Outlook: Not good enough

THE DTI'S annual R&D scoreboard, published today, tells a familiar story - that of British industry lagging behind its international competitors, both in the level and growth of expenditure on R&D. Only the biggest companies spend enough on research, with 16 accounting for more than half the R&D spending of the 561 firms in the survey.

The Government, like all its predecessors, has promised to improve the UK's productivity level, and it naturally sees enhanced R&D spending as a key part of any such drive. The Budget made much of the productivity gap between the UK and the rest of Europe or the US, and introduced a raft of measures intended to narrow it.

At a conference held by the Society of Business Economists yesterday, Steve Robson, head of finance, regulation and industry at the Treasury, conceded that governments had played a large part in the disappointing British performance. "Much of the blame for failure rests with the Treasury, and I'm from the Treasury, so I can feel quite confident in saying that," he admitted.

But are the new Government's policies any better? Another speaker, Professor Nicholas Crafts of the London School of Economics, seemed to imply that they were not, arguing that many of the necessary measures were vote-losers because short-term pain is needed to deliver long-term gains.

Thanks to Mrs Thatcher's willingness to inflict these short-term pains, the Conservative agenda of privatisation, deregulation and jobs market flexibility has helped the UK catch up in the productivity league, he said. Output per hour worked in the private sector has grown twice as fast as in the US since the mid-Seventies. Mr Robson argued that the present Government is building on a still-low productivity level with policies ranging from tax incentives for venture capital, through tougher competition policy to educational reforms. It would be a long haul but the determination was there, he said.

However, if Professor Craft's analysis is correct, other measures are pushing in the opposite direction. Many businesses would claim that productivity has been sacrificed to politics with the introduction of the working time directive and other red-tape creating measures. Much of the Labour Party in any case remains suspicious of entrepreneurship and wealth, with the Old Labour ranks still keen to raise taxes on the middle classes. The Government's own scorecard thus reads: "Reasonable start, but must do better."

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