Spending on R&D is up – but Britain still lags behind competitors

UK industry is closing the gap with the rest of the world in terms of the amount spent on research and development but it is still only investing at half the level of competitor nations such as the United States and Japan.

The Government's 2002 R&D Scoreboard, published today, also shows that despite the economic downturn, overall spending on innovation has held up. Last year the top 600 international companies spent £206bn on R&D – up 4 per cent on the previous year – while the top 600 UK firms spent £16bn, an increase of 5 per cent.

But the rate of spending among UK firms still lags a long way behind that of overseas rivals. Among the top 600 international companies, R&D "intensity" – the amount spent on R&D as a proportion of sales – was 4.3 per cent. The comparative figure for the UK was 2.2 per cent.

The UK lagged the US and Japan and also had the lowest level of R&D intensity of any European country. Nevertheless, the performance of UK industry has improved over the last four years. In 1998, the UK's R&D intensity was just 1.8 per cent.

The scoreboard, produced by the Department of Trade and Industry's innovation unit, shows that the UK remains well ahead of its rivals in pharmaceuticals and biotechnology and defence and aerospace. These two sectors account for 46 per cent of UK R&D spending compared to 20 per cent internationally.

GlaxoSmithKline is Britain's biggest investor in R&D with a total spend last year of £2.65bn, followed by AstraZeneca and BAE Systems which spent £1.9bn and £1bn respectively.

However, the UK trails badly when it comes to R&D spending on IT, electronics, software and chemicals. Internationally, a quarter of all R&D investment goes into IT hardware. In the UK, the figure is only 8 per cent.

Commenting on the report, the Secretary of State for Trade and Industry, Patricia Hewitt, highlighted government efforts to raise the level of R&D spending through the introduction of new tax breaks.

However, the author of the report, Dr Mike Tubbs, a senior industrialist within the DTI's business and finance unit, said it would be next year before the impact of the tax incentives showed through because they were only introduced for large and medium-sized companies in the last Budget.

Dr Tubbs said the scoreboard also highlighted the way in which companies which invest heavily in R&D and capital expenditure tend to produce better returns for shareholders than companies which achieve growth through acquisitions.

Research carried out across the engineering industry by Brian Harding, a former senior stockbroker with James Capel, shows that two-thirds of companies that invest in R&D achieved higher-than-average total shareholder returns while two-thirds of companies that focused their investment on takeovers had below-average returns.

2002 R&D Scoreboard, DTI Business Finance and Investment Unit, 1 Victoria Street, SW1H 0ET.

www.innovation.gov.uk/finance