Brown creates climate for innovation to thrive

Improved research is key to closing the productivity gap with the US, chancellor Gordon Brown told MPs in his budget speech on Wednesday.

He said that two-thirds of the gap was due to underfunded research. It was vital that the UK raised investment in research and development from the current 1.8 per cent of gross domestic product to match the US's 2.8 per cent.

Mr Brown highlighted last year's £1.25 billion science budget increase, which included £40 million for stem-cell research. This week he said further tax credits were being discussed to help tax-exempt research and technology organisations.

He said the government would review the definition of what qualified as research. The last budget extended the R&D tax credit from small and medium-sized enterprises to large companies.

A spokesperson for the Treasury said that extending tax credit would encourage industry to commission research in universities.

Small business investment companies will be set up to provide equity for start-up companies, including university spin-offs. Regional science councils may also be extended.

Overseas students in maths, science, technology and engineering at British universities will be encouraged to stay in the UK to help plug the skills gap.

A National Council for Graduate Entrepreneurship is planned to encourage students and graduates to start businesses.

Mr Brown gave tasks to two academics. David Miles, professor of finance at Imperial College, is to examine how Britain can develop a market for fixed-rate mortgages. Sir Michael Lyons, director of the Institute for Local Government Studies at Birmingham University, is to look at ways of relocating public sector workers out of London.