Back in 2002, Middlesex swimming pool manufacturer Origin Leisure found itself wanting to incorporate bi-folding aluminium doors within its range of pool enclosures. The only problem: these couldn’t be sourced from any manufacturer of such doors on the short lead-times that Origin needed.
The answer? Invest in R&D, so as to develop its own range of bi-folding doors – a range which could be manufactured on the requisite short lead-time basis. But to its surprise, the range attracted the attention of aluminium door and window installation companies, who pressed Origin to manufacture the doors for them, as well.
This resulted in a separate business, and one which now sells to customers in France, Germany, the United States, and the United Arab Emirates.
“We went from zero sales in 2002 to £30 million of sales today,” says Origin managing director Andrew Halsall. “The lesson for us is that R&D pays off spectacularly well: we’re now bringing different types of doors to market, and not just bi-folding doors.”
It’s no wonder, then, that R&D is a cornerstone of the Industrial Strategy, announced by Business Secretary Greg Clark (https://bit.ly/2JCSv0I) in November 2017. By 2027, the plan is to see investment in R&D rise from 1.7% of GDP to 2.4% – in other words, an increase in R&D activity of
over a third.
Maximising R&D’s value
Such an increase in R&D, goes the logic, will boost Britain’s flagging productivity performance, create new jobs and new industries, and – as at Origin – drive a healthy growth in manufacturers’ export activity. Hence, of course, the government’s investment in such initiatives as the R&D tax credit and patent box schemes, the various Advanced Manufacturing Catapult sites, the funding that central government provides to research councils, and the use of its own procurement budgets in areas such as defence and aerospace.
And yet such government attempts to stimulate R&D go back decades. The Rothschild Report of 1971 and the Finniston Report of 1980, for instance, both looked at what could be done to make the UK more effective at innovation. According to United Nations figures, the UK’s present level of spending on R&D as a percentage of GDP places us well behind such countries as China, France, Singapore, Germany, Japan, Switzerland, the United States and Israel.
Some even query if the government is chasing the right target. Carl Perrin, a former head of technology at a Rolls-Royce joint venture, which developed and manufactured aero-engine turbine coatings, and now professor and director of the Institute for Advanced Manufacturing and Engineering, argues that increased expenditure
on R&D is too blunt a policy instrument.
“Increasing the level of spend is part of the answer, but not the whole answer,” he points out. “It’s also important to look at getting maximum value from that R&D, spending those R&D budgets efficiently, and effectively commercialising the resulting innovation. In reality, R&D is just the beginning of a long process of bringing products
to market, and we need to be better at it all.”
Keith Goffin, professor of innovation and new product development at Cranfield University’s School of Management, makes a similar point, stressing that while the UK has traditionally been good at basic research, it has proved less adept at commercialising it.
“The problem isn’t the ‘R’ in R&D, it’s the ‘D’,” he argues. “Product development has a faster and bigger impact on the economy than pure research, which is longer-term, with a less clear impact. But compared to research, it calls for a completely different skill-set: what the government should be doing is funding ways to help companies improve product development, not just research.”
Support needed for SMEs
Here, of course, government policy has a direct bearing on the issue. Ben Morgan, head of integrated manufacturing at the Advanced Manufacturing Research Centre in Sheffield, and responsible for its Factory 2050 initiative, stresses the importance of the role that it – and the other catapult sites – plays in supporting SME manufacturers through the development process.
“The very largest firms generally have the financing, skills and resources to be able to invest quite freely in R&D, and readily recognise the benefits from doing so,” he explains. “In smaller businesses, there may not be the financing, skills and resources to support the level of R&D investment that ought to be going on. Our mission is twofold: showcasing to the very largest manufacturers the latest research that they should be looking to leverage; and for SME manufacturers, signposting them towards relevant advances in smart manufacturing.”
Dr Remi Zante, head of strategic planning at the University of Strathclyde’s Advanced Forming Research Centre, points to the importance of a strong demand signal on product development, and the role that government and larger manufacturers can play.
“There’s no single, simple answer to unlocking greater innovation – it’s not a single isolated event, but a series of interlocking events and processes,” he says. “And if we look overseas, at countries such as France and Germany, we can see how demand signals support innovation during the critical early phases by providing encouragement that a market exists. We’re seeing that at the moment with electric propulsion systems for vehicles: the government is sending out signals saying that internal combustion engines will be phased out, but hasn’t provided any clarity as to what the incoming technologies will look like – so there’s
no stable signal on which to base any innovation.”
Negotiating the tax credit minefield
It’s not only missing signals that are a problem: mixed signals are also hampering innovation performance, adds Ken Young, professor and technology director of the Manufacturing Technology Centre.
“The government isn’t internally consistent enough,” he charges. “What the Department for Business, Energy, and Industrial Strategy says to industry isn’t always consistent with what the Department for Education and other arms of government are saying. There simply isn’t enough joined-up thinking, despite the fact that there’s now a much greater recognition that manufacturing is important to the economy, and that innovation is the key to a successful manufacturing sector.”
And it’s not difficult to see a lack of connection between the government’s industrial strategy of boosting R&D and the realities of trying to the governments R&D tax credit and patent box schemes, which aim to provide a financial incentive for innovation.
At aluminium door manufacturer Origin, for instance, managing director Halsall points out that for all Origin’s success in product development and innovation, the company’s
R&D tax credit claims have been repeatedly turned down. HMRC, it seems, does not deem the firm’s doors and windows to be innovative enough, or possess a high enough research content – despite the strong growth in sales,
and the undoubted impact on jobs.
Chris Unwin, chief executive of conveyor and automation systems manufacturer LAC Conveyors, is another critic, pointing to the tax credit system’s complexity.
“Manufacturers aren’t always sure whether their projects qualify for the R&D tax credit scheme, and it doesn’t help that there are companies out there that offer to help SMEs process R&D tax credit claims in exchange for a cut of the money that’s saved through the tax relief,” he notes. “We’ve received a number of these cold calls over the last few years, and we’ve thought them to be some kind of scam.”
Nor are tax credits received quickly enough, adds Scott Henderson, managing director of R&D tax credit specialist Jumpstart UK.
“From the point of view of our clients, the financial benefit typically arrives a year and a half after they spent the money. This is fine if a business has a positive cash flow, but less helpful if it hasn’t. That said, we think that the scheme has made a difference to manufacturers, especially over the past ten years when debt funding has been difficult to obtain.”
Even so, the complexity of the tax credit and patent box schemes tends to mean that specialist advisers such as Jumpstart are often required if the full benefit is to be obtained. Jenny Tragner, a director at R&D tax credit consultancy ForrestBrown, notes that manufacturers are frequently surprised to discover just how extensive the list of qualifying R&D activities can be, with even, say, process improvements to an existing product being eligible for tax credit.
“It’s far from unknown for manufacturers to either not know about tax credits, mistakenly think that they are not eligible, or regard the scheme is too complex,” she explains.
And certainly, £9 million precision stamped metal components manufacturer C. Brandauer & Co hasn’t found the R&D tax credit system too complex to navigate, affirms its chief executive, Rowan Crozier. Exporting to 22 countries – including China – it relies on extensive R&D to be able to achieve the high levels of automation and technical prowess needed to be competitive in the global market.
“Without the R&D that we’ve done, we would have failed,” he sums up. “And every penny that we get back is reinvested in the business. From our point of view, R&D tax credits enable us to do more R&D than we would otherwise be able to afford –which has to be a good thing, both for Britain and for the wider economy.”
