The increase is expected to cost the Exchequer £745m by 2022/23, according to figures set out in the Budget document.

The measure increases the tax relief for large companies, along with small and medium sized enterprises in some cases, that carry out qualifying R&D and claim the credit.

The credit, also known as the above the line credit, is a standalone credit brought into account as a receipt in calculating profits. The current general rate is set as 11% of qualifying R&D expenditure. From 1 January 2018 the measure increases the rate of the RDEC from 11% to 12%.

The decision, Hammond said at the Dispatch Box, ‘reaffirms the government’s support for business’, with around 4,000 businesses expected to benefit.

Alongside that move, the Chancellor also announced what he described as the ‘largest boost to R&D support for 40 years,’ with a further £2.3bn investment from the National Productivity Investment Fund in 2021-22.

Mark Tighe, CEO of the R&D tax specialist, Catax said: ‘The increase in the Research and Development Expenditure Credit from 11% to 12% is a crucial step forward for UK research and development. With Brexit looming ever closer, the need for the UK to position itself as a major centre for global R&D has never been more important.

‘An increase to 15% would have been a far more robust statement of intent, and many in the industry had quietly been hoping for it, but a rise to 12% should be applauded. While this rate increase is targeted at large companies, it is also available to SMEs that are in receipt of state aid for their R&D - through grants, for example. Unfortunately, this is an area of tax relief that is often overlooked and under-claimed.’

The policy document can be read here.

Report by Calum Fuller