On Wednesday this week Philip Hammond will be announcing his first Autumn Statement as Chancellor.  It will also be Teresa May’s first as Prime Minister for the post-referendum government. 

 

Brexit and the world economy will no doubt be looming large in their minds.  It is expected that his predecessor’s forecasts for creating a surplus of more than £10 billion by 2020 will be revised down to a deficit.  If so, increasing revenue will surely be top of the agenda for Hammond. 

 

At the same time, the Government will be seeking to incentivise businesses to invest in the UK economy.  It had already been indicated that he is not going to be using the previous plan of reducing the Corporation Tax rate to 15% in response to Brexit, but instead to continue with the reduction to 17% by 2020.  May has reaffirmed the direction of the corporation tax rate, but we will see if the schedule for this changes.

 

However, May’s recent announcement has gone further:

 

"We will also review the support we give innovative firms through the tax system... because my aim is not simply for the UK to have the lowest corporate tax rate in the G20, but also one that is profoundly pro-innovation."

 

With these comments coming just days before the Autumn Statement, we expect the R&D tax reliefs to be a focal point, by which the Government aims to incentivise UK businesses to remain competitive.  One option will be to see the scheme extended either by the rates of relief increasing or the qualifying expenditure being updated.  It is also possible that a new relief will be introduced altogether.

 

Moreover, the Government are expected to pledge £2billion a year in funding for scientific R&D by 2020.  Whether there will be further fund or how these funds will be raised – when the corporation tax rate is set to be reduced –  is yet to been seen, but the announcement will slightly placate fears of an R&D funding gap following Brexit.  However, the EU previously provided £9billion a year, so there will remain a significant shortfall.

 

Clive Cookson writing for the Financial Times last week pointed out that the UK’s total R&D spending is only 1.67% of GDP, compared to the EU average of 2.03%.  The same measure places the UK behind France, Germany, Austria, Denmark, Sweden and Finland, which will provide a definitive prompt to the government that the UK must improve its R&D investment.

 

Where the direct funding for R&D is to be less than previously provided, we expect the Government to use R&D tax reliefs to bolster UK businesses’ R&D own investment to maintain the UK’s competitiveness.

 

The Autumn Statement is scheduled for 23rd November 2016.  Follow us on Twitter for relevant R&D and SME associated updates.