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Boom or bust? Brexit’s impact on innovation and R&D

Written by Mike Price on Monday, 16 September 2019. Posted in Global

Brexit is set to have a big impact on life in the UK in several ways. The nature and extent of this, however, is impossible to predict.

Boom or bust? Brexit’s impact on innovation and R&D

Brexit is set to have a big impact on life in the UK in several ways. The nature and extent of this, however, is impossible to predict. Regarding research and innovation, on the surface not much should change. The R&D Tax Credit Scheme is a government initiative and while it is subject to European Union rules, HMRC provides the funding, so the amount of money available for creative pursuits should not be affected.

On the other hand, the entire business landscape for UK companies will likely be altered by Brexit, and these wider changes may indirectly affect the state of play for those looking to innovate.

Here, innovation funding specialists MPA Group, who are exhibiting at Advanced Engineering 2019, look at the implications of Brexit on innovation and R&D in the UK, and whether the current political uncertainty will actually lead to a more prosperous business environment.

International collaboration

International funding for UK research has fallen in recent years, from £5.6 billion in 2014 to £5 billion in 2017, but it still comprises 14% of all investment in innovation. It is not just the financial connection to Europe that UK companies will have to cope without after Brexit, but the level of continental collaboration currently active at research centres and universities across the country.

UK industry and innovation is revered internationally, with our institutions producing world-leading work across every sector. Such breakthroughs are only possible due to being able to bring 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. Brexit may make it more difficult for businesses to recruit staff from overseas moving forward 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, which could make it difficult for companies to keep hiring skilled international research assistants and graduates as salaries for these jobs are generally below this figure.

Britain’s booming tech industry has given the country the potential to lead the way in growing the IT sector and many others. 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 be a lack of IT talent available to match rising demand. The average age of the IT workforce is going up, and Britain’s education system is not producing an adequate number of skilled workers to replace these employees once they retire. Brexit will exacerbate this, with the restriction on access to talented EU-workers. To continue this development, businesses need IT workers with the skills to deploy the latest technology, but they may struggle to access this talent pool.

Barriers of this nature may force businesses to seek alternative ventures abroad. Even British companies might start to launch their innovative operations overseas, targeting countries which have both simpler immigration policies and good R&D incentives, allowing multi-national teams to work without obstacles. Asian nations might be among those that benefit, with China and South Korea both potential suitors. In recent years, South Korea has invested more than most in R&D and UK businesses could cash in on the country’s commitment to progress.

Funding freedom

The latest figures from the Office for National Statistics state that 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.

Despite an average of £527 being spent on each person in the UK, the spending is somewhat restricted by EU regulations. Due to being classed as ‘state aid’ by the EU, there is currently a limit on how many R&D tax credits the government can hand out to companies. 

This cap will be removed once the UK leaves the union, opening the door to higher value handouts and less strict qualification criteria. SMEs would welcome this move across the country and this would signal to the world that the UK is investing in 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.

The anxiety about the impact of Brexit on British industry is widespread 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 large political change.

There is the real possibility of more funding becoming available for such action, with the government potentially looking to reallocate some of the money they currently send across to Brussels.

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.

Uncertain fortunes

No one truly knows how the UK leaving the EU will impact on homegrown innovation. While some relevant policies won’t change, such as the general R&D claim process, there are wider-reaching implications which could affect British researchers. 

The UK’s excellent reputation for innovation could prove significant. If our economy suffers as a result of Brexit, the value of the pound against other currencies will drop. As such, global businesses may see British companies as attractive investments, as their quality services and projects will suddenly be available for less. This could potentially fill the void left by current EU funding as a result.

R&D tax credits and Patent Box relief will play a crucial role in establishing the UK as a creative force post-Brexit. The importance of this domestic HMRC initiative will be amplified significantly once EU funding for projects is withdrawn, potentially causing a rapid upturn 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.

 

About the Author

Mike Price

Mike Price

Mike Price founded MPA Group in 2007, tailoring the business to support the UK’s innovators and entrepreneurs. MPA Group is a tax specialist company which advises innovative UK businesses on how to fully benefit from government funding schemes like Patent Box or R&D tax credits

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