The government is to offer UK businesses tax cuts and credits worth around £500m in next month's budget to boost spending on research and development (R&D).
It is hoped that the measures will improve the innovation and competitiveness of the UK in an increasingly tough global market.
"As we prepare for the sixth budget we are able to build on this platform of stability and employment creation and our energies must continue to be directed to promoting enterprise and investment and raising our country's productivity," said Chancellor of the Exchequer Gordon Brown.
Tax credits will be available to 1,500 businesses spending over £11bn a year on R&D in an extension of a scheme introduced for small and medium sized enterprises in 2000.
Further tax exemptions for companies buying and selling intellectual property are expected to save UK firms £200m a year.
A survey last year by the Department of Trade and Industry found that UK companies invest just 2.1 per cent of sales revenue in R&D, compared to 4.3 per cent in the US and 4.2 per cent in Japan.
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