Recent press reports suggest that the Chancellor of the Exchequer, Jeremy Hunt, aims to cut the tax incentives for small businesses who invest in research and development (R&D). For a Government that talks big about creating a globally competitive scientific and technological Britain, it would seem a perverse move.
Reducing incentives to R&D sends a signal to capital markets that the UK is ambivalent, at best, and unbothered at worst, about creating the conditions to encourage the technologies, businesses, and jobs of the future. It’s not a strategy Scotland should welcome.
R&D is of great importance to Scotland’s future economic competitiveness, its attractiveness to mobile investment and to new skills development and job creation. At graduate level, Scotland is one of the world’s best educated nations. We have the talent and R&D-led industries like renewable energy, food and drink, financial technology, computer games and satellite manufacture, that all thrive on product innovation and invention. Some of our universities are world class in areas such as life sciences, food technology, soil science, civil engineering and electronics.
According to the UK Business Department, in 2020, R&D expenditure across the UK was £61.8 billion. Of that, only £3.1bn came from Government. 71% – £44bn – came from the private sector. 54% of all R&D is spent in London and the South East. That’s hardly surprising, given the massive concentration of big companies in science and technology-led sectors.
In 2020, a report by the House of Commons Library put Scottish R&D spending at £2.8bn and average spending per head of £510.00, putting Scotland in eighth place in the UK. A mid-table placing. The country also comes in at eighth place for the number of people employed in private sector R&D, a not inconsiderable 15,000. We are doing okay north of the border, but we’re not doing great.
A 2022 study by Cambridge University found that the UK spends less than the average for countries in the Organisation for Economic Cooperation and Development, and only two UK firms were among the world’s top 100 R&D investing concerns. The Cambridge study put Scotland at the top of the UK for R&D spend in renewable energies and climate change mitigation technologies. Scotland also topped the league for the number of R&D investing businesses creating jobs and economic impact.
For Scotland, the UK Government’s R&D strategy is of marginal benefit. It favours industries that are big in the South. What Scotland needs is a R&D policy solely focused on industries where Scotland has existing strengths, and which encourages SMEs and new start businesses. That means a tax regime for big business, SMEs and new starts, closer attention to synergies from across the university and private R&D worlds, and, if not full EU membership, then membership of the Single Market and the most important European research programmes. It is impossible to see Westminster delivering such a package.
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