Intelligence Briefing 11 November 2012

Published: 11/11/2011

Prime Minister announces Regional Growth Fund grants for SMEs | Trade figures | Weekly Focus – EEF launches report on R&D tax credit with SMMT | In the news | Week in review | The week ahead


Prime Minister announces Regional Growth Fund grants for SMEs

On Thursday the Prime Minister announced that £95 million from the Regional Growth Fund would be made available as grant funding to SMEs that are unable in their own right to secure financing from banks. The grant funding will be made available in conjunction with additional funding from banks with the expectation that a total of £500 million in investment will be unlocked in this way. The scheme will be administered by RBS and HSBC.

EEF is pleased the government is showing some intent on addressing the problem of access to finance, which is a particular issue for SMEs. However, the steps are small scale and the cost of finance remains an unaddressed issue that is further holding back investment already discouraged by the weak demand environment. We want to see the government make announcements at the forthcoming autumn statement that support investment and growth. Actions we are looking for on access to finance include accepting the Vickers’ Commission recommendations on improving competition in the UK banking sector; increasing alternative sources of finance (debt and equity) outside of banks; and pushing banks harder on improving the relationships they have with business customers.

For more information contact Andrew Johnson, Senior Economist

Trade figures

Trade figures released this week showed that the UK’s balance of trade widened to £9.8 billion. Despite increased exports, imports have continued to grow more quickly. Looking ahead, there is unlikely to be much improvement in trade over the next few months, as the Eurozone crisis is weighing heavily on confidence. However, there was also evidence to suggest that growth in exports to other markets has been strong, for example the UK’s exports of cars to markets outside of the EU increased by £523.1 million in September.

EEF currently has its regular Business Trends survey out in the field, which will be released in early December. We are also running a survey on the outlook for 2012, which will be out early next year. Both reports will be featured in the Intelligence Briefing after their release.

For more information contact Felicity Burch, Economist

Weekly focus

EEF launches report on R&D tax credit with SMMT

Earlier this week EEF published a report, jointly commissioned with SMMT, on reforms to the R&D tax credit. The report, prepared by PwC, has fed into a recent consultation on R&D tax credit reform from HM Treasury, which looked at a range of ways in which the credit could be made more effective. The overarching ambition is to give businesses greater certainty, by delivering the right reform and leaving the scheme unchanged for several years.

We see the incentive provided by the R&D tax credit an important tool in stimulating investment in innovation in the UK, which in turn is key to better balanced economic growth. The R&D tax credit has been a valuable addition to the UK tax system over much of the past decade, but there are limitations and as other countries have reformed their R&D tax credit regimes, so the competitiveness of the UK scheme has been eroded.

The report identified four key areas of weakness in the existing system:


A credit against cost is much more attractive than the existing relief because in deciding whether to proceed with R&D projects and where to locate them, cost is a key factor.


In large companies, the separation of finance and R&D functions means an incentive recorded in the tax charge and dealt with by finance/tax teams is less effective in influencing R&D investment decisions.


The current relief has little or no value for large companies with tax losses which account for roughly one quarter of R&D investment in the UK.


Uncertainty over the future tax profile also makes it much harder for businesses to take account of R&D relief which depends on the tax position of the company.

To address these issues, the research makes the case for moving to an ‘above the line’ credit. This would reduce the cost of R&D and make the incentive more visible to the R&D function. It would make the incentive more valuable both for those making decisions on R&D activity and providing a greater incentive for companies with tax losses and foreign multinationals. All of which would see the UK benefit from increased R&D activity.

A key ambition in the government’s plan for growth is for the UK to have the most competitive tax system in the G20. We have been pushing for HM Treasury to press ahead with the R&D tax credit reforms as part of meeting this ambition.

For more information please contact Lee Hopley, Chief Economist

In the news

A number of economic issues led the news agenda this week. We published our joint report with the SMMT calling for the reform of the R&D Tax Credit which was covered in the FT and Guardian amongst others. Our response to the latest output figures was covered in the Independent whilst we commented on a range of other stories including a ‘Made in Britain’ story on the BBC, interest rates on the BBC website, as well as an announcement of new jobs at Jaguar Land Rover. Our Chief Executive, Terry Scuoler, gave an interview to Radio 5 Live on the subject of the Prime Minister’s speech on new lending streams for SMEs.

Week in review

Index of production

The Index of Production showed that manufacturing output rose by 0.2% in the three months to September. Over the same period total production output rose by 0.4%.

UK Trade

The UK’s trade in goods deficit rose to £9.8bn in September, compared with £8.6bn in August. Goods exports rose by 0.2% while goods imports rose by 3.8%.

MPC interest rate decision

The MPC maintained the Bank Rate at 0.5% and the size of the asset purchase programme at £275 billion. The latest round of asset purchases (announced last month) will take another three months to complete.

Producer price index

In the year to October 2011 input prices for manufacturers rose by 14.1%. This was the lowest annual increase since December 2010.

Over the same period, output prices rose by 5.7%.


The week ahead

Tue 15th: Consumer Prices
Wed 16th: Labour Market Statistics; Inflation Report
Thu 17th: EEF Pay Settlements; Retail Sales

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