The latest UK budget highlighted the Chancellor's commitment to continued investment in innovation, by increasing the rates of R&D tax relief for small, medium and large companies, with an extra £220m (€325m) available over the next three years.

However, this does seem to come at a price with an increase to the small companies' tax rate, which is estimated to raise an extra £1.25bn over the next three years according to a report published by business and financial advisors Grant Thornton.

The Research Councils have welcomed the increases in the Science Budget, in particular the commitment to a 10 year Science and Innovation Investment Framework.

"It is wonderful news that the Chancellor has given such a positive message of support for the UK research base. UK research and researchers are world class, and the Research Councils are committed to maintaining this excellence and maximising the impact that research has on the economic development and quality of life of the people of the UK and beyond," said Professor Ian Diamond on behalf of Research Councils UK.

The move also seems to have pleased those designing and manufacturing innovative technologies.

"The R&D tax credits will make a tangible and significant difference to the amount companies invest in R&D," said Mark Gilligan, managing director of Syrris , a supplier of hot-plate stirrers and flow chemistry equipment.

"The UK needs to invest more and more in R&D and any incentives are beneficial to both the company and the country."

According to the Grant Thornton report, R&D tax relief for small and medium sized enterprises (SMEs) will rise from 150 to 175 per cent of qualifying costs. Although loss-making companies will still receive the 24p for every £1 spent on R&D that they currently receive.

Large companies will receive a smaller increase in R&D tax relief from 125 to130 per cent as of 2008. Ann Minson, senior manager at Grant Thornton believes: "this is a step in the right direction, but the level of effective tax saving is unlikely to be enough to influence R&D decisions."

The R&D tax relief has been welcomed by the research-based pharmaceutical industry in Britain, with Association of the British Pharmaceutical Industry (ABPI) claiming it will help the UK's science-based industries in the face of global competition.

"The UK-based pharmaceutical industry spends some £9 million a day on researching new and innovative medicines, and the Chancellor's moves to reinforce UK biopharmaceutical R&D can only help the UK in its bid to attract more of this highly skilled work," said Dr Richard Barker, Director General of the ABPI.

However, reforms to the capital allowance expenditure will only entitle companies a maximum capital investment allowance of £50,000, with a reduced rate of 20 per cent for plant and equipment expenditure.

The report also expresses disappointment over the erosion of the Enterprise Investment Scheme (EIS), which the authors believe will make it harder for young and growing technology companies to raise funds.

The chancellor halved the EIS gross asset qualifying limits in his last budget and added two new criteria in this budget: that qualifying companies must have less than 50 employees and that the qualifying amount raised will be limited to £2m in any twelve-month period.

"The further restriction of funds available to those companies who arguably have the greatest need, is difficult to reconcile with the government's stated desire to promote an enterprise solution," said Neil Pamplin, tax director at Grant Thornton.