As a share of national output, R&D spending dropped to the lowest ever recorded, just 1.8 per cent. This is well below the average for other leading economies, and compares with a 2.3 per cent of GDP share in France and Germany, 2.6 per cent in the United States and 3 per cent in Japan.
The figures highlight the weakness in British spending on innovation, which is one focus of the Government's efforts to boost the economy's potential.
The Budget earlier this month emphasised the importance of research and development to long-term growth prospects. It pre-announced a new R&D tax credit for small companies to be confirmed in next year's Budget.
This will be available to small and medium-sized firms spending more than pounds 50,000 a year on research and development, and will be made available to companies not yet making any taxable profits.
The proposal has been criticised as too restrictive, as very few small firms spend that much on R&D. However, the Treasury estimates the full- year cost to the Government at pounds 100m.
Most of the R&D carried out in 1997, the latest year for which data are available, was funded by business. This accounted for pounds 7.25bn out of a pounds 14.65bn total, and increased by 4 per cent in real terms compared with the previous year.
Direct government-funded R&D amounted to pounds 2.33bn, falling slightly in cash terms and diving by 7 per cent in real terms. Public funding through the research councils and higher education funding councils was stable in cash terms and fell slightly after inflation. Other funding came from private non-profit organisations and from overseas.
Part of the explanation for the declining government component lies in falling expenditure on defence R&D. But total civilian R&D expenditure has also fallen as a share of GDP each year between 1993 and 1997.