Chancellor Gordon Brown has announced an increase in the tax credit designed to encourage R&D spending by large companies - but IT suppliers' body Intellect warned that the extra 5 per cent was not enough.

Brown's Budget increases the large company R&D tax credit from 125 per cent to 130 per cent, beginning in April next year.

But Tom Wills-Sandford, deputy director general of Intellect, said the increase would amount to around half a percentage point in real terms.

Intellect figures suggest that only around half the elements in R&D projects are eligible for tax credits, while the cut in corporation tax announced in the Budget, reducing it from 32 per cent to 30 per cent, will further lessen the impact of the tax credit.

"I'm a little disappointed in the increase for the large company R&D scheme," Wills-Sandford said. "The [former] 25 per cent headline rate works out at about 3 or 4 per cent benefit. The increase is about half a percentage point, [taking the net benefit] from 3.75 per cent to 4.2 per cent.

"That's not enough for a finance director in New York to invest in the UK. It's not enough to attract big corporations to change their investment plans."

But Intellect did welcome the increase in the R&D tax credit for small and medium-sized enterprises, from 150 per cent to 175 per cent. "I wasn't expecting anything on the small business scheme, which is generally recognized as working well. They are trying to target small successful companies and get them to stay in the UK, and we welcome that," Wills-Sandford said.