UK R&D spend hits £25bn annually

Businesses spent £25bn on research and development (R&D) in 2018, an increase of 5.8% on the previous year, new figures from the Office for National Statistics (ONS) show

Total R&D spent went up from £23.7bn in 2017. The ONS says a long-term upward trend is evident when considering R&D expenditure in constant price terms, with an average annual growth rate of 2.5% since 2007 levels. In constant price terms the latest increase from 2017 was 3.9%.

Aerospace was the product group that had the largest increase in expenditure on R&D in 2018, at £210m, an increase of 14%.

However, pharmaceuticals maintained its position as the largest product group, with £4.5bn expenditure, representing a 3.3% increase on 2017. This product group accounted for 18% of total expenditure performed in UK businesses, unchanged from 2017.

Motor vehicles and parts took second place, increasing by 4.3% to £3.8bn, continuing the growth seen over the last nine successive years. This group accounts for 15% of the total expenditure on R&D by UK businesses in 2018.

Large increases in expenditure were also seen in the telecommunications group, at £192m (25%) and other manufactured goods at £48m (21%).

The top five product groups accounted for over half (54%) of the total UK business R&D expenditure in 2018.

Over two-thirds of product groups saw increasing investment in R&D, but 10 product groups posted a decline. The largest two decreases were in electricity, gas and water supply; waste management, and food products and beverages; which both fell by £21m. The next largest decrease was in consumer electronics, which declined by £18m.

The east of England had the largest growth in the value of regional expenditure, increasing by £464m (9.9%) to £5.1bn in 2018. The ONS says the east and south east of England continue to dominate R&D in the UK, with the two regions accounting for a combined 41% of total UK R&D.

R&D expenditure in Scotland declined slightly in 2018 by 0.6% to £1.2bn, however, this follows a strong period of growth between 2010 and 2017 where R&D expenditure doubled.

The ONS calculates UK government funding of businesses’ R&D in 2018 was £1.7bn, a decline of £35m (2%) from 2017, representing 6.9% of total business R&D. UK government defence funding remained stable at £1bn but spending on civil R&D declined by £36m (4.9%). The two product groups that benefitted most from UK government funding were machinery and equipment (£316m) and shipbuilding (£315m).

Commenting on the overall trends, Mark Smith, partner innovation incentives at global business performance consultancy Ayming UK and Ireland, said: ‘Today’s numbers are certainly a step in the right direction but we still need to do more to make sure that the UK does not continue to lag behind its European and global counterparts.

‘For too long businesses have not been making the most of incentives and in many cases this is down to start-ups simply not being aware of what activity they can claim for. Our clients are often surprised at the extent to which they have been missing opportunities.’

Future plans for government support for R&D spending via tax credits are unclear currently. The Conservative government set out target of raising R&D investment to 2.4% of GDP by 2027, but research published by the CBI earlier this year suggested it is not expected to reach this level until 2053.

In its manifesto, Labour has said that a future Labour government would will conduct a review of corporate tax reliefs, singly out R&D relief, on the grounds that tax credits for research and development, have not made enough of a difference to productivity and is too skewed towards companies in the south east of England.

Labour has pledged to create ‘an innovation nation’, setting a target for 3% of GDP to be spent on R&D by 2030. The party says this will be achieved by increasing direct support for R&D and reforming the innovation ecosystem to better ‘crowd in’ private investment.

ONS report, Business enterprise research and development, UK 2018 

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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