More government support for research and development and subsidizes investment that would have been made anyway, according to the authoritative think tank.
The Institute for Public Policy Research (IPPR) estimates that up to 80% of the tax credits for research and development (R&D) are a “dead weight”.
He said that the subsidy must be “in great part abolished, with a saving of £1.9 billion a year.
The Treasury has said that the R&D tax credits “to help British businesses innovate and grow.”
“For every £1 that goes to the rescue, up to € 2.35 investment is created.
“The latest figures show that 83% of the requests of the R&D tax credits which were from small and medium-sized businesses,” a Treasury spokesperson said.
The report comes just days before the government is expected to launch its industrial strategy.
The aim of the strategy is to increase the productivity, which has been weak for years in the UK and stimulate growth for the country as a whole.
“The government is in danger of losing sight of the point of its industrial strategy,” said Michael Jacobs, director of the IPPR Commission on Economic Justice and co-author of the report.
He said that the focus has been on sectors like cars and pharmaceutical products, where productivity is already high.
“The UK’s productivity problem is in the vast majority of common companies, in sectors such as retail, light manufacturing, tourism, hospitality and social care,” Mr Jacobs said.
The productivity can be increased by giving small and medium-sized enterprises classified as ‘good places to work employers’ 1% reduction in corporation tax.
High-quality jobs, such employers would be able to meet a “good standard” for training, compensation, benefits, work hours, career progression, participation in the decision-making process, and union representation.
The IPPR would also like to see the phasing-out of the patent box scheme, which gives businesses a lower rate of corporation tax on profits earned from patented inventions.
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It is said that in the 2014/15 financial year, 800 companies made use of the system, but 95% of the tax relief claimed went to 305 of the largest companies in the UNITED kingdom.
“The evidence suggests that none of these indirect support mechanisms through the tax system in an effective manner the expansion and diversification of the UNITED kingdom of foundation of innovation of enterprises”, the IPPR said in a discussion document.
“Both policies, mainly channel funds to large, established companies: to improve their existing advantage in the UNITED kingdom, rather than expansion of the advantage for new businesses.”
The IPPR says that the abolition of the R&D tax credits and the patent box scheme would have a saving of around € 3.6 billion a year that could be spent for projects aimed at promoting innovation in the most effective way.
It is said of a National Investment Bank should be created to invest in infrastructure, housing, business growth and innovation.
Would like more money directed by Innovate UK, the government existing agency with the task of increasing productivity and innovation.’Innovation tax’
The CBI, which represents the UK’s largest companies, agreed that Innovate UK should have more support, but not at the expense of other programs.
“Get rid of the R&D tax credits and the Patent Box, during a period of uncertainty, in fact, serve only as a fee on the italy of the innovative enterprises.
“While more can be done to get Smes [small and medium-sized enterprises] involved, most small businesses use the tax credit every year,” said Tom Thackray, CBI director for innovation.