Budget Resolutions and Economic Situation

Daniel Zeichner Excerpts

Monday 20th March 2023 Commons Chamber

[Daniel Zeichner (Cambridge) (Lab)]

It is a pleasure to follow the hon. Member for Newcastle-under-Lyme (Aaron Bell), although I gently remind him that it was the UK that left Horizon Europe, not the other way round.

We can, however, probably agree that innovation and science are critical to building strong and resilient national and regional economies, and our universities play a key role in fuelling that vital innovation. I could cite many examples, but I would particularly pick out the Whittle Laboratory at Cambridge, which is spearheading cutting-edge work on improving the aerothermal performance of turbomachines. Those machines are the principal technology in the world’s energy-conversion processes, and improving their efficiency is key to reducing the environmental impact of power generation and aviation.

London Economics recently calculated—it said this in a report launched on the estate this evening—that Cambridge University’s net total impact on the UK economy is a staggering £29.8 billion annually, supporting more than 86,000 jobs across the UK. A high percentage of that economic impact is generated by companies spun out from, or closely associated with, the university. That has been made possible by the university’s long-term strategy of investment in innovation and commercialisation activities over decades.

However, universities and businesses cannot do these things alone. There is a vital role for Government in creating the right environment and culture for innovation and entrepreneurialism to flourish. That includes a strategic vision, stability, sustained investment and a tax regime that incentivises innovation and knowledge creation. However, I am afraid that the Government have fallen well short on those criteria in recent years. We have had nine changes of Science Minister in five years, and 26 months of Horizon uncertainty. The UK has lost out on investment and research projects across the country. Scientists have left international projects or have been told to relocate. The Royal Society—this point was also raised in a recent review by Paul Nurse—has strongly urged the Government to deliver on their pledge to associate to Horizon Europe, as that is vital to restoring the confidence of global research talent and investors in building their futures here in the UK.

Frankly, the Government have not put their money where their mouth is. Despite repeated promises to UK scientists that funding has been set aside and ringfenced for UK research and development, £1.6 billion that was previously earmarked for Horizon Europe association, or the alternative, has been taken back by the Treasury, and the science community is deeply disappointed by that substantial loss.

As for the tax regime, we witnessed a complete botch of the R&D tax credit system only a few months ago in the autumn statement. Leading experts queued up to express their exasperation that such a backward move would hinder growth for the early-stage and research-intensive tech companies that are key to the UK’s future. According to auditor BDO, it would have meant support for loss-making companies dropping from an effective 33.4% subsidy to an 18.6% subsidy.

The Government did try to clear up the mess in last week’s Budget, but all the damage has by no means been repaired. SMEs and start-ups are still worse off than they would have been before the changes that were made in the autumn. The Government are still cutting support for R&D in start-ups and small businesses—to the tune of £2 billion over the next five years, according to one estimate.

Further, the justification for the cuts—fraud and misuse —has not been addressed, and the high bar of 40% R&D expenditure leaves thousands of small firms out of scope. Start-ups spending below the threshold would, on average, receive £100,000 less in support under the new scheme—equivalent to a 30% to 40% reduction in funding. The threshold will also penalise companies that are scaling up as they begin to spend money on more mainstream business expenses.

The funding gap between early and late-stage businesses is simply too large. The bottom line is that most start-ups will still find it much harder to claim R&D tax credits than they would have before the Government took over. In the words of Russ Shaw, CBE, founder of Global Tech Advocates, the R&D tax rebates are “short-sighted” and will “simply not suffice”.

I am afraid that this partial, half-hearted U-turn has not convinced our leading entrepreneurs and knowledge creators that the Government are serious about science and innovation or about the economic growth it stimulates. Indeed, the OBR has confirmed that the UK will be the weakest economy in the G7 this year and the only one that will see negative growth. No other G20 economy, apart from Russia, is forecast to shrink this year.

This Budget was the chance to repair some of the damage and to give us a fighting chance in the global race for advancement in science and technology. Instead, I am afraid that we have had more tinkering and short-termism. Now, more than ever, we need a Government who are firmly committed to generating a green, tech-driven recovery for the nation and to unlocking our potential as a real science and innovation superpower.