Go back

UK in bottom half of global R&D tax credit ranking

The UK’s system for research and development tax credits for small and medium-sized businesses is less generous than corresponding arrangements in 24 other countries, including India and Portugal, a worldwide ranking of national R&D tax credit rates has found.

A study of national tax subsidy ratios for SMEs places UK 25th out of 42 countries. The ranking by the US Information Technology & Innovation Foundation puts Germany, Europe’s biggest innovator, in last place and the US at number 27.

India is credited with the most generous system for small business R&D tax credits in the world, followed by Portugal and Spain.

The survey, published in July, measures the proportion of one dollar of R&D expenditure that is subsidised by tax incentives for SMEs and large firms respectively. It excludes tax incentives targeted at specific sectors, technologies, public-private collaboration and regional development.

When it comes to tax credit support for large companies, the UK is placed ninth in a table topped by India, followed by France. Again, Germany comes in last and the US comes 27nd.

TIF is a non-profit think tank based in Washington, DC, which advises government. The report, written for a US audience, calls on the United States to boost R&D tax credit availability to support innovation.

Mariana Mazzucato, professor of science and technology policy at the University of Sussex’s Science Policy Research Unit, told Research Fortnight Today that there is no real evidence that R&D tax credits create innovation that wouldn’t happen anyway.

“If you look at where companies like Pfizer and Glaxo are investing in pharma, they’re not going to places that have R&D tax credit or any sort of tax incentive, but to places where there’s huge amount of public funding,” she says. “And this is true in almost every sector: really innovative companies tend to go where you have higher technological and market opportunities. That often has nothing to do with tax credits.”

However, Mazzucato adds, tax credits could have some effect in countries like the US in which there are “huge amounts of public investment” through organisations such as the Defense Advanced Research Projects Agency and the National Institutes of Health. “The problem is that in some countries like the UK…R&D tax credits alone have no effect,” she argues.

Meanwhile, the UK government has recently closed a consultation on how to implement plans for an ‘above the line’ R&D tax credit. Under the plans, large companies can claim credit back against corporation tax instead of waiting until they are profitable.

The UK has also recently increased R&D tax credits for SMEs, meaning companies will be able to claim tax back on 125 per cent of their R&D spend rather than 100 per cent.