Question proposed, That the clause stand part of the Bill.

Clause 30 makes changes to correct an anomaly in research and development tax credits legislation by ensuring that universities and charities are unable to claim the new above-the-line expenditure credit, in line with the original intention of the policy. The change will ensure that R&D tax credits remain targeted at business R&D investment. The Government remain committed to supporting university research, and in 2015-16 will provide £4.6 billion of support through science resource funding.

The above-the-line credit was introduced in 2013. It was never intended that universities and charities would be able to claim it, and they were unable to do so under the previous large company scheme. However, HMRC has now received a number of claims from charities, mostly universities. Clause 30 amends the legislation so that it meets the original policy intention.

The Government are committed to supporting university research, which is funded by higher education funding bodies and research councils. Those organisations are better targeted to the research universities undertake, and the change maintains the focus on them as routes to funding research excellence in universities.

The clause amends the qualifying conditions for the above-the-line credit so that an institution of higher education or a charity will be ineligible to make a claim in relation to any expenditure incurred on or after 1 August 2015. The measure will impact only on universities and charities currently carrying out qualifying R&D activities. It is estimated that it will affect fewer than 50 universities and charities that were claiming under the previous rules, and will protect £150 million of revenue for the Exchequer each year. The change only applies to universities and charities in the way they are prescribed by law and does not impact on spin-outs—separate commercial entities of universities that transform university research into commercial products. They are fully liable for corporation tax and were always intended to be able to claim R&D tax credits.

R&D tax credits remain an effective mechanism for supporting business investment. A recent study conducted by HMRC found that each £1 of tax forgone stimulated between £1.53 and £2.35 of additional R&D investment. The clause will ensure that R&D tax credits remain effective and targeted towards business R&D investment.

The research and development tax credit scheme has been successful. It was, of course, introduced under a Labour Government. The coalition Government’s decision in 2013 to extend research and development tax relief to large companies was welcome. Historically, probably since the turn of the last century more than 100 years ago, this country has not invested enough in research and development. That is one reason why we have poor productivity—another is Government policy, of course. That trend needs to be reversed.

When it was introduced, the R&D tax credit was not intended to apply to universities and charities; it was for commercial organisations. It is arguably a loophole, which has now been discovered. I am interested to note the Minister’s figure that the changes in clause 30 will protect £150 million per year of Exchequer revenue, which contrasts with the interesting figure he gave of £4.6 billion of government subventions for university research and development. I think that that £4.6 billion was for universities alone. Will the Minister give us some comparative figures on whether that £4.6 billion has been going up or down in the past five years and whether it is projected to go up or down in the next five years? I am not suggesting that the Minister gives us the figures for all ten years—although he is of course welcome to do so, at your discretion, Sir Roger—but it would be helpful to have the trend on that in order to put the £150 million into context.

I am pleased that these changes will not adversely affect spin-out companies—I did not expect them to, but it was a helpful clarification from the Minister—because these have had success in certain parts of the country. One thinks of Cambridge in particular, where spin off has been very helpful not only to the local economy but to the national economy and to exports. Will the Minister elucidate with some trend figures on Government support for university research and development? It might allay the fears of some in the university sector observing this debate, perhaps not in real time, who are concerned that this will be a major blow to university-sponsored research.

Will the Minister clarify one small area I am unsure of, which comes from my experience serving as Member for City of Chester? When Shell decided to close its research and technology area at Thornton in my constituency, which contains a large petrochemicals sector, it gave the Thornton research centre over to the University of Chester, which is growing in size, in stature and in academic reputation. Thornton science park has since become a very successful seedbed for growing companies as well as for academic research. My hon. Friend the Member for Wolverhampton South West talked about spin-off companies, and I am looking for clarification from the Minister on a similar issue. Some joint venture companies comprise higher education institutions, such as the University of Chester, and companies from the private sector that are engaged in research that may well bring economic development into an area or into the nation, and may lead to new technologies being developed in the area. Will the participation of a higher education institution preclude a company from receiving such grants? Is this an area on which the Government are not yet quite clear?

Again, I am grateful for the support of the hon. Member for Wolverhampton South West for the clause. I reiterate that the move towards above-the-line credit has been a success. Since 2013 it has ensured that the benefits of R&D relief are more visible and has provided greater financial and cash-flow support to companies, regardless of their corporation tax liability. The aim of the credit is the same as that of the previous large company scheme—to incentivise additional R&D investment—but it uses a completely different design. Teething problems can occur, and claims from universities and charities were not anticipated when the scheme was designed. HMRC monitors the use of reliefs to check that they are being used as intended, and occasionally it is necessary to clarify the law to support the original policy intention. This is one of those occasions.

On the question raised by the hon. Member for City of Chester about whether the change will discourage businesses from collaborating with universities and their R&D activities, no, we do not believe that it will. This change will prevent universities and charities from claiming above-the-line credit for their individual R&D. Firms are already able to claim R&D tax credits for qualifying R&D projects that are subcontracted to universities, and that will remain the case. The Government remain committed to promoting business collaboration with universities. Innovate UK schemes provide support for firms collaborating with academia. That includes catapult centres, which are a series of physical centres comprising the very best of the UK’s businesses, scientists and engineers working side by side on late-stage R&D, transforming high-potential ideas into new products and services to generate economic growth. I hope that the hon. Gentleman is reassured by that.

The hon. Member for Wolverhampton South West asked about funding for science research. Science resource funding was protected through the ring-fencing of £4.6 billion per year. The Government are committed to £1.12 billion per year on capital spend until 2021, rising with inflation. I hope that that provides some reassurance to the Committee. With those points, I hope that the clause can stand part of the Bill.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.