View from City Road: Keeping R&D in focus

THE UK had better watch out. Its spending on research and development was failing to keep up with that of its competitors as the downturn began. Its current position in the league tables, after two years of recession, hardly bears thinking about.

Figures for 1989-90, just produced by the Central Statistical Office, show that the UK's spending on R&D fell in real terms. It also declined as a proportion of gross domestic product from 2.24 per cent to just 2.21 per cent.

The relative position was even more serious, with Japan, France, Canada and Italy all increasing their spending as a proportion of GDP while the UK was cutting its spending. This is likely to affect our competitive position in years to come.

Industrialised countries fell into three groups, with Germany, Japan and the US at the top and Canada and Italy at the bottom. The UK and France occupied the middle, with the UK giving way to France, helped by hefty government funding, in the league table since 1985. Both countries spend about four-fifths as much as the top group.

Though companies find it hard to cut R&D in a hurry, because much of it is tied up in long-term projects, a few hard-pressed groups have proved it is possible. BP, one of Britain's biggest spenders, reduced spending by 6 per cent last year. Given the recession has been deeper in the UK than most other countries, it is fair to assume that British companies will have cut their R&D budgets by more than their rivals in other industrialised countries. It is up to investors to keep up pressure on companies to maintain focused spending on R&D.