Question to the HM Treasury:

To ask the Chancellor of Exchequer, with reference to the National Semiconductor Strategy, published 19 May 2023, whether it is his policy to fully restore R&D tax credits that were reduced to incentivise research and development.

Semiconductors are an essential component for the functioning of almost every electronic device we use, as well as underpinning future technologies such as artificial intelligence, quantum and 6G. To support this vitally important sector, the Semiconductor Strategy set out how £1 billion of Government investment over the next decade will improve access to infrastructure, power more research and development and facilitate greater international cooperation.

As part of the ongoing research and development (R&D) tax reliefs review, the Government announced at Autumn Statement 2022 that the R&D tax reliefs would be reformed to ensure taxpayer’s money is spent as effectively as possible, whilst leaving the level of R&D related business investment in the economy unchanged.

The SME scheme cost twice as much as the Research and Development Expenditure Credit (RDEC), and its cash value to firm was three times that of RDEC - yet it incentivised as little as 60p of additional R&D for each £1 spent, compared to as much as £2.70 additional R&D per £1 of RDEC. Following the corporation tax rise from April 2023, the SME scheme would have become even more generous in cash terms, and RDEC less.

The Chancellor committed to considering the case for further support for R&D intensive SMEs, and at Spring Budget announced a new permanent rate of relief for the most R&D intensive loss-making SMEs. This is worth around £500 million a year and will benefit around 20,000 SMEs a year by 2027-2028.

To support modern methods of innovation, the Government is expanding the scope of qualifying expenditure for R&D tax reliefs to include data, cloud computing and pure mathematics costs. This means that businesses will be able to claim more R&D tax relief for cutting-edge R&D methods such as genome sequencing, machine learning, and data analytics.