Clause 28

Finance (No. 2) Bill – in a Public Bill Committee at 12:15 pm on 16 May 2006.

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Relief for research and development: subjects of clinical trials

Question proposed, That the clause stand part ofthe Bill.

Photo of John Healey John Healey The Financial Secretary to the Treasury

I rise to speak to the first of the two clauses dealing with research and development tax credits simply to emphasise the point, of which Labour Members are well aware, that the tax credits are a key part of the Government’s strategy to increase business research and development. In so doing, we will boost the levels of science and innovation in the economy to help to secure long-term prosperity.

Since the scheme was introduced in 2000 for small and medium-sized enterprises, the support claimed amounts to just under £1 billion for such enterprises and almost £1.8 billion overall. Early evaluation of the scheme suggests that companies claiming R and D tax credits generally find the process quite easy and find that it is having a positive impact on their R and D spending. However, we have constantly looked at ways to improve  the package and to make it easier to apply for and more effective in its application. The amendments and changes announced in the pre-Budget report should improve the experience of companies claiming the credits. The announcement was widely welcomed, as was the fact that HMRC will set up dedicated units to specialise inR and D tax credit claims.

We also announced that the range of qualifying costs for the scheme will be expanded to include payments made to clinical trial volunteers. The clause will enact that announcement. It follows the suggestion put to us by the Association of the British Pharmaceutical Industry, which argued that the cost of paying volunteers for clinical trials is a legitimate R and D cost incurred by pharmaceutical and biotech companies and others undertaking medical research.

The clause also makes equivalent changes to vaccine research relief, which was introduced in 2002 to provide extra incentive for R and D on drugs and vaccines to treat or prevent diseases.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

At the end of last year, the then Minister for Competitiveness, the hon. Member for Brent, North (Barry Gardiner), said of the R and D tax credit:

“The truth is that it hasn't been a success. A lot of it has to do with a misunderstanding of what the R&D baselines were. We are trying to iron that out.”

While I appreciate that clause 28 will take out a wrinkle by including payments to clinical trial volunteers, does the Financial Secretary agree that the Government have some more ironing to do? I ask that question in the context of a comment by John Cridland, deputy director general of the CBI, who said:

“Companies are experiencing too much uncertainty and inconsistency in its application. That has to change if the Government is to achieve its target of R&D spending at 2.5 per cent of GDP by 2014.”

I would be interested to hear the Financial Secretary’s comments on that.

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth

I welcome you to the Chair, Mr. Benton.

Will the Financial Secretary engage in some joined-up government? I welcome what he said about the extension of relief for clinical trials, which is clearly a necessary and important move, but he will know that there are other reasons why it is difficult for companies, particularly smaller ones, to conduct such trials. Many of those are related to the European clinical trials directive. To see that the measure is enacted as effectively as he and I want it to be, it is necessary for him to speak to his colleagues in the Department of Health and to remove any administrative obstacles to the conduct of clinical trials so that advantage can be taken of the tax relief.

Photo of John Healey John Healey The Financial Secretary to the Treasury 12:30, 16 May 2006

Obviously, it is the Treasury’s role to set fiscal policy; the role of HMRC is to manage and administer that tax policy. We do so within the broader regulatory framework, for which other parts of the Government are responsible, but I shall draw the comments of the hon. Member for Rugby and  Kenilworth (Jeremy Wright) to the attention of my hon. Friends in the Department of Health.

I say to the hon. Member for Braintree (Mr. Newmark) that, as I think I indicated in my short opening remarks, at each stage of the introduction of the R and D tax credit system—first for small firms, then larger companies—we have made it clear that we want to build on the emerging success. At each stage we have said that we shall look at possible improvements, including in the administration, and have welcomed the views of businesses, including that of the CBI, and their suggestions for improving the administration of the credit and payable allowance.

That was the intention behind the package of announcements in the pre-Budget report and the setting up of specialist units in HMRC, and that is why both were welcomed. The hon. Gentleman referred to the ironing out of some of the wrinkles in the system—I am keen on ironing; clause 29 does a bit of ironing too. I hope thereforethat he will support clause 28, and clause 29 when we get to it.

Question put and agreed to.

Clause 28 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 29 ordered to stand part of the Bill.