The UK’s economy is likely to suffer the worst damage from the Covid-19 crisis of any country in the developed world, with GDP projected to have fallen by more than 20% in the second quarter of 2020. With the UK now in a recession for the second time in living memory, it’s essential the Government’s efforts are focused on the regeneration of the economy. By Luke Hamm, CEO of GovGrant
We already know innovation drives economic growth. But what drives innovation, and how can we help businesses to keep striving towards it? Research and Development (R&D) allows businesses and industries and to develop new knowledge, techniques and technologies, which lead to increased productivity. As productivity grows, so does the economy.
No time like the present
Investment in R&D remains vital in shaping how businesses will fare beyond the crisis. Implementing and managing these activities has invaluable advantages including additional revenue streams, increased market participation, product differentiation – the list is endless.
But it goes further than that. R&D is essential in aiding a sustainable and inclusive recovery countrywide, while boosting the resilience of our industrial sectors, the competitiveness of our economies and the transformation of our socio-economic systems. The recent R&D roadmap published by the Department for Business, Energy and Industrial Strategy (BEIS) highlights the fact that the long term payback goes beyond the initial R&D. If the UK invested 2.4% of GDP into R&D, that investment would create an additional £180bn of GDP and almost 1m new jobs by 2040.
As we emerge from a post-Covid world, support for sectors such as advanced manufacturing and technology will become key, as these are naturally rich producers of valuable intellectual property (IP) and innovation which will create sustainable growth and even more jobs for the future.
Coronavirus has been top of the news agenda since the virus broke, side-lining the ongoing Brexit issue. But we cannot ignore the fact businesses need to be well prepared and supported as we adjust
to the new ‘norm’. Encouraging investment in the UK through production and innovation on UK shores will remain vital in how organisations fare as we part from the EU.
Given the vast benefits innovation provides, it seems logical for every organisation to implement R&D into its business model. But there are still various misconceptions around both R&D and innovation that prevent business owners from investing.
An example of this is a business believing it is too small to bother despite tax relief acting as a significant funding mechanism for innovative businesses of any size. In fact, there is a scheme specifically designed for small and medium-sized businesses to help innovation flourish at all levels of business. It allows eligible companies to reclaim up to 33% of the expenditure back.
There’s another misconception around what actually counts as R&D and innovation. The definition of R&D is much wider than some think. It’s not always about finding a cure for cancer or coming up with the next ground-breaking invention. Innovation is not only defined by huge breakthroughs in complicated research; businesses need to understand that it refers to small, incremental improvements in any process or tech that hasn’t been discovered before. So many businesses carry out innovative activities on a daily basis, but because this is their everyday ‘normal’ they’re not able to see the wood from the trees.
Solving problems, developing software or creating innovative products qualifies and R&D tax relief is designed to support organisations to do just that. Typically, SMEs are eligible to claim back up to 33% of the amount spent on qualifying R&D, with larger companies able to receive more than 10% back through Research and Development Expenditure Credit (RDEC).
From all this good work comes another asset that is one of the most valuable a company can have: intellectual property.
A key factor to businesses surviving and thriving in a post-Covid world will be a company’s ability to find and maintain its USP. For a business, protecting its intellectual property is important, as it gives the business owner the right to exclude others from making, using or selling work. However, there are misconceptions around one of the primary purposes of IP: value creation. Most people see IP as something they need to protect and defend rather than commercialise. The common perception is that IP and patents are only relevant to the largest inventors with deep pockets or as trophies on the
wall of a university lab. This perception is in need of an overhaul as most R&D will create some residual IP value. To a business, an IP right should be driven by how they can improve margin, sell more or engage better with potential clients.
For the companies who can secure a patent, there is a further government reward through Patent Box that allows a long-term reduction in the businesses corporation tax down to 10%. This tax reduction has the potential to easily outweigh the cost of obtaining a UK patent and could generate a substantial cash injection to a business.
A call to action
Back in March, it was extremely encouraging to see Chancellor Rishi Sunak pledge to more than double Government spending on UK R&D by 2024, promising an increase of 15% for next year with further increases in successive years. The pledge means that the government may exceed its target of boosting the proportion of private and public R&D spend from 1.7% to 2.4% by 2027.
With an increased awareness around the value R&D and innovation offers, reflected in government support schemes, we must view the Covid-19 outbreak as an opportunity to make a real difference and transform the economy. With the backing of the government, now is the time to take action. It’s understandable that R&D activity has slowed down over the last few months as businesses focus efforts on preserving cashflow, jobs and maintaining current operations, but as we gradually ease out of lockdown and back to some form of normality, investment in R&D and innovation should be high on the agenda.
Innovation has had a profound impact on economic growth throughout history, transforming economies and changing the way we live forever. So why stop now? Whether your business is big or small, complex or simple, single or multi-site, R&D is something for all businesses to consider.