You can lead a firm to R&D but can you make it innovate? UK evidence from SMEs


The UK Government introduced tax credits for SMEs to promote and support R&D in 2000. Since then the policy has become more generous in this respect, particularly since 2008. In this paper, we use the National Systems of Entrepreneurship as a conceptual framework in which to question whether SMEs take-up of tax credits has actually led to an increase in product, service, or process innovations. Our evidence suggests that (a) SME engagement with the policy is fairly randomly distributed across the sector, and (b) there is little additional product–service innovation to justify the expenditure in foregone taxes given the current distribution of credits, but (c) there is evidence of enhanced radical process innovations, particularly when combined with strong capability and planning at the firm level.

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    Response rates are not available for the 2007/2008 survey.


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Correspondence to Marc Cowling.

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Cowling, M. You can lead a firm to R&D but can you make it innovate? UK evidence from SMEs. Small Bus Econ 46, 565–577 (2016).

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  • Innovation
  • Tax credits
  • SMEs
  • Government policy

JEL Classifications

  • L50
  • L26
  • O31