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Venture Capital (Tax Incentives)

Volume 122: debated on Tuesday 10 November 1987

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To ask the Chancellor of the Duchy of Lancaster what consideration Her Majesty's Government have given to the introduction of tax incentives to encourage corporate venturing with a view to encouraging research and development and introducing further venture capital for innovation in British industry.

I have been asked to reply.The United Kingdom tax system already provides considerable support and incentive for research and development spending, particularly by way of the special scientific research allowances. Significant advances have also been made on the venture capital front by (1) the publication in May this year by the British Venture Capital Association of guidelines (which were prepared with the help of the Inland Revenue and DTI) on the use of limited partnerships for venture capital finance, and (2) the extension of the business expansion scheme to assist companies engaged in research and development.The prime need now that industry is making record profits is for industry itself to make its own investment in the future by spending more on research and development. The cost effectiveness of tax reliefs in this area is at best uncertain. A joint Inland Revenue and Her Majesty's Treasury study of international fiscal incentives for R and D ("Fiscal Incentives for Research and Development") published on 20 July—a copy was placed in the Library—suggested that only about one half of tax revenues forgone by Governments under such schemes is actually spent by companies on additional R and D.