UK seeing exodus of R&D activity

By Dom Walbanke on Growth Business – Your gateway to entrepreneurial success

UK firms are moving R&D activity abroad, according to research from business performance consultancy Ayming UK.  

Ayming’s UK Innovation Barometer revealed 69 per cent of businesses have moved R&D activity abroad in the last year and that 70 per cent are planning to do so in 2023.  

In total across 2022 and 2023, at least 63 per cent of UK businesses have moved R&D activity to EU countries, with Germany and France being the most popular destinations, selected by 27 per cent and 13 per cent of businesses respectively. The US, meanwhile, attracted 28 per cent of UK R&D businesses.  

The figures come after the Government voiced ambitions for the UK to become a “science superpower”. However, 94 per cent of life sciences businesses have moved activity overseas in the last year, with over half of these to Germany. 

Mark Smith, a partner at Ayming UK, said: “If the goal is to become a ‘science superpower’, we need to compete with the likes of the US and Germany in attracting R&D activity.  

“If we don’t, UK firms will continue to offshore R&D to where access to capital and talent is easiest, meaning other regions will outgrow the UK as an R&D hub.” 

Among a range of factors, firms are most likely to have been drawn to other markets by funding opportunities and more favourable R&D tax credit schemes.  

Revamping R&D tax credits 

The Government recently revealed plans to revamp R&D tax credits for small businesses.  

Last November Chancellor Jeremy Hunt announced a plan to push R&D incentives towards larger companies in his autumn statement.  

The Research and Development Expenditure Credit (RDEC) rate for larger businesses increased by 7 per cent while the small and medium-sized enterprises’ additional deduction decreased from 130 per cent to 86 per cent.  

As things stand, R&D tax credits for small businesses are set to be less generous from April. 

However, earlier this month, the Government published a consultation document acknowledging it may have gone too far and there was “merit to the case for further support” to small and medium-sized businesses.  

Small businesses spent £24bn on R&D in 2021 – 4 per cent more than they did in 2020. 

The credits are typically used by tech and biotech companies. 

Smith added: “There are a number of strong factors that need to be looked at and acted on. We have an attractive environment, but it’s clear we have to go further.  

“Above all, now is clearly not the time to be cutting back on R&D incentives, so I would urge the UK Government to strongly reconsider its cut to the SME scheme and find an alternative solution to its concerns around fraud.” 

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