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Autumn Statement 2015: Rolls-Royce CEO among those concerned about R&D loans

4 min read

25 November 2015

The chief executive of Rolls-Royce is one of many business people concerned about the introduction of R&D loans, outlined in George Osborne's Autumn Statement and Spending Review.

The engineering company’s chief executive, Warren East, revealed he had been in touch with the chancellor ahead of his Spending Review and Autumn Statement to voice business concerns over cutting grants for firms’ research and development.

He said it is “bound to be a headwind on jobs at some stage, particularly if there is a positive impact [from R&D grants] from other parts of the world”.

Now there has been confirmation of plans to introduce new finance products to support companies, replacing some existing grants from UK innovation agency Innovate UK. The government said the loans will reach £165m per year by 2019-2020, maintaining the total Innovate UK support in cash terms, but many businesses have voiced concerns about the changes.

The department for business had been under pressure to find 20 per cent of savings in its £18bn budget and with £500m worth of grants distributed by Innovate UK, this area looked like a potential target. The announcement will see grants turned into loans, moving the costs off the government’s balance sheet and onto those of the recipient firms in the form of debt finance.

East told the BBC that much of the money granted for his company for example, goes straight to fund university research and just isn’t a good target for loan repayments.

Rolls-Royce also pointed out that the government’s direct grant investment is substantially boosted by the businesses which receive the money.

“For every £1 from the government into industry, we add £17 of investment in research and development, capital expenditure and training,” East explained. “It is a good channel for them.”

Grants provided support the development of intellectual property, as well as the maintenance of a skilled engineering base. Without them, East is worried the skills will “leach away”.

Read more on the Autumn Statement 2015:

Caroline Elston-Giroud, European grants manager at Alma Consulting Group also warned that the development “threatens to strangle the significant role R&D can play in helping cutting-edge businesses improve productivity and gain competitive advantage”.

She said the introduction of these loans “throws up all sorts of ramifications and, as always, the devil will be in the detail”. SMEs will want to know whether the new R&D reform will make it even more complex and time-consuming for them to manage.

As it currently stands, if SMEs receive grants, it removes the special SME rate to the less favourable large company rate – smaller firms will want to know if this will still be the case.

While there was concern voiced among the SME community, Karl Barnfather, chairman of intellectual property firm, Withers & Rogers, thought there was enough in Osborne’s announcements for businesses to feel positive about. He pointed to the increase in funding for Catapult Centres and the planned reduction in corporation tax as particular benefits.

“The protection of vital sources of funding vital sources of funding for the UK’s business community will support ongoing investment in R&D to ensure this country remains in a strong global position,” Barnfather said.