Already, in admitting that the economy will grow at a slower-than-predicted pace this year and next and that the budget deficit for 2006 will be double previous estimates, the chancellor has hinted at how he intends to make up some of the shortfall: more taxes.

North Sea oil companies are to be hit for £6.5bn, the second big tax rise in three years, and a land tax and tougher tax avoidance measures are also on the cards. There is sure to be more.


But before going on a tax grab, Mr Brown would be well advised to study the contents of various recent studies and reports regarding the UK’s research and development (R&D) and innovation competitiveness.

The Deloitte Competitiveness Index, for example, ranks countries on the key factors related to wealth creation, including innovation; findings are based on a polling of business leaders. Deloitte places the UK at number six worldwide but predicts the country will fall to number 12 within five years. One of the reasons cited? Unfairness of tax.

The problem is not limited to Britain, of course; it plagues much of Europe. The much-hyped Lisbon accord of 2000, in which Eurocrats vowed to make the EU “the most competitive and dynamic knowledge-based economy in the world”, is dead in the water. By all accounts, Europe lags far behind the US in innovation and in R&D spending – and, despite all the rhetoric in Lisbon, that gap is only widening.

There are many reasons for this disparity and hence many potential solutions, which we will examine in more depth in the Feb/March 2006 issue of fDi, but one thing is certain: higher taxes will not help.