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OPINION6 January 2011

Tax breaks for MR, anyone?

CEOs of three British companies are calling for tax relief on market research spend. There’ll be no complaints here, surely, but it doesn’t exactly fit with the government’s cost-cutting agenda.

Here’s an idea that should go down well with our readers, but which may be a harder sell among politicians. From the Financial Times:

“Businesses should enjoy tax relief on market research for new consumer products and services, according to a group of successful British entrepreneurs, in the same way that existing tax breaks are designed to encourage research and development for new technologies.”

The idea comes from Paul Lindley, the founder of children’s food company Ella’s Kitchen, and it has the support of the CEOs of Lovefilm and King of Shaves.

Lindley makes the case that consumer brands are like new technologies in that they help build better products, so supporting investment in insight should deliver similar benefits to the UK economy.

He makes a good argument, but government ministers will need more evidence if they’re to be convinced to give back some of the tax revenue they’ve earmarked for deficit reduction.



9 years ago

I am sure that this would not be in the interest of UK tax-payers and I doubt this would be in the in the interests of the UK (it probably would be quite good for us MR folk however). i would suggest 3 principles these CEOs could consider 1) Tax systems should be simpler, breaks distort the economy 2) If there is money spare let's scrap the £9000 student fees 3) Let's bring in guidance that CEOs can't earn more than 20 times the rate of the lowest pay in their organisation

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9 years ago

Interesting comments Ray, thanks for starting the debate. I obviously have a different viewpoint - my thinking is: UK tax payers are UK consumers. Consumers having more brand choices, being offered better products that better reflecting their needs, demanding more innovation, more competition and more competitive prices - means that we'd have more satisfied, better informed, more active and more empowered consumers. The economic externatilies of the relief therefore benefits society (or UK PLC) over and above they do the qualifying companies . In addition UK PLC becomes even better at something we are naturally good at, -innovative FMCG brands - and these we export around the world, bringing more revenues into the UK encomony. Your point 1, argues against existing successful reliefs - for example the 10 year old R&D tax relief. James Dyson published a passionate and logical report 'Ingenious Britain' in May 2010 on this which successfully changed Conversative Party thinking regarding tax reliefs to encourage an area where UK PLC has a competitive advantage and were externalities benefited us all. My proposal extends the thinking to another area of balance sheet assets where the UK punches above its weight - Brand value. Your point 2 assumes the relief would net cost the Government tax revenues. The evidience for R&D relief is a net increase. The Coalition is pinning its reputation on the fact that small business will be the engine to revive employment, GDP and tax revenues, to more than offset the public sector cuts. This encourages this path to growth.

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9 years ago

Where to begin! More choices is not always good for consumers, see Barry Schwartz's "The Paradox of Choice - why more is less". More options are usually associated with higher costs, higher prices, and a higher carbon footprint. Industries protected with subsidies usually become less efficient and over time less competitive and often distort the world economy, look at the way that inefficient French farmers protected by the common agricultural policy destroy the economic interests of African farmers. The R&D relief might make sense in the context of a distorted tax system, but a simpler tax system, without any breaks would be better. The analogy between R&D relief and market research is not good, IMHO, because R&D is a speculative endeavour which often, probably usually, does not deliver value. It is a gamble where most of the options do no deliver value, some deliver a reasonable return, and a few deliver great returns (with externalities for the economy in some cases). Market research is a cost of business, it should usually deliver value, it should not need a taxpayer subsidy. If market research were to be subsidised what are the likely consequences? 1) more research might be conducted. Is that a good thing? Possibly not, I would like to see better research being conducted, not more research. 2) the same amount of research might be conducted, and client companies might simply pocket the subsidy, which is an unstructured way of paying money to shareholders, with some of the money being remitted overseas. 3) the benefits of the subsidy may flow to the market research companies, 60% of whom are large multinationals and hardly in need of UK taxpayer subsidies. The claim is that an MR subsidy would not be a net cost. Even if that were true (and I do not believe it to be true partly because I think the additional research would be the research that was not cost justified in the first place), the benefits would be at some point in the future, but the costs would be now. At the moment the country is paying off the debts run up by the last Labour government, now is not the time to be throwing the taxpayers money around. Rather than asking for tax subsidies for MR, we could be asking Government to legislate to make it easier to get clients to pay their bills on time (certainly within 60 days), to protect the status of market research by making life harder for SUGGERs and CHUGGERs, by looking after the interests and MR and citizens in issues such as cookies, tracking, and data protection.

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