HISTORIC PRESS RELEASE : Defining Innovation – Government launches R&D Consultation [July 2003]

The press release issued by HM Treasury on 10 July 2003.

A consultation on improving the definition of research and development (R&D) for tax credit purposes was published today by Chancellor Gordon Brown. ‘Defining Innovation’ will ensure that the definition is up to date,  technologically consistent and internationally competitive.

Chancellor Gordon Brown said:

“The Government introduced R&D tax credits in recognition of the importance of innovation for driving up the UK’s productivity.  They have been welcomed by businesses because they provide a real incentive for additional R&D spending. We now intend to build on the success of R&D tax credits by ensuring that the definition of R&D provides businesses with the clarity and certainty they need.”

Patricia Hewitt, Secretary of State for Trade and Industry said:

“R&D is vital to firms’ survival and growth. Innovations in production processes and the development of new or improved products and services can cut costs, improve quality and win orders. R&D tax credits have a key role to play and it is essential that companies understand which activities will qualify, so that they can more effectively plan their investment in R&D.”

Since the R&D tax credits were introduced – in 2000 for small and medium-sized companies and 2002 for large companies – the Government has worked closely with businesses and their representatives to make sure the operation of the tax credits scheme is as straightforward as possible. An improved definition of R&D will help companies understand the likely benefit of the credit at an early stage in their R&D planning their R&D activities, giving them greater investment certainty.

‘Defining Innovation’ consults on:

• rewriting the current definition of R&D for tax purposes, published by the DTI, so as to provide greater clarity and certainty for companies;
• exploring areas where the definition might be extended, such as design, to take account of the full range of innovative activities carried on by companies; and
• providing greater certainty over what constitutes ‘consumable stores’ for tax credit purposes; the extension of the credits to include expenditure on licences for advanced software; and the definition of  ‘qualifying bodies’ (to which large companies can subcontract R&D).

The R&D tax credit is an integral part of the Government’s strategy to improve productivity growth in the UK. The consultation on the definition of R&D will complement broader policy development to support innovation and growth by UK business, including the Lambert Review on business-university collaboration, and the DTI Innovation Review. These will both report by the autumn.

Through the R&D tax credit and other policy measures, the Government can help create a supportive framework for business. But it can only deliver its innovation goals for the UK by working with businesses investing in research, technology and the skills needed to generate productivity gains. To raise the profile of R&D skills and careers and provide a link between policy initiatives, such as the R&D tax credit, and business, the Government will support the creation of an R&D Employers Forum by this autumn, as recommended by Sir Gareth Roberts in his 2002 review of science, engineering and technology skills.