few surprises when it comes to R&D, innovation, and Patent Box tax relief. Many of the announcements were made against the context of the recent R&D consultation.

But what was actually announced and which are the areas where we are waiting for the detail?

Push back R&D £22bn spending goals by two years
Sunak announced that the government will funnel “unprecedented funding” into innovation, increasing R&D spending to £20bn a year by the end of this parliament in 2024 – down from his previous commitment of £22bn per year. The £22bn target has now been pushed to 2026-27 spending.

This push back is set against the other priorities that emerged due to Covid. We are pleased to see that this announcement still keeps the initial ambition and recognises innovation is key to industrial strategy, the levelling up agenda, and building back better. However, we will be keen to ensure that there is no further slippage of this UK target for R&D investment.

R&D tax relief rules expanded to include cloud computing and data
As widely predicted, there was an announcement that HMRC definitions of R&D will include cloud computing and data. This move is designed to match modern R&D practices in UK companies and is certainly timely.

However, as yet, it’s not clear what is meant by cloud and data storage – we will need the detail of the guidance to make sure the innovative work of our clients is being rewarded.

We hope that the policy matches the Chancellor’s ambition of a tax relief scheme fit for the technology of the future.

From April 2023, the tax relief will subsidise investment in the UK only
We welcome greater scrutiny on overseas R&D as the spillover and additionality is vital to the long-term payback of the scheme. But will our talent agenda be as globally attractive as it needs to be to ensure the best come to the UK, or that homegrown talent stays?

Where was the green finance focus?
Under the spotlight that COP26 shines on the climate change agenda, it was perhaps surprising that there was so little emphasis given to the investment of the climate tech agenda. There is a lever to offer a greater level of tax credit or relief to green energy, net-zero, and other game-changing technologies. These innovations are most likely to be commercialised in industry, not academics. It should be clear what part R&D and Patent Box tax relief is playing in driving and rewarding UK innovation in the climate and clean technologies.