As other commentators have already noted, the ‘mini-budget’ delivered by new Chancellor Kwasi Kwarteng on Friday (23/09) was anything but mini, carrying £45 billion in tax cuts across a range of instruments. Innovation was a phrase that appeared several times in his speech to the House and, whilst much analysis has already been produced following the budget, we seek to consider what its implications are for IP and IP management more broadly in the UK.
Perhaps the most fundamental point is that these measures have immediately impacted the value of the British pound, which plummeted to a fifty year low. Times remain tough and by all accounts a recession is oncoming. In this environment, the high cost and uncertain return nature of innovative activity, be that R&D or implementation of new technologies, remains risky. Some, particularly those for whom innovation is the business such as Information and Communication Technologies or Pharmaceuticals, will continue to innovate. Others may choose not to.
One of the most prominent announcements was that corporation tax will remain at 19% beyond April 2023. That will be encouraging for business, a smaller tax bill is always better after all. Yet one advantage of the proposed rate rise would be the increase in relative advantage imparted onto innovative businesses able to exploit the Patent Box tax regime.
The Patent Box is a preferential tax regime which seeks to reward businesses who keep R&D and the commercialisation of resulting IP within the UK by offering a lower rate of corporation tax on profits derived from that IP. That rate is currently 10%. Initially an Irish creation, there are now several such schemes in operation across Europe, and most states have some facility for encouraging R&D. At the core of the Patent Box Regime is an adequate valuation of patent rights.
The patent valuation under the Patent Box is very much business dependant; those that use patents intensively stand to benefit the most from it, obviously. A simple cut in corporation tax rate benefits all business. However, the patent valuations enabled under the Patent Box regime, allow companies to better appreciate the commercial opportunities associated with intellectual property; an area many businesses still strive to come to grips with.
The new Chancellor appears to like innovation, seeing it as integral to the Government’s growth goals. He sees the cancellation of corporate tax rate rise as a means to allow businesses to “keep more of their own money to invest, to innovate and to grow”. He is keen that financial instruments, notably pensions, be “unlocked” and used to support “innovative, high-growth businesses” and particularly UK science and technology start-ups. This once more underlines the necessity to adequately value intellectual property.
Patents are crucial for business; they protect the innovations upon which a businessis built upon and assist in raising capital. It is perhaps therefore surprising that the Patent Box has not featured in the Chancellor’s moves against taxes immediately. The Patent Box regime can be a means of targeted support for many enterprises. A cut in the Patent Box rate would achieve exactly the Chancellor’s aim with the adjustment to corporation rates: allow more money to be retained for utilisation into further innovation and growth. Preserving the regime, to the contrary, appears to be a good means to assure sustainable IP management strategies.
Perhaps another ‘mini’ intervention will recognise this potential.