CBI urges government not to cut R&D tax credits

Lambert: Government must go further on tax credits

UK companies doubled their savings on research and development (R&D) between 2005 and 2008 under the government's tax credit scheme, according to the CBI.

And Whitehall must resist the temptation to ditch the scheme in a recession where it is most needed, the employers' group said.

Richard Lambert, the CBI's director-general, said that the government must commit to retaining the R&D tax credit.

"It should also go further by building on its success, extending the rate and range of credit, enabling more companies to apply and covering more of their associated overheads," he said.

The tax credit is now an important factor for companies when deciding where to base R&D operations, and has improved the attractiveness of the UK as a destination for high value investment and jobs, the CBI found.

Investing in innovation is even more important in a recession and will help firms improve their businesses after the gloom lifts.

The benefits of R&D also take time to materialise, so the CBI is urging government to think long-term, keep the incentive and continue improving it for the benefit of the whole economy.

All of the UK's major competitor countries have a tax credits scheme, and the CBI is worried that the UK will lose business abroad if the programme is scrapped.

Half of 70 businesses surveyed told the CBI that the credit directly helps them keep R&D in the UK.

Tom Wills-Sandford, from IT industry trade body Intellect, said that the credits have particularly benefited the technology sector.

"It is very encouraging that the UK's R&D scheme is coming of age and delivering improved results, particularly for small businesses," he said.

"In the technology sector, we have been delighted to see the change in culture at HM Revenue & Customs."