Incentivising innovation

Think tank: Onward

Author(s): Matthew Burnett

November 14, 2022

This report from UK think tank Onward looks at why R&D tax credits matter, and how to improve them.

R&D tax incentives have been a vital tool in driving business R&D spending. In part thanks to the incentives regime, the UK has reached its target for R&D spending (2.4% of GDP by 2027) eight years early. And research suggests the productivity spillovers from business R&D are likely to materialise in the near future. Business investment in R&D is essential if the country is to pull itself out of its current economic slump. But recent investigations into R&D tax incentives schemes highlight the rising costs of the schemes, bloated by fraudulent claims. Out-of-date mechanisms, poorly supported capital expenditure and a lack of transparency are hampering the effectiveness of the schemes in a global environment that is increasingly competitive in attracting business investment. In this research note we outline where the current R&D incentives regime is failing, and how it can be reformed in order to more effectively incentivise R&D investment, while reducing the fraud and inefficiencies that currently plague the schemes.