Finance (No. 2) Bill (Third sitting)

Dan Carden Excerpts

Thursday 11th January 2018 Public Bill Committees

[Mel Stride]

As the hon. Lady knows, several announcements were made in the Budget about productivity, not least of which was the announcement about the national productivity investment fund; billions more pounds will be put in, raising its total investment level to around £30 billion. Initiatives such as the northern powerhouse and the infrastructure that will be put in place in the north and the midlands are evidence of our intent to make sure that productivity is levelled out across the country. We recognise that productivity is stronger in London, the south and the south-east, so particular attention is being placed on the midlands and the north of England.

There are two schemes for claiming R and D tax credits: the research and development expenditure credit—RDEC—scheme, and the small and medium-sized enterprise—SME—scheme. The SME scheme is more generous than the RDEC. The RDEC was introduced in 2013, featuring a new above-the-line credit. Businesses value it for several reasons, including because they can benefit from it whether or not they make a profit in the year in which they claim the credit. As R and D is often risky or pays back years after investment, this is a well targeted initiative. In 2015-16, the Government provided innovative businesses with more than £1.3 billion through the RDEC, which supported almost £16 billion of research and development.

In spring Budget 2017, it was announced that a review of the R and D environment had concluded that the UK’s R and D tax credits regime is an effective and internationally competitive element of the Government’s support for innovation. The changes made by clause 19 will provide around £170 million of additional support for innovative businesses every year from 2019-20. Increasing the rate of RDEC will make the UK even more competitive.

New clause 4 seeks to commission a review of the effect of this change on companies’ research and development spending, and of the effect of the increase on any changes to companies’ R and D spending as a result of the UK leaving the European Union. Since 2010, the amount of support that the Government have provided through R and D tax credits overall has more than doubled, reaching £2.9 billion in 2015-16.

[Dan Carden (Liverpool, Walton) (Lab)]

What research has been done on the potential loss of EU investment in scientific research funding? I understand that the review will be forthcoming, but this is a modest increase from 12% to 13%. Does the Minister think that gets anywhere near to plugging that hole?

[Mel Stride]

The hon. Gentleman raises an important issue; inevitably, as we leave the European Union there will be economic consequences in both directions. He will be aware that a motion was recently passed in the House requesting various assessments. Those have been delivered to the Exiting the European Union Committee, so I point him in that direction. If he is implying that it will all be disaster once we exit the European Union—

[Dan Carden]

indicated dissent.

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[Kirsty Blackman (Aberdeen North) (SNP)]

It is a delight to be in Committee discussing a Finance Bill again, although we seem to be discussing one every week. I hope we can move to a single fiscal event, and that we will have a single fiscal event this year, and not an extra one or two, as we have previously.

On the change to research and development expenditure credit, I completely agree with the comments about the need to encourage our companies to create good research and to develop excellent and innovative products. That need can be clearly shown by the lack of productivity growth in the UK in relatively recent years by comparison with our international comparators. Part of that is because companies have not been able to create or bring forward changes, including in how they run themselves, in order to improve productivity; and part is because the Government have been good at increasing employment, but those jobs are low paid and have low productivity. Increasing research and development is therefore a very positive thing.

As was mentioned by the hon. Member for Liverpool, Walton, the UK leaving the EU comes with an awful lot of added negatives, particularly in the area of research and development. One is to do with universities and their research. A lot of our universities do absolutely excellent research that brings forward products. A number of universities have spin-off companies that have been innovated as a result of research, and they are brilliant places for such research to be developed. A lot of that could not have happened without the level of international collaboration that has been possible. A big concern is that there could be a backward step.

Another thing is that companies will find it more difficult to export to the EU. Although the Government are clear that we will have frictionless borders, a very small number of people believe that. There will instead be more barriers to exports, whether tariff or non-tariff, so companies will struggle to find the profitability and extra cash to put money into research and development that they do now. That is a big concern for the future. Frankly, increasing research and development expenditure credit by 1% will not cut it as the fix, to make that change that we need.

