To ask Her Majesty’s Government what consideration they have given to adopting a broader definition of research and development that includes, and incentivises, research and development investment in the creative industries.
My Lords, the Government’s definition of research and development builds on the internationally recognised OECD definition. Following that definition, the UK offers relief to boost research and development through direct grants, support for universities and R&D tax credits. There are eight additional tax reliefs specific to the creative industries, which delivered over £1.1 billion of support in 2018-19 alone.
I thank the Minister for his engagement with this Question. However, I urge him to consider, in reviewing R&D definitions, the Government addressing current HMRC requirements that R&D relates specifically to scientific or technological discovery. The exclusion of work in the arts, humanities and social sciences means that much of the R&D taking place in the creative industries is ineligible for targeted tax relief, despite creative businesses undertaking almost as much R&D as manufacturing. Does the Minister agree that applying tax incentives equally to a sector that already represents the fastest-growing part of the UK economy would be an effective way to boost innovation and productivity?
The noble Baroness is absolutely right that creative industries are at the heart of the improvements that we have seen across the UK’s global reach. We put a significant amount of money into research and development in the creative industries. Some £58 million has gone to research and development through the creative clusters, £39 million directly from government and £25 million from industry. But that does not answer the noble Baroness’s question, which regards the definition. I read with interest the paper by Hasan Bakhshi and Elizabeth Lomas, Defining R&D for the Creative Industries. If the noble Baroness is willing and amenable, I would like to sit with her and discuss this matter further.
My Lords, the noble Baroness, Lady Bull, appears to have hit on an idea that can go further. However, can we put a time limit on this? The Budget is coming up on 11 March, and redefining that process can be announced then so that these important businesses can benefit from the tax benefits of research and development. Could the Minister therefore also adhere to a timetable that enables the Budget to play a role in this?
On tax, it is important to stress that we offer a significant amount of tax relief that covers all the wider creative industries, from film animation to museums and galleries and the theatre, and so far it affects a significant proportion of those areas. The noble Baroness raised the exact definitions, which is important, because thus far we are bound by the Frascati convention of the OECD definition, which is tilted primarily towards technology and science. I will not go into too much detail, but this of course misses the epistemic and aleatory uncertainties inherent in this particular problem—you do not hear that every day.
Indeed, we need to pause after that. A round of applause would not be inappropriate.
My Lords, I am glad that the Minister mentioned the creative clusters, because they have been a huge success in bringing out the exact points made by the noble Baroness in her Question. However, does she not also raise a wider definitional issue—it does not have a grand name—which is that the creative industries are often structured around freelancers working in small industries and, as such, they cannot take advantage of some of the scale issues for which the Minister’s department is responsible? I think particularly of the way in which the apprenticeship levy cannot be applied in this case. Does the Minister have any plans to change that?
The noble Lord makes an important point. I was curious about that this morning as well. I was fearful that a lot of these funds would end up in the larger businesses and industries but, in actual fact, SMEs are disproportionately affected in this area for the very reason that the arts, humanities and wider creative industries are usually small ventures. So there is a significant proportion of benefit in that regard. If the noble Lord will allow it, I will drop him a note on the exact figures and put it in the Library for the edification of all others.
Can my noble friend also consider as part of his follow-up work the allocation of the R&D spend by government? We are talking about tax, which obviously affects the creative sector and companies. The Government are actually spending more money on R&D, which I very much welcome, but allocation to sectors other than the ones that BEIS considers key is very important. Agriculture, which we discussed earlier, has lost a lot of its R&D in recent years. The creative sector is a new sector and requires attention as well.
The simple answer to that question is yes, I will do that.
My Lords, I wonder whether we could use a bit of creativity in terms of how a public/private partnership in investment in R&D could reflect the needs of the nation as a whole, so that when the Government think about a critical mass they do not simply, for the north of England, think about Manchester. Given the Minister’s heritage, does he agree that if Scotland were treated as badly as Yorkshire —Yorkshire has a larger population than Scotland—there would be an SNP cry for something better? If we are to keep our nation together, we need something better for the east of the Pennines.
I agree with the noble Lord. On a bizarre point, I was criticised over the Christmas period for drinking not Scottish tea but Yorkshire tea. In Scotland, even on these issues, grievances can be found. He is exactly right: there would no doubt be a problem if we treated these individuals as if they were competitive. There should be a constructive advantage to working together and seeing the collaboration that can lift all parts of the United Kingdom to the wider benefit of all.
My Lords, great creativity depends on a very wide definition of various art forms, whether it be science and technology or something else. Of course, we are extremely good at this in this country and the creative industries bring a huge amount of recognition and money into the Exchequer. The problem is that innovation tends to need public rather than private money. With private sponsorship, to take the area of expertise of the noble Baroness, Lady Bull, people love to sponsor “Romeo and Juliet”, for example, but are less interested in really innovative work.
The noble Lord is correct. It is not always easy for the Government to find the right way to support this area, which is why we seek to collaborate with private enterprise and the artistic industries, for obvious reasons: they are more artistically minded than the Government perhaps are. Politics is not quite the art it used to be.