Hunt’s R&D policies will damage economy, warns Tory MP
JEREMY HUNT’S misguided research and development (R&D) funding policies will harm the economy unless reversed, the chairman of the Commons science and technology committee has warned.
Greg Clark, the Tory former business secretary, told The Daily Telegraph that a mix-up in official statistics misled ministers into cutting the tax credits.
“We think that we need to reassess whether the reduction in what’s available to small and medium-sized businesses is the right thing, given what we now know about research-intensive industries,” he said.
Mr Clark added that a £46bn mix-up between the Office for National Statistics and the taxman may have misled ministers into believing R&D subsidies needed cutting to tackle fraud.
The Government has pledged to review its R&D reforms but sources said they feared the tax credit changes would become permanent.
In November’s Autumn Statement, the Chancellor slashed R&D tax credits after being told by HM Revenue and Customs that £469m had been lost to fraudulent claims.
Eligible companies can currently claim a 30pc subsidy on their R&D spending from HMRC.
Yet under Mr Hunt’s changes, only 86pc of such spending will be reimbursed by the Government. The changes come into force from April. “The Office for National Statistics had concluded there was a very large understatement in the amount of R&D done by small businesses,” said Mr Clark. Officials believed that some companies were claiming the tax credits without doing any actual R&D work.
However, a September change in the ONS’S methods resulted in £46bn being added to the economic output of companies receiving the subsidy over the last three years.
“This brings the ONS estimates closer to HMRC statistics,” the numbercrunching agency conceded at the time.
Mr Hunt told the Commons in November that the Office for Budget Responsibility did not think the subsidy cuts would have a “detrimental impact on the level of R&D investment in the economy”.
Simon Menashy, a partner at MMC Ventures, said the impact on start-ups if the tax credits were not reformed would be severe.
“We’ll see genuine pain, cutting of jobs and companies running out of funding,” he warned, claiming that R&d-intensive start-ups would move abroad as a result.
A government spokesman said: “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, as well as taking a step towards a simplified, single Rdec-like scheme for all.”