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Research recently published by the prestigious London School of Economics (LSE) suggests the UK's R&D tax relief policy does encourage investment in R&D across the economy.

Researchers from the LSE's Centre for Economic Performance (CEP) noted that a downward trend in UK business enterprise R&D had levelled off in the mid-2000s. They also noted a change in government policy on R&D tax relief in 2008. This extended the more generous R&D tax relief scheme for small and medium-sized enterprises (SMEs) to firms with assets above Euro 43M (the original limit) to those with assets up to Euro 86M.

Using statistical methods, the researchers examined whether the growth in R&D spending was related to this policy change. The researchers recognised that an increase in R&D tax relief claims might simply reflect changes in the way businesses reporting their activities, classifying more as R&D than they had done before. Therefore, the researchers also looked at another indicator of business innovation, and examined the number and quality of new patent applications in the same period, and noted a corresponding growth.

The researchers concluded that the UK Government’s more generous definition of SMEs for R&D tax relief purposes did indeed contribute to an increase in business innovation. Furthermore, the researchers estimated that every £1.00 of tax relief allowed generated at least £1.70 in R&D. They concluded that R&D tax relief in the UK is a worthwhile policy that stimulates innovation and growth, and should be maintained.

You can read the whole article on the LSE’s website.

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