Brexit will undoubtedly affect life in the UK in several ways. The nature and extent of its impact, however, is anyone’s guess. Regarding research and innovation, on the surface not much should change, and there may be opportunities ahead, says Mike Price of innovation funding specialists MPA Group.
According to the latest figures from the Office for National Statistics, UK spending on R&D rose by £1.6 billion in 2017 to £34.8 billion, placing it 11th in the EU for R&D expenditure as a percentage of GDP.
While such figures are impressive, with an average of £527 spent for each person in the UK, the spending is somewhat restricted by EU regulations.
But Brexit will likely alter the entire business landscape for UK companies and these wider changes may indirectly affect the state of play for those looking to innovate.
The R&D Tax Credit Scheme is a government initiative and it is subject to European Union rules. R&D tax credits are classed as ‘state aid’ by the EU and as such there are currently limits on how much the government can hand out to companies. Ultimately, however, the money is provided by HMRC, so the amount of funding available for creative pursuits should not be affected.
Once the UK leaves the union, this state aid cap is removed, opening the door to higher value handouts and less strict qualification criteria. Such a move would be welcomed by SMEs across the country and would signal to the world that the UK is strongly encouraging innovation. Plans to increase funding are already in place, with the government’s long term industrial strategy aiming to raise R&D investment to 2.4% of GDP by 2027.
There’s widespread anxiety about the impact of Brexit on British industry and the government faces significant pressure to provide a boost for the economy. Investment in innovation would be a clear statement that the country is still thriving despite the political overhaul.
With the government potentially looking to reallocate some of the money they currently send across to Brussels, there could be funds available for such action.
Regardless of the nature of the UK’s trading relationship with the EU post-Brexit, innovation is always going to be vital for businesses to stand out and thrive in competitive industry landscapes. If trade deals put UK companies at a disadvantage on the world stage, the need to be creative and forward-thinking increases tremendously.
International collaboration
While international funding for UK research has fallen in recent years,from £5.6 billion in 2014 to £5 billion in 2017, it still comprises 14% of all investment in innovation. But it’s not just the financial connection to Europe that UK companies will have to cope without after Brexit, but the level of continental collaboration currently in operation at universities and research centres across the country.
UK industry and innovation is revered across the globe, with our institutions producing world-leading work in every sector. Such breakthroughs are only possible by bringing together the best people from across both Europe and further afield. In fact, in the decade prior to the 2016 referendum, 50% of all UK research publications involved a co-author from overseas. Moving forward, Brexit may make it more difficult for businesses to recruit staff from overseas and make cross-country projects rather impractical, if not impossible. There is talk of plans to only allow immigrants who earn over £30,000 to stay in the country and this could make it difficult for bodies to continue hiring skilled international research assistants and graduates as salaries for these jobs are generally below the threshold.
Britain’s booming tech industry has given the country potential to dominate and grow in IT and many other sectors. Mark Sewell, CIO of Microsoft recruitment partner Curo Talent, explains that for the many industries developing IT infrastructure, such as in financial services, there is concern that there may not be enough IT talent available to match increased demand. The average age of the IT workforce is increasing, and Britain’s education system is not producing an adequate number of skilled workers to replace these employees once they retire. This is exacerbated by Brexit and its restriction on access to talented EU-workers. To continue this development, businesses need IT workers with the skills to deploy the latest technology, unfortunately this talent pool may become limited.
Such barriers may force businesses to seek ventures elsewhere. Even British companies might start to launch their innovative operations overseas, targeting countries which have both good R&D incentives and simpler immigration policies, allowing multi-national teams to work without obstacles. Asian nations might be among those that benefit, with China and South Korea as potential suitors. In recent years, South Korea has been one of the world’s biggest investors in R&D and UK businesses could cash in on the country’s commitment to progress.
Uncertain fortunes
As with most aspects of Brexit, no-one really knows how the UK leaving the EU will impact on homegrown innovation. While some relevant policies will remain unchanged, such as the general R&D claim process, there are wider-reaching implications which could affect British researchers.
