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Boost innovation in ‘neglected’ medium-sized firms, says CBI

Tax incentives should be widened to encourage more medium-sized businesses to invest in research and development, says a report by the business lobby group, CBI.

The report, “Future Champions: Unlocking growth in the UK’s medium-sized businesses”, published on 24 October, argues that medium-sized businesses have long been overlooked by government.

The UK could transform its international standing if more companies were innovating and investing in research and development, it finds.

It says the scope of the R&D tax credit should be widened to include a bigger part of the innovation chain. Currently, it argues, the tax credit applies only to pure research. Instead, the credit should also help with other innovation costs such as buying machinery or software, product testing, production and marketing.

The report finds that while medium-sized businesses (MSBs) are better at innovation than small and large companies, they still lag behind counterparts in key competitor countries.

It says that 62.5 per cent of UK’s MSBs describe themselves as innovating, compared with 84 per cent in Germany and 67 per cent in France.

In addition, it says, UK MSBs spend less on R&D than counterparts in many other comparable EU countries.

One of the problems, it argues, is that MSBs struggle to collaborate with partners such as universities, private research institutions and government laboratories. In particular, survey respondents said it was hard to get to a point where such collaboration led to “commercially valuable research”.

The report highlights the Fraunhofer Institutes in Germany, which it says are partly responsible for the success of innovative German companies. The UK government has decided to set up similar Technology and Innovation Centres, but it is “too early to tell whether they will be a success, and able to help increase the number of innovating MSBs in the UK”.

John Cridland, CBI director-general, said in a statement, “I want the UK to have its own version of the German “Mittelstand”—a backbone of medium-sized firms which export, innovate and generate growth. These future champions would help the UK weather unexpected economic shocks, and act as a new engine for growth.

“To achieve extra growth, medium-sized firms must have access to new kinds of finance. This means opening UK bond markets to medium-sized businesses, encouraging use of venture capital, and making it easier for large companies to invest in medium ones, possibly in their supply chains,” he added.