2012 Budget Didn’t Go Far Enough For Struggling Entrepreneurs

Budget

While the March 2012 Budget offered a few concessions to struggling entrepreneurs and the innovation economy, it didn’t go far enough. The introduction of the ‘patent box’ will reduce corporation tax to 10% on profits attributed to patents and similar types of intellectual property. This should bring helpful benefits to innovative industries and should generally increase company’s incentives to invest in research that aims towards radical innovation solutions.

Announcing that the R&D tax credit rate will be 9.1% before tax was another positive move that should benefit inventive industries and help to inspire higher levels of research spending. Changes to the way companies record these tax credits should further enhance the incentive, although existing problems regarding delays in processing the credits are likely to remain a problem.

The £100 million boost to university facilities funding is intended to spur new research and forge closer links between academia and industry. This could be an exciting development for hi-tech businesses if it succeeds in improving collaboration, assisting with the translation of basic research into commercial innovations or increases the number of business start-ups spinning off from publicly-funded research institutions. However, with the funds yet to be allocated, it remains unclear whether these worthy aims are likely to be fulfilled.

Overall, despite a few positive moves here and there, the government’s plans to revitalize the British economy are depressingly lackluster and uninspired. In relying so heavily on enabling measures such as tax relief and credits it appears the government has not understood the scale of the market failures that afflict the development of radical innovation in our current economic system.

The reluctance to commit to significant, direct public investments is predictable, given the inconsistent success rate of such investments in the past. But it is certainly unfortunate that the government seems so unwilling to ‘think outside the box’ and try out new, innovative strategies that could optimize the efficiency of any such investments.

A coordinated program of government-funded innovation competitions in key hi-tech sectors could be used to leverage considerable private investment, without the taxpayer needing to pay out for innovations that fail to meet explicit efficiency and effectiveness targets. Competitions that rewarded UK-based innovators for developing successful technological advances could be used to attract significant foreign investment and talented expertise to the country.

In this model, the government can set specific innovation targets on a central basis and then unleash the powerful creative forces of decentralized initiative and the efficiency of competitive selection in order to achieve these aims with maximum optimality. Combining these creative crowd-sourcing strategies with support for business incubation units and investments in improving overall systems of innovation could really help the UK to break the cycle of stagnation it is currently mired in.

So, be brave George… a bold commitment embracing novel innovation investment models could mitigate the economic gloom and perhaps help to return Britain to its former glory as the innovators’ workshop of the world.

Simon Schneider is General Manager, Grand Challenges and Head of EMEA at InnoCentive. He co-founded OmniCompete, a leading company focused on Grand Challenges, which was acquired by InnoCentive in January 2012. Under Simon's leadership, OmniCompete awarded over $2.9 million in prizes, which multiplied into $124 million in impact by prize finalists. Before completing his MBA at London Business School, Simon worked as a security consultant for IBM in New York, where he managed multi-million dollar technology projects in video surveillance, biometrics, and business continuity. Prior to working at IBM, Simon founded and led two venture-backed technology start-ups in Germany and the US. Simon sits on innovation advising committees for departments of the German and UK governments, and he also invented a patent that has been licensed to IBM. Simon contributes regularly to open innovation discussions in the media (e.g., New Scientist) and speaks regularly at conferences in Washington, London, and Brussels.