Finance Bill

Baroness Bull Excerpts

2nd reading & Committee negatived & 3rd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Friday 17th July 2020 Lords Chamber

[Baroness Bull (CB)]

My Lords, recognising the vastly changed landscape in which we discuss this Bill, I want to focus on the measures related to research and development and their potential to support the UK’s economic recovery. The extra tax relief is welcome, as is the annual increase in government spend on R&D to £22 billion by 2024—an additional £1.5 billion per year. It is not yet clear whether this will be distributed through existing or new structures, and perhaps the Minister can shed some light on that, but it is a strong acknowledgment of R&D’s importance to the economy and to post-Covid recovery.

The £22 billion is part of a broader commitment to raise UK investment in R&D to 2.4% of GDP by 2027. Most R&D comes from the private sector in roughly a 2:1 ratio, but we know that

“British business invests less in R&D compared to similar nations, and this investment is concentrated in major players in just a few sectors.”


Therefore, can the Minister say what the Government will do to persuade businesses, both UK and overseas-owned, to spend the extra £18 billion a year on R&D in the UK that would be required to meet their target?

One area in which the Government might consider measures to increase R&D is in the creative industries. Creative businesses undertake almost as much R&D as manufacturing but, as much of it relies on arts, humanities and social sciences research, it is explicitly excluded from HMRC definitions and therefore from R&D tax relief. This rules out legitimate innovation in what has for some time been one of the fastest-growing parts of the UK economy, but it misses the opportunity to build behavioural insights into technological innovations, which would increase the likelihood of wider adoption.

Thus far the UK has been

“bound by the Frascati convention of the OECD definition”

of R&D,

“which is tilted primarily towards technology and science”.—[Official Report, 8/1/20; col. 181.]

The noble Lord, Lord Duncan of Springbank, who is now on the Woolsack, might recognise his own words there from the Dispatch Box on 8 January, in what feels like a very different lifetime. However, as we are leaving the EU, might the Minister press the Government to consider the possibility of the UK adopting its own, wider definition of R&D? This would help in moving towards the Government’s targets and, at the same time, support the post-Covid recovery of a sector that, over recent years, has contributed almost £102 billion annually in GVA.

I want to make one brief additional point as a supporter of the Government’s commitment to levelling up. Clearly, there is a pressing need to invest in areas left behind as our industrial landscape changes, but there are deep inequalities within our cities too—inequalities starkly exposed by this pandemic. Levelling up cannot just mean equalising between north and south; it must also address inequalities within cities, including those seen as affluent, such as London, where poverty rates in some inner-city boroughs are 10 percentage points higher than in many parts of the UK. If we do not tackle the inequalities within our cities at the same time as tackling the inequalities between the regions of the UK, unleashing the nation’s potential will never be anything more than a campaign slogan.