Brown offers R&D credits to narrow productivity gap

Gordon Brown restated his mission to boost UK productivity to ‘American’ levels during his pre-Budget statement on Wednesday.

Gordon Brown restated his mission to boost UK productivity to ‘American’ levels during his pre-Budget statement on Wednesday, and hinted that tax credits on research and development could become available to larger companies from next April.

As widely predicted, motorists, hauliers and pensioners were the main beneficiaries of the Chancellor’s proposals, but there were also a number of measures aimed at boosting investment and growth in UK industry.

‘Long-term prosperity depends on reaching American levels of productivity growth: removing barriers, tackling under-investment, skill deficiencies and resistance to new technology, and removing restrictive practices,’ Brown said, echoing the Treasury’s report on productivity published earlier this week.

‘Because I understand and recognise the importance of manufacturing, I will now examine for the Budget further incentives to help the manufacturing sector, in particular proposals from the Confederation of British Industry and the Engineering Employers’ Federation to extend the R&D tax credit.’

Industry is now hoping that the consultation process can be speeded up to allow the proposals to come into play by next April. In effect, they allow a company to offset a percentage of its spending on R&D against the tax liability that arises when the product eventually generates revenue.

Some observers said that the fact Brown had singled out manufacturing in his speech was a positive sign. But there were fears that he would continue to ignore calls for bigger tax allowances for investment in capital equipment,which currently stand at 40% for small businesses.

Wider application of such allowances are seen by many within industry as a means of kick-starting investment and productivity gains on a broad scale. Brown said capital allowances and tax credits had already saved business £800m since 1997, but made no mention of extending the scheme.

Other propoals included extending tax relief on share options. ‘This will help smaller, high risk companies recruit and retain the staff they need,’ he said, pledging to make Britain ‘the most attractive environment for e-commerce.