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UK tech founders and science chiefs attack chancellor’s R&D tax raid

Tech founders and science chiefs have attacked plans by UK chancellor Jeremy Hunt to scale back R&D tax credits.

The tax relief on R&D is widely used by Britain’s tech and biotech start-ups, which are leading advances in emerging technologies such as quantum computing, AI and life sciences. Hunt announced cuts to R&D spending by making tax credits for small companies less generous in the Autumn Statement on Thursday.

Toby Austin, co-founder of Beauhurst, a tech consultancy, said that it was “baffling to hear the chancellor say that he wants ‘to turn Britain into the world’s next Silicon Valley’ whilst he simultaneously slashes the only meaningful tax incentive for tech start-ups”.

Austin said that tens of thousands of companies use the scheme to help fund their R&D. “It’s baked into their budgets and hiring plans. This cut will have a severe negative impact on both tech job creation and the progress of innovation.”

Max Jamilly, co-founder of Hoxton Farms, which is developing animal-free fats to use in food, recently raised more than $22mn in funding for the next stage of growth. But he said that Hunt’s decision had made his 2023 business plan “very difficult” and would mean he would need to reduce headcount by a fifth.

“We are doing exactly what the government wants in leading innovative deep tech,” Jamilly said. “But we depend heavily on the R&D tax credit scheme. To have this taken away at such short notice threatens our work, our ability to hire new staff, and our plans to grow.”

Kate Bingham, the venture capitalist who led the UK’s Covid-19 vaccine task force, said the government should reform R&D tax incentives to ensure they support cutting-edge research. “This is a very important incentive to build world leading biotech companies in the UK,” she said.

The UK’s life sciences vision, an industrial strategy set out last year, said the competitive tax environment — including R&D tax credits — were core to making the country attractive to investors in innovation. The UK faces competition from EU countries, including France and Germany, to attract life sciences and technology start ups.

Steve Bates, chief executive of the BioIndustry Association, said the Autumn Statement had injected a “heap of instability” into one of the most stable policies the UK had for supporting innovation.

Clive Dix, chief executive of biotech C4Discovery, and former deputy chair of the vaccine task force, said government was sending “mixed messages,” adding: “They want this country to become a science power and get us out of the doldrums. They want to put innovation at the centre of future economic growth. And they are taking all these small companies and hitting them where it hurts,” he said.

Government officials said the scaling back of the tax credit was designed to address concerns over fraud and misuse of the system. HMRC identified £469mn in fraud and error of claims in its 2021/22 annual report.

But Austin said to use fraud as the reasoning was “ridiculous,” adding: “If you want to tackle fraud, cutting the scheme for all participants does nothing.”

People close to the government’s thinking said that the policy could be made more flexible for firms to use. The documents accompanying the Autumn Statement, promised that the government would “work with industry to understand whether further support is necessary for R&D intensive SMEs”.

The global biotech industry has been suffering this year from the worst downturn since the 2001 crash, with companies struggling to raise money. Dix said companies will have already factored the credits into their plans and “every penny counts” for companies without revenue.

“It will be very tough for them as R&D tax credits, in a weird way, were a bit of a lifeline for small companies,” he said.

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