Tech founders and chief scientists have attacked UK Chancellor Jeremy Hunt’s plans to cut R&D tax credits.
R&D tax relief is widely used by UK tech and biotech start-ups, which are at the forefront of advances in emerging technologies such as quantum computing, AI and life sciences. Hunt announced R&D spending cuts by making small business tax credits less generous in Thursday’s fall statement.
Toby Austin, co-founder of Beauhurst, a technology consultancy, said it was ‘disconcerting to hear the Chancellor say he wants to ‘make Britain the world’s next Silicon Valley’ as he ‘it simultaneously reduces the only significant tax incentive for technology startup -UPS’.
Austin said tens of thousands of companies are using the program to help fund their R&D. “It’s built into their budgets and their hiring plans. This cut will have a serious negative impact on both the creation of technological jobs and the progress of innovation.
Max Jamilly, co-founder of Hoxton Farms, which develops animal-free fats for use in foods, recently raised more than $22 million in funding for the next stage of growth. But he said Hunt’s decision had made his 2023 business plan “very difficult” and would mean he would have to cut staff by a fifth.
“We are doing exactly what the government wants in terms of innovative deep technology,” Jamilly said. “But we are heavily dependent on the R&D tax credit system. Having this removed at such short notice threatens our work, our ability to hire new employees, and our growth plans.
Kate Bingham, the venture capitalist who led Britain’s Covid-19 vaccine task force, said the government should reform R&D tax incentives to ensure they support cutting-edge research . “This is a very big incentive to build leading biotech companies in the UK,” she said.
Britain’s Life Sciences Vision, an industry strategy set out last year, said a competitive tax environment – including R&D tax credits – was key to making the country attractive to investors in the ‘innovation. The UK faces competition from EU countries, including France and Germany, to attract life science and technology start-ups.
Steve Bates, chief executive of the BioIndustry Association, said the autumn declaration had injected a “heap of instability” into one of the UK’s most stable policies to support innovation.
Clive Dix, chief executive of C4Discovery biotechnology and former vice-chairman of the vaccine task force, said the government was sending “mixed messages”, adding: “They want this country to become a scientific powerhouse and take us out of the doldrums. They want to put innovation at the center of future economic growth. And they take all these small businesses and hit them where it hurts,” he said.
Government officials said the reduction in the tax credit was intended to address concerns about fraud and misuse of the system. HMRC identified £469million of fraud and error in claims in its 2021/22 annual report.
But Austin said fraud had to be used because the reasoning was “ridiculous”, adding: “If you want to fight fraud, cutting the program for all participants does nothing.”
People close to the government’s thinking said the policy could be made more flexible for businesses. Documents accompanying the autumn statement promised that the government would “work with industry to understand whether additional support is needed for R&D-intensive SMEs”.
The global biotech industry has suffered the worst downturn since the 2001 crash this year as companies struggled to raise cash. Dix said businesses will already have factored credits into their plans and that “every penny counts” for businesses with no revenue.
“It will be very difficult for them because the R&D tax credits, in a strange way, were a bit of a lifeline for small businesses,” he said.