Labour plans tax breaks for R&D

GOVERNMENT PLANS to encourage more investment in research and development through tax breaks for businesses are to be unveiled later this month, the new Paymaster General, Dawn Primarolo, said yesterday.

Speaking at a productivity roadshow at the Nissan car plant in Sunderland, she said the Government would outline specific proposals to make existing tax incentives more user-friendly, along with new tax measures to stimulate R&D in small and medium-sized firms and encourage big firms to invest in smaller enterprises.

The package of measures is part of the Government's drive to close the 30 per cent productivity gap between British industry and its German, American and French rivals.

"The Government has shown its determination to tackle the UK's productivity challenge using all the levers at its disposal, including the tax system," Ms Primarolo said. "But to do so effectively, it needs the help of business to inform the debate and design effective policies."

The Paymaster General said the Government would need to weigh up the cost-effectiveness of specific measures involving tax breaks. That would require a level-headed assessment of their impact on business innovation and enterprise.

Apart from tax incentives, the Government is also keen to foster the concept of "corporate venturing," whereby large companies invest in and form partnerships with smaller enterprises. Ms Primarolo said the Government would examine what scope there was to "kick-start" this kind of activity.

Other initiatives being taken to raise productivity include a review of the banking sector, plans to widen employee share ownership and simplification of the tax treatment of intellectual property.

The Nissan site was chosen for the fourth in a series of joint Treasury/Department of Trade and Industry productivity roadshows because it is the most efficient car plant in Europe, producing three times as many vehicles per man as Rover's Longbridge plant.

The Chancellor, Gordon Brown, signalled in his pre-Budget report that closing the productivity gap would be one of the Government's top priorities. He cited it as a fundamental long-term weakness of the British economy. Work carried out by the management consultants McKinsey shows that UK productivity lags the US by 40 per cent and Germany by at least 20 per cent.