Clause 26
Finance Bill
3:00 pm
Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)
In answer to the hon. Gentleman’s final point, as with clause 25 and schedule 9, clause 26 is concerned with ensuring that the SME R and D tax credit and vaccine research relief continue to meet the requirements of the European framework for state aid for research, development and innovation. The clause introduces a cap on the amount of aid that companies can claim under the SME R and D tax credit and VRR schemes in respect of any one R and D project. That is because the EU’s framework requires that aid of more than €7.5 million needs to be notified to the Commission separately and the incentive effect of the aid shown. The Government believe that that would place a significant administrative burden on businesses and seriously reduce their certainty. If the incentive could not be demonstrated, all the aid would be disallowed, not just the aid over €7.5 million.
A cap, which applies to each project, is administratively less burdensome and gives more certainly to claimants where their project is not close to reaching that level of aid. We do not think that the changes will affect many of the 5,000 companies that claim each year for the reliefs. An alternative to introducing the cap would have been to require companies claiming more than €7.5 million in aid in respect of a particular project to individually notify that aid and its effect on their R and D expenditure to the European Commission. I am sure that Opposition Members and, if I may dare add, perhaps even yourself, Sir Nicholas, would not have approved of that. It would have resulted in considerably less certainty and more administrative complexity for claimants. That is why we are proposing to do it in this way—precisely for the reasons that the hon. Gentleman mentioned.
No single claimant has yet come close to claiming €7.5 million. The estimate of the number of companies takes into account the extension to medium-sized companies. Companies would need to make a calculation only if they came close to that cap.
We have, of course, undertaken and published an impact assessment on that measure. The hon. Gentleman the Member for South-West Hertfordshire asked whether the measure was burdensome. I have explained that it is the most efficient way to do this. The impact assessment published with this year’s Budget estimated that the impact of the change would be an additional total cost of £12,500 per year, for all the companies affected. I am sure that the hon. Gentleman will realise that that is a small amount per firm. I hope that that answers his questions.