Productivity policy
Rupert Harrison
Productivity policy
• R&D tax credits
• The National Employer Training Programme
• The Barker review of land use planning
R&D tax credits
• July 2005 consultation
• ‘Enhancing the R&D tax credit’
• PBR 2005
• Initial response and administrative changes
• Budget 2006
• Further structural enhancements?
R&D tax credits
• Largest single policy initiative aimed at increasing
private sector innovation
• SME tax credit (since 2000): £264m in 2004-05
• Large companies credit (since 2002): £440m p.a.
?
• Both allow companies to deduct more than 100% of
current R&D expenditure from taxable profits
• SME credit is more generous and includes payable
credit for firms with no taxable profits
Percentage of national income
Business Enterprise R&D spending
2.2
2
1.8
1.6
1.4
1.2
1
1981
1984 1987
USA
1990 1993
Germany
1996 1999
France
2002 2005
UK
2008 2011
UK ambition
2014
Percentage of national income
Business Enterprise R&D spending
2.2
2
1.8
1.6
1.4
1.2
1
1981
1984 1987
USA
1990 1993
Germany
1996 1999
France
2002 2005
UK
2008 2011
UK ambition
2014
Percentage of national income
Business Enterprise R&D spending
2.2
2
1.8
1.6
1.4
1.2
1
1981
1984 1987
USA
1990 1993
Germany
1996 1999
France
2002 2005
UK
2008 2011
UK ambition
2014
Changes to the SME tax credit?
•
Additional support for smaller and growing innovative
companies?
•
Options for change:
i.
Increase the SME credit rate
ii.
Raise the SME size threshold
iii. Extend the transition period from SME to large
company
iv. Introduce an additional incremental element
v.
(Provide more generous relief for first time claimants)
Changes to the SME tax credit?
•
Additional support for smaller and growing innovative
companies?
•
Options for change:
i.
Increase the SME credit rate
ii.
Raise the SME size threshold
iii. Extend the transition period from SME to large
company
iv. Introduce an additional incremental element
v.
(Provide more generous relief for first time claimants)
Changes to the SME tax credit?
•
Additional support for smaller and growing innovative
companies?
•
Options for change:
i.
Increase the SME credit rate
ii.
Raise the SME size threshold
iii. Extend the transition period from SME to large
company
iv. Introduce an additional incremental element
v.
(Provide more generous relief for first time claimants)
Changes to the SME tax credit?
•
Additional support for smaller and growing innovative
companies?
•
Options for change:
i.
Increase the SME credit rate
ii.
Raise the SME size threshold
iii. Extend the transition period from SME to large
company
iv. Introduce an additional incremental element
v.
(Provide more generous relief for first time claimants)
Changes to the SME tax credit?
•
Additional support for smaller and growing innovative
companies?
•
Options for change:
i.
Increase the SME credit rate
ii.
Raise the SME size threshold
iii. Extend the transition period from SME to large
company
iv. Introduce an additional incremental element
v.
(Provide more generous relief for first time claimants)
Changes to the SME tax credit?
•
Additional support for smaller and growing innovative
companies?
•
Options for change:
i.
Increase the SME credit rate
ii.
Raise the SME size threshold
iii. Extend the transition period from SME to large
company
iv. Introduce an additional incremental element
v.
(Provide more generous relief for first time claimants)
Changes to the SME tax credit?
•
None of the options is without potential drawbacks
•
Any change is likely to increase uncertainty and/or
complexity
•
Given the long-term nature of R&D investment
decisions, policy stability is particularly desirable
•
No change may well be the best option
Employer-Provided Training
•
PBR 2005 confirmed the launch of the National
Employer Training Programme (“Train to Gain”)
•
Training for low-skill employees:
•
•
Free training to basic skill qualification or Level 2
•
Paid time off for training during working hours
•
Employers with <50 employees get wage
compensation
£268m in 2006-07 and £437m in 2007-08
Employer-Provided Training
•
•
Why intervene in employer-provided training?
•
Transferable skills (if employees unable to pay)
•
Information failures
•
Firms (especially small ones) may be credit
constrained
•
Equity considerations
But little evidence that Level 2’s lead to higher
wages (some evidence for employer-provided)
Employer-Provided Training
•
Evaluation of first year of Employer Training Pilots
•
Small positive effect on take-up of training
•
Proportion of eligible employers providing training
increased from around 8% to around 8½%
•
Suggests 85-90% ‘deadweight’ and 10-15%
additional
•
High deadweight possibly to be expected
•
Only focused on first year effects – participation has
increased over time
Employer-Provided Training
•
•
Evidence for effectiveness in improving the UK’s
productivity performance is not very strong so far
•
Some limited evidence of positive returns to
Level 2’s
•
Evaluation of first year of Employer Training
Pilots found small effects on take-up of training
National roll-out will make it difficult to evaluate the
impact of NETP on take-up of training
Conclusions
•
R&D tax credits may provide value for money, but
impact on total R&D is likely to be relatively small
•
Effectiveness of NETP will depend on both
increasing training and returns to that training
•
The impact of both schemes on productivity is likely
to be small compared to:
•
Overall education and skill levels
•
The general investment climate
•
Other factors, e.g. regulation, competition