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There’s still a long way to go before the Government’s target of 2.4% of GDP is achieved

Chancellor of the Exchequer Philip Hammond

Figures released by the UK’s Office for National Statistics (ONS) show the R&D expenditure in 2016 was £22.2billion; an increase of 5.6% compared to the previous year. This increase was accompanied by growth in the number of full time equivalent R&D employees, rising by 2% to 210,000, of which 52% are considered to be scientists and engineers.

According to ONS, businesses themselves were the major source of funding, increasing their spend by 9% to £16.2bn, equivalent to 73% of total business R&D expenditure. Overseas funding is said to have declined to 16% in 2016 from a figure of 24% in 2010, whilst government investment in R&D was £1.7bn, slightly less than in 2015.

The figures were welcomed by the CBI, whose innovation director Tom Thackray said: “Even against an uncertain backdrop, British businesses have increased their R&D spend to record levels. Firms know that innovation can have a fundamental role in helping them grow and become more productive in challenging times. However, the total level of spending is still far too low by international standards.”

Thackray’s observation reflects a view held over the years that UK companies don’t take investing in the future seriously enough. A decade ago, the UK R&D Scoreboard – published by the then Department of Innovation, Universities and Skills, but discontinued by the Government in 2010 – found that leading UK firms invested almost £21bn in 2006; 9% more than in 2005 and similar to the amount spent in 2016. Confirmation comes from statistics published by the Organisation for Economic Cooperation and Development, which found the UK’s investment in R&D as a percentage of GDP has remained almost flat since 2000 at 1.7%. This compares with the average spend of OECD countries of 2.38% – up from 2.1% in 2000. The OECD said that Israel and Korea invest the most at 4.2% of GDP.

Regionally, most UK R&D investment is made by companies in the South East and East, accounting for 41% of all spending. However, while R&D spend in the East rose by 4.6%, the South East saw investment decline by 1.5%. The North East, Wales and Northern Ireland had the fewest R&D staff and levels of expenditure.

Looking at industries, pharmaceuticals continued to invest most in R&D, but the largest growth was seen in motor vehicles and parts, where £3.4bn was spent in 2016; 20% more than in the previous year. According to ONS, the manufacture of computer, electronic and optical products saw an R&D spend of £1.1bn.

The ONS figures came a day before Chancellor Philip Hammond, pictured, presented his latest budget. In his speech, the Chancellor said: “We are allocating a further £2.3bn for investment in R&D and we’ll increase the main R&D tax credit to 12%. This will take the first strides towards the ambition of our industrial strategy to drive up R&D investment across the economy to 2.4% of GDP.” According to the Chancellor, the latest move will take total direct R&D spending to £12.5bn a year by 2021-22. Other initiatives include providing ‘more than £500million’ for areas such as AI, 5G and full fibre broadband.

"We are allocating a further £2.3bn for investment in R&D."
Philip Hammond

“The Government has understood the scale of this challenge and its decision to increase funding until 2021/22 represents a hefty down payment on its commitment to raise UK R&D spend to 2.4% of GDP. Businesses await the details of this investment in the Budget and the Industrial Strategy. If it is spent in the right areas, it will help businesses to invest more of their own money, more successfully,” Thackray concluded.

Author
Graham Pitcher

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