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Budget 2021: The Importance of Continued Innovation for Future Economic Growth

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2020 delivered a year like no other. The economic devastation of the COVID-19 pandemic has been felt across all sectors, imposing challenges unseen in a generation. Additionally, the continued uncertainty of Brexit has left so many companies in an indeterminate state. Both events have had the potential to stunt any business growth, forcing a fire-fighting style of management.

And now in 2021, we find ourselves digesting the strategies emerging from December’s dramatic Brexit withdrawal and somehow navigating through a continued stop-start style of working as a result of COVID restrictions, still at a point where there is no clear roadmap to normality.

Research and development: the key to success

The COVID pandemic has been a huge disruption, both personally and professionally. If we are to extract anything remotely positive, it has demonstrated the vital importance of science, development and innovation, areas in which the UK excel.

Research and development will be critical to economic and social recovery. It will provide opportunities for companies to improve and develop new processes and products that will enhance the way we work, allowing innovation to pave the route to success.

Companies who innovate are always going to be resilient in a crisis, more likely to expand into new markets during disruptions and more likely to be able to hold on to staff and grow in difficult trading conditions.

Adrian Coles, Relationship Director at Natwest Cymru, specialises in helping companies grow and believes that R&D needs to be embedded into company culture:

‘Now more than ever, a modern trailblazing leadership mindset is crucial in setting a company’s forward thinking strategy, and implementing it.  Our Future Fit: traiblazing in the fourth industrial revolution research tells us that whilst manufacturers recognise the importance of leadership, many find it difficult to dedicate the time as they are working ‘in’ the business. Leaders actions on innovation and R&D do not always measure up to their good intentions to innovate and prepare for the future – to be ‘Future Fit’.’

Chancellor’s Budget: appetite for innovation

The government has continued to vocalise their support for research and development, recognising its contribution to the growth of the UK economy.

Yesterday, the Chancellor delivered arguably one of the most highly anticipated budgets seen in a generation, with hope that it will boost the UK’s economic recovery following the COVID-19 pandemic. It provided clarification on just how big of an economic impact COVID-19 has had and demonstrated the Government’s appetite to deliver a strong fiscal response, indicating that innovation remains an important factor of future growth plans.

This builds on the announcements made in the 2020 budget, when the Chancellor revealed a record increase in public investment in R&D, committing to reaching £22bn per year by 2024/25. This vision is supported by a variety of actions to help companies achieve their R&D activities, including:

  • Introducing a new R&D People and Culture Strategy in a bid to attract, retain and develop talented, diverse professionals UK wide.
  • Publication of a new subsidy aid regime which identifies innovative industries as a key area.
  • Reviewing the R&D tax credit relief to ensure that it encourages innovation.
  • Supporting entrepreneurs and start-ups by increasing the flow of capital into firms carrying out R&D, enabling them to scale up.

Matthew Jones, managing director at LimestoneGrey, commented:

‘The UK has earned a strong reputation as contributors to research and development with the aim of advancing technology and science. R&D tax credits is vital for stimulating research and development, with past studies showing that if you increase the generosity of the relief, R&D spending rises.

It is essential that the UK’s R&D tax credit relief system is globally competitive. The UK’s departure from the EU will potentially remove certain restrictions, allowing the relief to become more generous and inclusive.

Although there were no specific legislative changes announced, the promise in yesterday’s budget of an R&D tax credit relief consultation is the start of ensuring that regime reflects the changing reality of R&D and remains globally competitive. This focus on R&D tax credits builds on the announcement at the 2020 Budget to increase the Research and Development Expenditure Credit (RDEC) rate and review the scope of qualifying costs for R&D tax reliefs.’