Last week we launched our Industrial Strategy.
Our call is for government to present a clear vision for growth towards a better balanced economy; ensure all government departments pull together to achieve this; and provide clear accountability, to make sure that progress is achieved.
Our vision for the economy is summarised in four key ambitions. One of these it that we want to see more companies bringing new products and services to market.
In order for companies to bring new products and services to market, they need to be investing and innovating, so we would measure progress against this ambition with the following two metrics:
- Business expenditure on R&D (we want to see this back to its pre-recession peak by 2015)
- More SMEs taking up the R&D tax credit (we want to see 60% growth in this figure by 2015)
Achieving these goals will be key to maintaining and building the UK’s competitiveness
This is especially important, as the UK underperforms many international competitors against both business expenditure on R&D and the proportion of SMEs bringing innovations to market.
So where are we now?
1. Business expenditure on R&D fell as a result of the recession in many countries:
Last week the OECD released research on international levels of business expenditure on R&D. What it showed was that R&D spending in the UK fell in 2009 as a result of the recession. The UK was not alone in this, nearly all OECD countries saw a fall in Business Spend on R&D in 2009 (the exceptions were South Korea and France).
The fall in business spend on R&D is worrying – as the OECD notes – it could impact negatively on long-term growth. What is perhaps more concerning is that the OECD argue that continued economic uncertainty could lead to sluggish growth in R&D spend by firms.
2. However, business investment did not fall everywhere:
Falling business spend on R&D could really hamper competitiveness, especially when R&D spend is rising rapidly in countries outside of the OECD like India and China.
3. And in some countries, governments supported R&D spending:
In some OECD countries falling business expenditure on R&D was counteracted by rising government expenditure on R&D. This was not the case in the UK, however, where both business and government spending fell in real terms, meaning total spending on R&D was further hit.
4. More recent data from the UK points is a little more positive:
There are more recent statistics available for the UK that show business R&D expenditure picked up again in 2010, rising by 0.9% in real terms compared with 2009. However, this is not a particularly fast rate of growth, and - as GDP grew faster than this - expenditure on R&D as a percentage of GDP actually fell back very slightly, to 1.09%. Crucially, though, UK business expenditure on R&D is still lower than in many competitor countries, and a renewed downturn in the global economy could yet hit spending on R&D further.