Brexit is on the tip of everyone’s tongue right now. “What will it mean for me?” “…For my company?”, “How will the economy do?”, “What actions will the government take?” Indeed, 73% of companies think that Brexit makes the government’s commitment to invest more in innovation even more important [Source: Igniting Innovation].
So the recent Spring Budget was watched with particularly close attention: would Philip Hammond spring any surprises on us?
When it came to innovation and R&D the answer was no, not really. Many questions remain unanswered.
We know that the government has promised an additional £4.7 billion of investment in innovation up to 2020. But we have little concrete information on how it will be spent.
In the run up to the Budget, ForrestBrown conducted a large-scale research project called Igniting Innovation. It focused on the attitudes of UK businesses to innovation in the context of Brexit and the UK’s Industrial Strategy.
One thousand senior business people from all sectors, and across the country responded. The tech sector was strongly represented, so let’s examine some of the insight that we’ve gleaned.
1) Tech companies are more bullish on UK innovation than other sectors
We asked companies how they felt the UK fared compared to the rest of Europe in terms of R&D. There was a generally positive outlook, but tech companies appear more bullish than other sectors on this. Just one in ten tech companies think we lag behind our continental neighbours, compared to two in ten of companies in the wider business community.
2) Two thirds of tech companies think the extra £4.7 billion government investment in innovation will be sufficient
Tech companies are marginally more satisfied than the wider pool of companies that the £4.7 billion boost to innovation will be sufficient. But one third of tech companies still feel that more investment is required.
We think more clarity from the chancellor could allay fears here. For instance, we have seen it reported that there will be a significant annual black hole in grant funding after Brexit. If part of this funding is allocated to plugging it, that could use up much of the additional investment in one fell swoop.
If this is the case, it’s good to know there is money there to make up the shortfall. But it would be helpful for companies to understand this, so they can see the additional investment in its true context.
3) Extra investment in innovation more likely to increase tech companies’ appetite for R&D than other sectors
There is more good news when it comes to the impact that extra innovation funding would have on tech companies. Almost 50% said it would increase their appetite for innovation compared to just 40% of companies generally.
As you may imagine, tech companies already have a high appetite for innovation – 77% rate it as essential or a high priority, compared to 64% of companies spread across all sectors.
This is great for the tech sector. But it does highlight the need for the government to do more to get the message out there about the benefits of being innovative to wider audiences, including the tax incentives and grants available. Education is certainly something we find ourselves doing at ForrestBrown – particularly R&D tax credits of course, but also other parts of the funding ecosystem
Flagship government announcements championing R&D in areas such as artificial intelligence, robotics or Fintech grab the headlines. But for the benefit of the wider economy they need to bang that drum for smaller incremental innovation too.
We have seen this referred to as “prosaic” innovation and over the long term it can have just as positive influence on the economy as big technological advances. For instance, Ikea has reportedly modified the design of its best-selling Bang mug several times. In doing so it has managed to more than double the quantity that can be loaded onto a pallet, thus halving shipping costs. It may not be box office R&D, but is nevertheless important for economic progression.
Many innovative companies, sometimes even in the tech sector, simply don’t recognise that what they are doing is research and development, and could qualify for R&D tax relief.
4) Tech companies would prioritise R&D tax credits over grant funding
We asked companies how they want to see the government prioritise the spending of additional innovation investment. There was an interesting nuance between how tech companies and other sectors would prioritise the spend on direct support. Both had grants and R&D tax credits in the top two spots, but in differing orders.
Tech companies place R&D tax credits as the top priority. This suggests they are knowledgeable about their benefit, and the positive impact that they have on a business. Indeed, the survey showed that tech companies were almost twice as likely to have used R&D tax credits as UK companies generally.
5) Tech companies are interested in seeing improved collaboration between business and researchers
Our survey revealed how tech companies would like to see indirect government support allocated.
Again, the top two priorities were the same as for the general company data but in reverse order (transport technology & infrastructure, and the UK workforce and skills). But third on the wish list was to see encouragement of greater collaboration between business and researchers. When the views of all companies are taken into account this was only ranked sixth.
Perhaps a recognition in tech companies that the UK could prosper more if the research of academics is better integrated into the commercial world.
As the home to a number of world class science hubs, it seems natural that work done in UK labs should be an important building block for private investors to start and grow new businesses. But if this needs to improve, what is holding the technology transfer back?
In our view the lack of wider commercial demand for R&D should be seen in the same context as other UK R&D challenges. For instance, smaller companies not benefitting as they should from government incentives for R&D.
If the business community at large was better aware of the government incentives available, R&D intensity might increase as an extra funding boost takes the pressure off a risky venture.
Food for thought and interestingly the Parliamentary Select Committee for Science and Technology has since published a paper that, in part, recommends supporting business R&D in collaboration with higher education institutions.
6) The UK tech sector in rude health
ForrestBrown’s Igniting Innovation survey paints a positive picture of the UK tech sector, and in fact highlights how other sectors lag behind it in terms of attitudes to innovation.
We hope to see clarification of how the extra investment in innovation in the UK will be spent in 2017’s second Budget in the Autumn, or preferably even before then. That will allow tech companies to properly plan their investment in innovation as we head towards Brexit.
Post produced in partnership with Adam Kotas, Director at ForrestBrown.
How do you think the £4.7 billion should be spent? Do you think the government’s investment in innovation will be sufficient? Let us know in the comments below.
For expert advice on ensuring you are benefitting fully from the government’s R&D tax incentive, call Adam on 0117 926 9022.