Good morning, and thank you for the kind invitation to speak today.
There was a joke in Yes Minister of the titles of Ministerial departments never quite matching the reality of what those Ministers were actually responsible for.
So the Minister of Defence was in fact responsible for war.
Minister for Employment was the Minister for unemployment.
And Jim Hacker’s biggest fear was being reshuffled to Minister for Industrial Harmony: “that means strikes”.
My role, too, doesn’t quite tell the whole story. It is true, I am the Minister for Tax. But what that means on this occasion is that I’m the Minister responsible for less tax.
So today I will talk about what the government is doing to lessen the tax burden on businesses. More specifically, businesses in your sector.
In July this year, the government created the new post of Minister for Life Sciences. The current Minister, who many of you will know, is George Freeman.
He has extensive experience in the life sciences sector – particularly in pioneering innovations in healthcare.
And his job is to help your industry maintain its world-class position.
So that is a Ministerial post which does exactly what it says on the tin!
I hope that this Ministerial appointment makes clear how seriously the government takes your sector.
The life science industry in the UK is one of the world leaders.
It is the third largest contributor to economic growth in the UK with more than 4,000 companies, employing around 160,000 people and with a total annual turnover of over £50 billion.
And it provides some of the most eye-catching examples of innovation in the UK.
Yours is a sector we are determined to help.
Almost four and half years ago, the government came into office with a key objective – to get this country’s economy growing again.
We knew that without a strong and healthy economy, carrying out the important tasks of government – spending on health, education, welfare and defence, and investing in our infrastructure – would have simply got more and more unsustainable.
It would have been like smoking your way through a heart attack.
So we put in place a long-term economic plan – to cut the deficit, rein in spending, eliminate red tape…
…while at the same time, giving support to businesses such as the ones you represent. Because it is businesses – not all of which are big, or which are household names – that are key to providing jobs, growth and national prosperity.
Creating the right tax system is an important part of that.
We have to think internationally. We live in a world where businesses have choices as to where they invest.
And talented individuals have choices as to where to live and work. So if we are determined to make the UK one of the best places to start, finance, and grow a business in Europe, then as part of that, our tax system needs to be internationally competitive.
For instance, when the government came to office in 2010, out of the then EU Member States, sixteen of them had lower corporation tax rates than the UK.
So we cut corporation tax from 28% to 21%. And it will fall again next year to just 20%, giving the UK the lowest rate of corporate tax in the G20.
And as the Prime Minister made clear in Birmingham last week, we are committed to maintaining the lowest rate of corporation tax in the G20.
Today, I would like to talk about the specific incentives the government has put in place to allow businesses in the bioscience sector to succeed.
But before I do that, I should stress three general principles behind our approach:
First: government is not all-powerful.
We’ll strive to create the conditions for you to flourish. But ultimately it will be your job to go out and do it!
Second: We are here to listen.
We continue to ask ourselves the question: what can we do to make ourselves even more competitive?
So if something’s not working, or could be made to work better, tell me about it.
Third: If we are to continue to have a competitive tax system, it is important that we maintain public confidence in the fairness of our tax system.
Our side of the bargain is that we will give you low taxes. Businesses’ side of the bargain is that they would pay those taxes.
This is why internationally, we’ve taken a lead on the OECD / G20 Base Erosion and Profit Shifting project – BEPS – designed to tackle tax avoidance.
So what is the government doing to help business such as yours?
It’s a two-pronged approach. First, we’ve built up a wide range of tax incentives to encourage investment and innovation.
In parallel to this, and recognising that one of the biggest difficulties facing firms is accessing finance, we’ve expanded existing schemes and introduced new ones to provide appropriate sources of finance for SMEs.
These schemes include tax-advantaged venture capital schemes, R&D tax credits, the Patent Box and the Biomedical Catalyst.
Let me say a few words about each of these in turn.
If you’re a small, unquoted company, many investors will consider you high risk – which means you can find it difficult to raise even relatively modest sums of risk capital.
So through our tax-advantaged venture capital schemes, we provide generous tax reliefs, of the order of magnitude of up to 50% income tax relief, to encourage this private investment – opening the sluice gates and letting the funding flow.
It’s not the government’s job to “pick winners” – and rightly so. What we do is create incentives for the market to carry out that task.
