All eyes on the West Midlands as share of innovation falters

Date: December 20, 2021

The Midlands is a hotbed of industry but East and West are enjoying different fortunes at the moment according to the latest government statistics, setting up a rivalry that could be a feature of this decade.

The regional neighbours — considered manufacturing heartlands ever since the Industrial Revolution — make well over 10,000 claims for R&D tax credits between them a year.

The West Midlands accounts for around a fifth of the country’s manufacturing and 22% of exports1 while the East Midlands will be home to one of eight new trade-boosting Freeports in England2.

However, the two areas appear to have diverged slightly of late.

While businesses in the East Midlands have seen their share of innovation hold up, those in the West Midlands have witnessed their slice of the £7.4bn claimed last year take a  stumble, according to the latest statistics published by HMRC3.

In fact, the West Midlands saw its share of all the money claimed drop by 7.6%1, from 9.2% to 8.5% of the UK total, our analysis shows. Their share of qualifying R&D expenditure also fell from over £1 in every £10 spent (10.3%) in 2018/19 to 9.8% in 2019/20. It is responsible for a smaller proportion of claims too.

It was a different story for the East Midlands, where its share of R&D tax credits rose marginally from 4.6% to 4.8% and its share of qualifying R&D spending also nudged up from 4.5% to 4.6%.

Richard Armstrong, head of RDEC at Catax, said: “The race is on to see who can turn the 2020s into a powerful decade for innovation, growth and jobs.

“The comparative performance of the West Midlands is disappointing on the face of it but it’s important to remember that these statistics are based on R&D tax credit claims. If eligible companies don’t claim, they could be doing all the R&D in the world but they won’t feature in these figures.

“Claiming R&D tax credits is just as important as doing the work. Hundreds of millions of pounds is on the table in the Midlands alone.”


What are R&D Tax Credits?

R&D tax relief was introduced by the Government in 2000 to incentivise innovation. It results in either a reduction in a limited company’s corporation tax bill or a cash lump sum.  Many firms don’t realise the work they do qualifies as R&D, which is defined as any work that seeks to resolve a scientific or technological uncertainty, whether that’s a new process, product or service. Crucially, R&D does not need to have been successful to qualify and claims can be made up to two years beyond the end of the tax year in which the work took place. Find out more about R&D tax credits here.


All you need to know about grants

Grants often come from government departments and other bodies such as Innovate UK and the EU Horizon programme. New competitions are announced all the time and you may already have the match funding necessary to qualify for a substantial leg up. Learn more about grants here.


1Midlands Innovation

2Midlands Engine

3HMRC R&D Tax Credit Statistics 2021

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