What the Burnham government could mean for R&D tax relief and how Manchester stands to benefit
Since he was appointed PM, Andy Burnham has made it his ambition to make Britain the innovation nation of the next decade. The Burnham government has placed regional growth, reindustrialisation and business investment at the heart of its economic agenda, and the UK’s ever-complicated R&D tax regime stands as a key test of whether Burnham’s ambition translates into support for innovative businesses nationwide.
According to the Office for National Statistics, UK businesses spent £55.6bn on R&D in 2024. The investment was mainly concentrated in London and the Southeast, with Greater Manchester recording lower R&D spending and tax credit take-up.
Josh Perry, UK & IRE head of sales at innoscripta said: “Burnham and Healey have announced their first budget for the 28th of October, and R&D tax relief will be one of the policy areas UK businesses will be looking at ahead of it.
“Burnham recently established Number 10 North to drive long-term growth, while pursuing much greater devolution of economic powers to English regions and plans to ensure mayors receive control over locally generated business-rate revenues from 2027 and a share of income-tax receipts from 2028. This could ensure that the R&D tax incentive shifts from national to place based.
“This has led many to believe that the Burnham government may be looking to make R&D incentives work harder for regional economic development and could mean closer integration amongst R&D tax relief, regional investment funds, skills policy, universities and industrial strategy.
Greater Manchester is known for underperforming on R&D expenditure, tax-credit take-up and Innovate UK funding when compared to other UK regions, which will create tensions with Burnham’s regional-growth agenda.
“If the UK government aims to balance economic activity geographically, they need to do more than devolve business rates and spending powers,” said Perry. “R&D investment is a core area where the government could be utilising the tax system to invest in innovation in specific areas and sectors”.
Burnham has inherited a new scheme that has faced substantial reform. From April 2024, the old schemes were replaced by the RDEC scheme with a credit rate of 20%, and loss-making R&D-intensive SMEs have to qualify for ERIS, with a 14.5% payable credit. The latest HMRC guidance has defined R&D tax relief as a scheme intended to support businesses undertaking advances in science or technology. This all begs the question: will Burnham keep the reformed scheme or use the October Budget to make further changes?
Perry added: “Burnham has refused to rule out tax rises come October with defence and social care spending pressures, meaning that an increase in R&D tax relief would be difficult to justify.”
As it stands, the government could go in a few directions:
Overall, Burnham has focused on positioning himself as a pro-business prime minister, having already legislated for a 20% reduction in business rates for pubs, clubs and live-music venues, due to take effect from April 2027.
With his government already focusing on business rates, it is clear he recognises that the cost of doing business is high for SMEs. The question now is whether R&D becomes part of his agenda,” concluded Perry.