Bid to halt research cash drift

June 19, 1998

THE government has issued a consultation paper on innovation, research and development as concern grows over the relative decline in the United Kingdom's spending on these areas over the past 20 years. The paper is part of a hard look by the Department of Trade and Industry and the Treasury at ways of reversing the trend.

Michael Elves, director of scientific and educational affairs at Glaxo Wellcome, one of the companies asked to comment on the paper, criticises it for failing to address fully the universities' role in research, development and innovation. He said: "University research is the lynch-pin for a lot of industrial R&D, it provides an important source of new knowledge and new technology which underpins innovation in industry.

The paper mentions the key role of the universities in passing but does not deal with things such as their chronic R&D funding problems." This underfunding could push firms abroad for their research and development collaborations, he said.

The DTI and Treasury want to reform the accounting of R&D. Industry has complained that research cannot be capitalised as an asset and so must be written off immediately. And only in some circumstances can development costs be capitalised. As a result expenditure on R&D and training is seen by the City as depressing profits in the short term in a way other investments do not, even though over the long term it can produce returns like any other investment.

The DTI and Treasury say that the main asset of a company especially in high-tech businesses such as biotechnology, is increasingly the "know-how" it creates through research. The paper asks for comments on a suggestion by the Institute of Chartered Accountants of Scotland to revise accounting practice so that it includes innovation.

Richard Latham, assistant director of accounting and auditing at ICAS said:

"The accounting standards we use for R&D are very old and do not take into account the new world of high-tech businesses." ICAS's proposals would allow capitalisation of innovation and development from the point at which an asset is recognised as having been created out of it.

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