My hon. Friend the Member for Glasgow Central mentioned the issue of ensuring that research and development can be monetised by companies. It is not good enough simply to create an excellent product; that excellent product or innovation needs to be brought to market and exported. Companies in my area have struggled with taking that step. They have got to the stage where they have been able to innovate, but either their intellectual property has been bought or they have not managed to get encouragement from banks to increase their capital. I appreciate what the Minister says about the patient capital review, which is a welcome step because of the funding gap. Companies being able to convert their excellent research into a product that can be sold and exported is a really positive thing.

Companies around Aberdeen in my constituency are involved in the research and development of oil and gas initiatives, particularly in the super-mature basin that we have in the North sea. We are one of the first oil and gas basins to reach the super-mature stage. We have the ability to innovate, and to do research and development that creates products that can be exported around the world when other basins come to that mature stage. It is appreciated that there is a research and development credit, but the Government need to continue to work to support businesses in making the next leap, so that they can take advantage.

[Dan Carden]

Does the hon. Lady agree that membership of the European Union has fostered a culture of research and development? We have innovation cities and other such initiatives. A 1% increase from 12% to 13% is not enough. We need the Government to show how they will innovate and work with companies to rebalance the economy from south to north when it comes to research and development and other such issues.

[Kirsty Blackman]

I agree with the hon. Gentleman. We have had many benefits from the EU, and just one of them is the level of innovation. As a result of the level of free movement that we have had, we have been able to get excellent people in to improve our research and development, and to collaborate with places overseas. Our universities, companies and hubs of expertise have been an incredible success story in recent years in terms of the research that they have been able to do. There is a brilliant hub around Edinburgh that is involved in robotics. It is hugely important to take those steps.

The Government need to ensure that they continue to foster that culture. Leaving the EU is a big problem, in terms of us not being able to bring those people here. The Government need to not only increase the research and development expenditure credit by 1%, but make changes so that the UK can be a nation that welcomes scientists and encourages them to come here and make a positive economic contribution, as they already do. We do not want to lose those people.

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[Peter Dowd]

That is an important point. As I said, it is irrelevant—academic—where someone stands on Europe or whether they were in or out, because we are moving out of the European Union. There are all sorts of debates about the customs union, the single market and all the rest of it, but the bottom line is: what will the Government do to plug that gap? Will they give the commitment that they have given to other industries, such as agriculture, to plug that gap?

[Dan Carden]

One of the reasons that there is scepticism on this side of the Committee Room is because European money has been funnelled towards cities such as Liverpool. We have seen great investment from Europe, whereas this Government have cut council budgets in Liverpool and across the north by more than 70%. Does my hon. Friend share my scepticism?

[The Chair]

We are tending towards a general debate about the European Union rather than a specific debate about the Bill. Please keep to the amendments and new clauses under discussion.

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The Government must do more to encourage and incentivise the best scientists in the world to continue to work in the UK and collaborate with UK universities and research facilities, otherwise there will be a brain drain, which will have a direct impact on the number of companies that choose to invest in research and development projects in the UK. Again, is there anything in the substance of the Minister’s proposals that will help with that? No. That is why we want a review. We need to look at this area in more detail. I imagine it will be a far bigger factor than whether the Government increase the research and development expenditure credit by one percentage point. The question of the workforce—the scientists who will undertake the research and eventually work on the projects—is very important, because without them, the UK will be a far less attractive place to invest.

[Dan Carden]

This relief means a hell of a lot, especially to some larger companies, which sometimes make hundreds of millions of pounds from it. We have seen artificial schemes designed to secure the tax relief whereby it has not been appropriately used. Would not a review also help to sort out that problem?

[Peter Dowd]

It would, and I will come to that in my final comments in relation to the speech by the hon. Member for Aberdeen North. There is a wider point, which the hon. Lady has highlighted perfectly. How much difference will raising the expenditure credit by one percentage point make to companies investing in the UK? That is the question, and we need to know the answers to it, hence the proposal for a review. I sound like a stuck record, but this issue is very important. It is only right that the Minister should come back to the House at a later stage and provide it with that information.