R&D in construction: It’s (not) coming home

Robert Miles is Senior R&D Tax Manager at Ayming

As England bring home an early victory in the European Championships, the national team is once again under pressure to ‘bring football home’. But it’s not just football that we need to come home.

“The consistent offshoring of R&D activity sets a dangerous precedent as it means the UK will finance the R&D abilities of other countries”

This is in reference to research and development (R&D) in construction. Despite the sector turning a corner on innovation, new research from Ayming UK has found that construction firms are offshoring R&D en masse, with 83 per cent of the industry planning to carry out R&D abroad. Meanwhile, 46 per cent of the businesses surveyed are currently undertaking R&D in the UK. This could create a cycle of decline whereby the UK construction industry continuously offshores innovation due to insufficient UK expertise, compounding the problem and failing to invest in UK R&D.

To avoid this and truly reap the benefits of the first reported rise in UK construction activity in two years, Britain must do everything it can to encourage firms to take a leaf out of the England team’s book and innovate at home.

Playing the international championships

Globalisation has meant that R&D often extends beyond borders, whether it’s to source specific skills or to bring down costs. The reality is that the UK construction industry is competing with other markets for innovation activity and the benefits that come with it.

Of course, it’s a huge win that the sector is innovating. Construction has been suffering from consistently sluggish growth, as it balances addressing the UK housing shortage with reducing its carbon footprint. To make matters worse, inflation, supply chains and the war in Ukraine have resulted in a surge in the cost of raw materials over recent years.

Instead, our economic rivals are drawing in the activity, with 66 per cent of construction firms undertaking R&D activity across the continent of Europe. In addition, in the US, 12 per cent of firms are offshoring R&D there, followed by China, Brazil and Ireland, all at 11 per cent.

This mass-offshoring of innovation presents several risks in the long run.

The own goal of offshoring

The consistent offshoring of R&D activity sets a dangerous precedent as it means the UK will finance the R&D abilities of other countries. This could create a snowball effect that leaves us increasingly dependent on expertise and skills from abroad.

This also presents certain geopolitical risks. R&D is by nature experimental and secretive. There have been numerous cases of R&D espionage. The unfortunate reality is that not all foreign entities can be trusted to keep R&D secrets safe.

On the other hand, investing in domestic innovation allows the UK to generate greater economic benefits, including the creation of specialised talent that can drive a constant cycle of innovation and stimulate economic growth.

Looking at the game plan

So, what’s driving R&D activity offshore in the first place?

For starters, construction firms have been caught up in the instability with the UK R&D incentive schemes. HMRC has pursued an aggressive compliance programme in reaction to cases of fraud.

This has caused widespread friction, with 27 per cent of construction firms having payments delayed, and 31 per cent saying their recent experience with HMRC has put them off claiming R&D tax credits.

However, according to Ayming’s research, the most common reason for offshoring is lower wages, with it being a factor for 38 per cent of companies. And 29 per cent of firms identified better access to R&D talent abroad as an influencing factor.

Bringing innovation home

Above all, construction firms need access to specialist skills. While talent can be trained and imported, the government must do everything it can to encourage firms to invest locally.

England is a justifiable favourite to win this summer’s European Championships. This is largely due to the strategic overhaul of English football youth development over the past decade, with the resulting academy players having now matured into world-class talent.

For the construction sector, the lesson from the beautiful game is clear – a clear industry strategy to incentivise investment in homegrown talent is the only route to bring innovation home. If the industry can do this, it will develop the highly skilled talent, stimulate regional innovation and drive technological advancements the sector desperately needs.

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