Clause 167 - Relief for research and development
Finance Bill
7:14 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
The question of whether there is a grant or tax relief would also be considered very carefully by the Treasury. The demand for a research and development tax credit came from business. There was a long period of consultation with business, Government and all interested parties. The specific point that needed to be addressed was the importance of investment in research and development in relation to productivity levels in the future of the UK economy.
On the point made by the hon. Member for Yeovil, of course there would be a certain amount of deadweight cost in such a relief, because some companies were already undertaking research and development, but the purpose of the provision is to create more research and development and to bring investment in it up to the levels it has reached in the United States. On that basis, the operations so far, in terms of the companies taking up the research and development tax credit, have demonstrated that it is working well. It is clearly taking time to build up because companies need to take decisions and plan for what they know is going to be in the system to support them. Something like 3,000 small and medium-sized companies are now applying for tax credits, to the value of some £150 million. We definitely and desperately need to invest in that sector and see it grow.
One reason why we revisited this issue for small and medium-sized companiesthe purpose of the clausewas my concern that some of those businesses that perhaps have a small expenditure on research and development at the moment have been excluded from the provisions. Although the sum involved might seem small in terms of the greater scheme, it is an important sum to those companies.
The arrangements in the clause are designed to ensure that those micro-companies currently doing a small amount of work on research and development are not excluded. They were excluded from the previous scheme in the interests of simplicity, but in the interests of fairness and to encourage investment in the economy, they should not be excluded. That brings
us back to the trade between simplicity on the one hand and fairness and the original aims on the other.
The hon. Member for Arundel and South Downs raised two specific points. The first was on paying the PAYE and national insurance liability of agency workers. As he well knows, companies are allowed to claim those payments as qualifying expenditure when they are made to intermediaries such as agencies for the provision of staff. However, such staff are not employees of the company, which will therefore not be paying any national insurance or PAYE for them, so why should we reimburse them? The potential to exploit avoidance is what the hon. Member for Yeovil might be thinking about. The position is perfectly reasonable and straightforward. That is not a cost on the company so is not deductible.
The hon. Member for Arundel and South Downs asked a question about the North sea. As he knows, the definition excludes oil exploration and appraisal. However, although it is nothing to do with this clause, the hon. Gentleman might have noticed in the Budget announcement that the Government are setting up a consultation group specifically to examine exploration and cost, particularly for small and medium-sized companies working in oil fields that are reaching the end of their lives. During the next six months, we will want that group to consider whether there are cost-effective ways of assisting that extra exploration.
I have not ventured into the amendments because I understood that we are discussing only the clause at this stage. I hope that my comments have given the Committee an idea of the Government's intentions. We are trying to ensure that at every point the tax credit can get to those who need it most, such as struggling companies that are absolutely at the beginning of research and development and need that encouragement and assistance from the Government.