MHA | What might R&D look like under a Labour Government?
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What might R&D look like under a Labour Government?

Scott London-Hill · Posted on: July 5th 2024 · read

Now we find ourselves with a new government in place, businesses are able to look at what changes a new government will likely bring. Whilst the Conservative Party stymied R&D Tax Credits in recent years through a reduction in benefit rates, the Labour Party has proposed significant changes that could reshape the landscape of innovation and scientific progress in the UK.

What changes will be made to the R&D scheme?

Whilst the R&D scheme isn’t specifically mentioned in the party manifesto, Labour confirmed in a press release ‘Business Partnership for Growth’ that R&D tax credits will remain ‘stable’, which will come as a relief to business after recent upheaval.

Labour will also evaluate the impact of the scheme on a sector-by-sector basis, starting with the Life Sciences industry. This could lead to enhanced rates for particular sectors, however it remains to be seen how this could work in practice given the amount of overlap between different specialisms.

The party have also pledged to maintain Patent Box, which is crucial for supporting the creation and commercialisation of IP.

The manifesto also brings potentially significant and ambitious changes which could help stimulate the wider ecosystem.

How will funding change, and will this lead to growth?

Labour's R&D policy focusses on the promise of ten-year budgets for key public research and development organisations in:

  • Aerospace
  • AI
  • Automotive
  • Defence
  • Energy
  • Life Sciences

This long-term approach aims to provide stability to enable more ambitious, far-reaching projects. The link between public and private R&D funding is clear with Oxford Economics estimating that ‘each £1 of public R&D stimulates between £0.41 and £0.74 of private R&D within the same year. In the long run, the same £1 of public R&D eventually stimulates between £1.96 and £2.34 of private R&D (inclusive of the impact in the first year).’ It is therefore clear to see how enhanced long-term budgets can foster economic growth.

This strategy not only seeks to bolster R&D capabilities but also seeks to address the party's broader goal of redistributing wealth and expertise throughout the UK. Organisations that could benefit include the Manufacturing Technology Centre in Coventry and the Advanced Manufacturing Research Centre, which has locations in Sheffield, Lancashire, and North Wales. By investing in centres outside of traditional hubs, Labour hopes to stimulate economic growth and innovation across a wider geographic area.

What is being done to assist University Spin Outs?

Plans also include creating a more efficient funding process to increase the number of successful university spinouts, which have been targeted as a driving force behind innovation and the wider economy. The party proposes a funding structure designed to help more of these spinouts scale up effectively, something the UK has historically been poor at. The hopes are this could lead to a more dynamic and productive relationship between academia and industry.

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Labour confirmed in a press release ‘Business Partnership for Growth’ that R&D tax credits will remain ‘stable’, which will come as a relief to business after recent upheaval.

Scott London-Hill  Tax Manager
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Does Industry support these changes?

Organisations such as the Campaign for Science and Engineering (CaSE) and the King's Fund have expressed cautious optimism regarding Labour's plans, particularly in relation to the Life Sciences sector which has seen a decline in the UK, with its global trade balance ranking declining from 4th in 2010 to 98th in 2020.

Global ranking by trade balance in pharmaceutical products

2010

RankCountryUS$bn
1
Switzerland
27.9
2
Ireland
26.9
3
Germany
18.6
4
United Kingdom
9.7
5
France
8.5
6
Denmark
5.1
7
Irasel
5.0
8
India
4.9
9
Belgium
4.8
10
Sweden
4.5
11
Singapore
3.4



162 of 162*
USA
-21.2
2020


Rank
Country
US$bn
1

Ireland

56.4
2
Switerzewrland
49.4
3
Germany
32.1
4
India
15.9
5
Denmark
13.8
6
Netherlands
12.7
7
France
9.1
8
Belgium
8.9
9
Itlay
7.5
10
Sweden
6.3
11
Singapore
5.3



98
United Kingdom
-1.2



133 of 133*
USA
-85.6

There is hope that the funding changes outlined above, together with a sector-by-sector approach, can create a more nuanced and targeted approach to supporting high-growth, and high-value sectors such as life sciences. This is echoed by Sarah Woolnough, chief executive of The King’s Fund, who called the plan an ‘ambitious and welcome vision’.

In conclusion

While Labour's proposals have generated interest within the scientific community, it will be interesting to see whether these ambitious plans, particularly given the funding required, are able to be delivered.

While Labour's proposals have generated interest within the scientific community, questions remain about the party's ability to deliver on these ambitious plans, particularly given the funding required.

Scott London-Hill  Tax Manager