Brexit threatens R&D budget of UK organisations

18 November 2019 5 min. read
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Uncertainty surrounding the UK’s economic and political stability is hampering the nation’s research and development (R&D) efforts. According to a new study, more respondents from the UK than any other country said their organisation was not undertaking enough innovation work, but due to Brexit anxieties, less than half expect R&D budget increases in their organisations over the next three years.

Following the introduction of the R&D tax credit initiative in 2000, which aimed to encourage greater R&D spending and drive investment in innovation, the number of claims for R&D tax credits in Britain has risen significantly ever since, with HMRC having recently confirmed it permitted £3.5 billion in R&D tax relief for the 2016-17 financial year. This has led to a boom in the appetite among businesses for consulting firms which can facilitate their accessing of such relief mechanisms, particularly as the UK looks to incentivise innovation to soften the economic blow of Brexit.

With a challenging period for the fortunes of the UK fast approaching with the culmination of Brexit, the nation’s government is seemingly banking on Britain’s reputation as a hub of innovation to insulate the economy from the worst effects of its withdrawal from the EU. The UK Government has shown it is keen to foster creativity to that end, with its growing emphasis on future inventions seeing the ushering in of incentives such as HMRC schemes, including Patent Box and the R&D Tax Credits regime.

Brexit threatens R&D budget of UK organisations

Despite the positive appearance of these trends when it comes to R&D in the UK, however, many in the country still feel their organisation is not doing enough when it comes to innovation. According to a recent poll from global consulting firm Ayming, 32% of British respondents feel their organisation does not undertake enough innovation or R&D work – the highest percentage of any nation the researchers surveyed. While 68% of participants in the US said their organisation did enough – the same as the UK – only 28% said their organisation did not do enough, while 4% did not know.

In contrast, Italy was the nation with the highest number of respondents who believed their organisation was undertaking enough innovation work, at 96%. This was followed closely by Belgium and Poland, both at 92%. In fact, the only nation found not to be out-performing the UK in terms of perceived R&D work was France. However, of the French respondents, the researchers found that 8% did not know how well their organisation was performing on this front, suggesting France is likely besting the UK by a small amount at least.

Indeed, the global picture suggests that the UK is a long way behind on the matter of R&D. Looking at averages drawn from all the business leaders Ayming surveyed, an overwhelming majority of 83% were satisfied with the level of R&D being undertaken by their organisation, compared to only 13% negative answers. With this in mind, portraying the UK as an innovation hub post-Brexit becomes a significantly tougher sell. This is illustrated by the fact that the most popular location for a business to undertake activity abroad was Germany, which is launching its first R&D tax credit scheme next year.

Brexit threatens R&D budget of UK organisations

On top of this, the continued confusion around Brexit means many organisations are not expecting to be able to increase their R&D spend in the coming years. According to the study, only 48% of respondents in the UK are expecting budget increases in the next three years, compared to 92% for the likes of Spain.

Meanwhile, only 36% of UK respondents said they expect talent to positively affect budgets, well below the average from the countries surveyed of 65%. As a result, the UK may quickly find itself losing ground compared to the continent when it comes to attracting overseas businesses to take advantage of its R&D regime.

Many organisations anticipate this will have a knock-on impact on their R&D budget, too. When asked how different factors would impact their organisations over the coming three years, only 18% of respondents said Brexit would have a positive impact, compared to 32% who believed it would have a negative impact. In comparison, when asked to consider non-Brexit political risk, 38% of organisations thought it could actually benefit R&D spending – possibly because political opponents looking to curry favour might try to out-do one another by making pledges to free up even more R&D tax credits.

Mark Smith, a Partner at Ayming UK &Ireland, said, “In the UK specifically, it’s no surprise that Brexit is seen by many as an area of concern... Sentiment with regard to talent has been noticeably weighed down by Brexit, with only 36% expecting talent to positively affect R&D budgets, well below the average from the countries surveyed of 65%. UK R&D is dependent on talent from Europe and also benefits from collaboration. In attempts to settle business concern over talent, the UK has put a plan in place for fast-track visas. But whether this will succeed remains to be seen.”