Clause 24
Finance Bill
2:45 pm
Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)
The 2007 Budget announced a package of reforms to the business tax system, including changes to the rate of corporation tax and the capital allowances system. As part of those reforms, the Government intended to promote innovation by increasing the generosity of enhanced tax deductions available to companies undertaking research and development that qualified for the research and development tax credits, which were introduced by the Government in 2000 for small and medium-sized enterprises and in 2002 for large companies.
That means making changes to the vaccine research relief, which allows companies to claim an additional tax relief on top of R and D tax credits. The small and medium-sized enterprises scheme and the VRR are both notified state aids and are subject to the requirements of the framework for aids for research, development and innovation. That is the combined effect of clause 24 and schedule 8.
I turn to the points that have been raised, including the more general point raised by the hon. Gentleman. We think and all the analysis shows—which I shall lay out to him as briefly as possible—that the R and D tax credits are having a positive effect on R and D spending. It is with some amusement that I listened to him waxing lyrical about the manufacturing industry, given what happened to it when his party was in power. If future manufacturing success depends on research, development and innovation, why was it that the previous Government slashed the science budget, which has now doubled under our Government? I am slightly resistant, in the friendliest possible way, to taking lessons from the Conservative party on these matters.
I am sure that the hon. Gentleman will be delighted to know that the 2005 independent survey of almost 1,000 R and D performing companies—the largest survey of its kind—showed that three quarters of companies that had claimed R and D tax credits found the process fairly or very easy. The survey found positive signs of the early impact of the scheme, bearing in mind that the legislation was introduced for large companies only three years previously, in 2002. Some 55 per cent. of the companies that had successfully claimed reported that they had been able to change the amount or type of R and D activity that they undertook as a result of claiming R and D tax credits.
Those results and the highly successful take-up of R and D tax credits to date suggest that the scheme was of sufficient value to influence R and D investment, and that is why we are expanding it. The full effects of the fiscal incentives are known to emerge only over the long term. The Institute for Fiscal Studies has said that it could be as long as 10 years, but the results have been encouraging so far, which is why we are proud of the policy. International work by the OECD has led to a general consensus about the positive relationship between R and D tax credits and the amount of R and D, and we are comfortable with that.
The hon. Gentleman made some broader points about competitiveness in taxation that, strictly speaking, are not within the scope of this part of the Bill. It is something that we are always extremely aware of, and that is why my right hon. Friend the Financial Secretary has set up a new group of people in industry to look at such issues more broadly. It is not our policy to raise R and D tax relief to fund a reduction in corporation tax, which is at an historically low level—indeed, much lower than it was in 1997. It has had a positive effect on our competitiveness.