The UK has an excellent reputation for innovation and this could prove significant. If our economy suffers as a result of Brexit, the value of the pound against other currencies will fall. As such, global businesses may see British companies as attractive investments, as their quality services and projects will suddenly be available for smaller sums. This could potentially fill the void left by current EU funding.
R&D tax credits and Patent Box relief will play a crucial role in establishing the UK as a creative force post-Brexit. Once EU funding for projects is removed, the importance of the domestic HMRC initiative will amplify tremendously, potentially causing a rapid increase in applications.
Continuing and improving the financial incentives for businesses to spend time on R&D will ensure that the country continues to be at the forefront of innovation. MPA Group’s guidance on the R&D Tax Credit Scheme and Patent Box relief will help you see whether your company qualifies for the initiative.
Mike Price is a director at MPA Group.
I accept many of the arguments defined: my constant concern (it has been the same for decades) is that scratching at the surface (a minor grant here, an extra tax break there: a concession as to the description of what is innovation and invention_ will do nothing to alter the entire landscape in which Engineers, inventors, innovators operate. Fellow bloggers know my thoughts on patents: but where is that leap-forward in the control (and command) of such to get products (I will even allow new services) out of the clutches of those who have been ‘leeches; on the jugular of innovation’ for centuries. Advance by ‘leap-and-fill’ -accept occasional c**k-ups: indeed see such as a part of the learning process itself. But until we as STEM persuade our betters (why?) that it is we alone who have the power to alter matters, the clerks (jumped-up and otherwise) will continue to weigh down the scales (to their advantage alone.
The underlying theme seems to be the failure of the UK to invest in the education and training of its citizens.
Short-term profit chasing and the lack of STEM-educated people in government are the probable causes.
11th out of 28 EU states isn’t very impressive, especially for the 5th or 6th largest economy in the world.
The UK is 11th in the EU in terms of R&D spending as a percentage of GDP. Yet the author blames EU restrictions on state aid for our under-performance. How exactly do the other 10 countries ahead of the UK manage? And if the regulations are so restrictive, what precisely have previous UK governments done to ease them?
The biggest problem with the R&D and innovation is getting the money to the right people, there are many people in government that only want to invest in the finished project, and do not appreciate the effort and time spent to get to the finished project. I have found that the time you employ and pay accountants and lawyers to assess your application for a government loan or grant, most of the money goes to them, and it becomes a nightmare navigating all the requirements and compliance of the loan or grant application. The time taken to get the grant or loan has to be speeded up, take weeks, not the usual months or years. The most important thing that needs to be understood, is Britain is not going to compete with low wage countries making the same products, it either has to lower wages and costs, or innovate and prosper, that is be the leader in the field and command a high prices for the product it produces, and so be able to pay the high wages and benefits the British worker expect.
Most EU Universities, with whom the UK must collaborate in order to gain a penny from Commission funds, are third rate at best. Secondly, the amount, and quality, of IP from Israel and Turkey alone is greater by far than the total from southern and eastern Europe combined. Thirdly, as our economy steers swiftly away from near-dead EU markets to the high growth regions of the world – the last thing we’ll need is to collaborate with the dire Universities of Crete, central France and Eire, and other no-hopers who ride on the excellence of UK contributors.
most of the money goes to them(*) : what a surprise!
I do have to flag the excellent way that Design Council grants were organised about 30 years ago: I really enjoyed working for them on a series of projects (including the new surface and shape of the Gilbert Rugby ball) because the DC were proud of the fact that there was NO application form for their grants. Now, this was not blue-sky deep-sea R&D but practical development. It worked very well! Of course, once clerks are involved,(*) their only skill is increasing the complexity of the vehicle(s) for increasing their rewards.
What I understand from various announcements is that the funding of R&D will continue but will not be for multi-EU projects. Where I can understand them, the cross EU projects seem to be of a very poor quality: levelling to the LCD rather than highest standards. In any case, the EU does not help in the selection of R&D projects : we pay for a massive operation in Brussels that allocates money to politically selected projects. Another good reason for leaving the EU in my view as collaboration is still determined more by finance than quality.