‘Turbo charging’ the current R&D tax credit could help the UK to meet its investment target, according to a new report by the CBI, which also says that — at the current pace of investment — the UK will miss its 2027 target for R&D spending to rise to 2.4% of GDP by £19 billion.

In ‘Untapped Investment’, the CBI says: “Ensuring that the R&D tax credit keeps pace with the changing nature of R&D and our international competitors will help spur private-sector investment to close this gap.

“Business investment in R&D is helping to tackle the biggest issues of our generation, from climate change to the future of transport.”

The CBI adds that the tax credit has already proved to be effective in spurring private investment.

“In 2016/2017, R&D tax incentives cost the Government £3.4 billion to achieve a return of £24.9 billion of expenditure, more than seven-times the cost to the Government.

However, the R&D landscape is changing, from increasingly using data and analytics to out-sourcing R&D activity to companies with specialist skills.

"At the same time, it involves significant up-front capital costs that can deter investment from taking place.

As the country prepares to leave the EU, against the backdrop of slowing global growth and declining business investment, it has never been more pressing to help firms to innovate and get the UK economy firing on all cylinders.”

If the UK is to reach its 2.4% target, the CBI is calling on the Government to widen the scope of eligibility for the R&D tax credit to include: capital expenditure; data-driven innovation; the out-sourcing of R&D activities, where this is not already captured; the up-skilling and retraining of staff; reviewing the availability of data on private sector R&D investment to help monitor and evaluate the effectiveness of Government R&D policy; and regularly benchmarking the R&D tax regime against international peers to ensure the UK remains competitive.

Annie Gascoyne, CBI director of economic policy (www.cbi.org.uk), said: “The UK’s productivity has been severely lagging behind its international peers for the past 10 years.

With productivity proven to have a knock-on effect on pay and living standards, boosting it cannot be ‘put on the back burner’ any longer. Part of the answer is to kick-start business investment, and one area of untapped investment is R&D.

"For many businesses, the significant upfront capital costs are stopping them from investing more in R&D. Pound for pound, the R&D tax credit drives more investment by business than it costs the Government.

“The tax credit could be the motor to propel the economy forward, but only if it keeps pace with the changing nature of R&D, so it must widen in scope, if the UK is to remain a leader in innovation.”