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UK R&D activity moves to Europe amid policy changes

R&D activity
Image credit: Gorodenkoff via Shutterstock

UK businesses are moving research and development (R&D) activity overseas in droves amid new policies that have faced backlash from the tech startup community, new research has suggested.

Some 69% of businesses said they moved R&D activity abroad last year, according to a survey conducted by British performance consultancy firm Ayming UK.

Its report found that the same amount plan to continue moving overseas to find more favourable R&D conditions in 2023.

The findings come amid a government clampdown on R&D-related tax fraud. Chancellor Jeremy Hunt announced during the Autumn Statement that eligibility for R&D tax credits — the programme that provides financial relief for companies creating new technologies in the UK — would be restricted to tackle fraudulent claims.

The move was heavily criticised by UK startups, a number of which signed an open letter to the chancellor describing the plan as a “blunt instrument” that would unnecessarily cost smaller tech firms.

Signatories of the letter included autonomous driving company Wayve, medtech firm Ochre Bio, and digital mental health startup Thymia.

According to the Ayming report, the majority of businesses (63%) included in the study moved R&D activity to EU countries, with Germany and France being the most common choices.

Startups set to lose out on R&D

Research published earlier this month found that the policy change could end up costing UK startups on average £100,000 in lost incentives.

“If the goal is to become a ‘Science Superpower’, we need to compete with the likes of the US and Germany in attracting R&D activity,” said Mark Smith, partner at Ayming UK.

“If we don’t, UK firms will continue to offshore R&D to where access to capital and talent is easiest, meaning other regions will outgrow the UK as an R&D hub.”

Njy Rios, director of R&D incentives at Ayming UK added: “The impact of this goes much deeper than losing out on funding. There are softer implications to the UK’s reputation as a research hub that will also increase the chances of businesses setting up activity on the continent instead.”

A government spokesperson told UKTN: “Our ongoing R&D tax reliefs review will ensure taxpayer’s money is spent as effectively as possible while improving the competitiveness of the Research and Development Expenditure Credit (RDEC) scheme.

“The government will work with industry over the coming months to understand whether further support is necessary for R&D intensive SMEs.”