In April 2012, building on the existing Enterprise Investment Scheme (EIS) which has provided over £9.7 billion to over 20,000 companies since 1994, we announced the new Seed Enterprise Investment Scheme (SEIS), designed to respond to particular difficulties start-up companies can face in obtaining seed finance.
So at Budget 2014 we announced that SEIS would be made permanent.
This has been transformative to companies such as Definigem.
This is a small technology team, based in Cambridge University, which has developed a way to generate liver cells from skin cells.
So they formed a new company to supply stem cell products to the drug discovery and regenerative medicine sectors.
The spin-out has given Cambridge and the UK a world lead in the race to produce targeted drugs from stem cell science.
The SEIS scheme helped Definigem raise £150,000 – an input they called “instrumental” in helping them get off the ground.
It’s no surprise that Jeff Lynn, CEO of Seedrs, one of Europe’s leading equity crowdfunding platforms, called SEIS “by far the most effective and impactful scheme for encouraging small business formation and growth anywhere I have seen”.
We’ve introduced research and development (R&D) incentives, because we know that R&D is vital to keeping British business cutting-edge.
In 2012 to 2013, R&D tax credits provided £1.4 billion of relief to over 15,930 companies, supporting £13.2 billion of innovative investment.
I am well aware the system for claiming R&D tax relief is – how shall I put it – not entirely simple.
So we’re working with industry bodies and others to improve businesses’ knowledge about R&D tax credits and how to claim them.
For instance, we’re sending out HMRC and BIS to give workshops across the UK at universities, trade fairs and business events.
In April 2013, we launched the Patent Box, which provides for a reduced 10% rate of corporation tax on profits that are earned in the UK from patents and other similar types of intellectual property (IP).
This has been welcomed by businesses.
Since its introduction, GlaxoSmithKline has invested £500m in the UK, building a new factory as well as creating 1,000 new jobs.
They have attributed this to the presence of the Patent Box – which, as they put it, has “transformed the way [they] see the UK as a place to invest”.
And it’s not just pharmaceutical companies set to gain from this.
Engineering, life sciences, manufacturing, technology, and defence will all see a positive effect from the patent box.
I know that the Patent Box has come under attack from some quarters in the last few weeks.
So let me say again clearly what I’ve said a number of times in the last few days:
I reject any suggestion that the UK’s Patent Box facilitates profit shifting.
Let me be clear here: categorically, it does not create an opportunity for businesses to reduce their taxes without increasing their value to the UK economy.
If it were “harmful”, then we would not have introduced it!
Finally we have the Biomedical Catalyst programme.
This is run jointly by the Medical Research Council and the UK’s innovation agency (the Technology Strategy Board), to find solutions to healthcare challenges.
It offers funding to innovative UK SMEs and academic researchers that are working, either individually or in collaboration, to develop novel therapeutics, diagnostics or devices to address healthcare challenges.
One of the big success stories here has been the collaboration between the University of Southampton and a leading British company, Chas A Blatchford & Sons Ltd, to develop intelligent prosthetics.
Researchers were awarded Biomedical Catalyst funding to develop a prototype of the world’s first prosthetic ‘intelligent’ liner with integrated pressure sensors.
This is now happening; and the designs could be available to NHS patients in as little as 3 years – helping improve the lives of thousands of amputees.
Of course, these schemes do not act in isolation – and the best success stories often come from companies which benefit from a whole suite of our measures.
Earlier this summer, I was delighted to travel to Horizon Discovery in Cambridgeshire.
They supply research tools to organisations engaged in genomics research and the development of personalised medicines.
The company has benefited from over £10 million of EIS funding, 10% entrepreneurs’ relief for founders/employees, venture investment from the UK Innovation Investment Fund, generous R&D tax credits and the Patent Box.
And when Horizon Discovery was floated in March, it made over 30 times its original investment – great news for all concerned.
One thing I should stress is that these schemes are in a constant state of refinement – so we can ensure maximum value for both businesses and investors.
We are always keen to understand how the schemes are working in practice, and where we can make improvements in the future.
And we will use the responses to our recent consultation on tax-advantaged venture capital schemes – including the response we’ve received from you – to inform any new changes which might be necessary.
So thank you for your input.
You have a world-class sector here. And we are working to build a world-class environment for you to grow and develop.
And I look forward to your views on how we can make this partnership even stronger.