Tech industry cheers government's R&D progress

Gordon Brown's pre-budget report has been awarded a couple of gold stars by UK IT organisations, but there's more work to be done

The IT industry has reacted warmly to Gordon Brown's promise to make Britain the world's best place to carry out research and development.

In his latest pre-budget report, delivered on Thursday afternoon, the chancellor vowed to re-examine the R&D tax credit for medium-sized science-based firms. He also announced the formation of a body called the Science Forum which will keep track of business R&D spending.

"To succeed in the global economy Britain should build on our strengths -- our stability, global reach, scientific genius and world-class universities -- with a concerted national mission to invest long term and establish world leadership in science, education and skills, and enterprise," Brown declared.

This isn't the first time that Brown has turned to these tax credits -- which allow companies to claim back some of the cost of their R&D work against their tax bill -- to drive the UK's science and technology sectors. In December 2003 he announced he was simplifying the rules.

UK IT trade body Intellect has long been lobbying for changes to the rules on R&D. It welcomed the promise of a review, but warned that most companies today aren't able to claim back more than a few percent of the cost of their R&D projects.

"Until the effective rate has moved out of the 'noise level' for all firms, and closer to the international average of 10 percent, there will never be sufficient incentive for UK-based companies to grow their share of worldwide R&D," said Tom Wills-Sandford, director of campaigns at Intellect.

"In addition their ability to produce the innovative products and services that they need to compete in the global economy will diminish and the UK economy will suffer as a result," Wills-Sandford added.

The Professional Contractors Group (PCG), which represents freelance workers, welcomed the chancellor's commitment to world leadership in science and technology. It also took the opportunity to hit out again at the controversial IR35 tax rule, under which contractors can be taxed at a higher rate if the Inland Revenue believes they are acting as full-time employees.

"We are disappointed that the chancellor did not mention the one in seven workers in the UK who are freelance, and who are at the forefront of this dissemination [of science and technology]," said PCG chairman Dr Simon Juden.

"Those of them who are caught by IR35 cannot even claim against their tax the training required to retain cutting-edge skills – unlike the consultancies with which they compete. We believe that there should be tax breaks for businesses of all sizes that retain employees and train them in new skills," Juden added.

Brown also said on Thursday that he would remove tax barriers to the formation of "university spin-off companies", which is intended to make it easier for academic institutions to commercialise their best research.

This has been welcomed by the Institute of Electrical Engineers (IEE). The present rules mean that an academic can be forced to pay tax on their share of a start-up, even if they have never earned any money from the holding.

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