Do we need to go further for innovation?

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In the government's recent Innovation White Paper they state that innovation will be the key driver of long-term sustainable growth.

So you would expect that the government's Plan for Growth – which they describe as the “plan to put the UK on a path to sustainable, long-term economic growth .” – would be keenly focused on encouraging innovation.

But in the government's four ambitions and the benchmarks for achieving these (you can see them here) neither innovation nor R&D is mentioned once. Actually, you have to get to page 28 before they detail support for innovation.

So how can we ensure that government policy is better-geared towards driving the kind of growth our economy needs?

We have been calling on the government to adopt a clearer, stronger strategy for growth for some time. We have suggested that the government aim to:

Increase the number of companies bringing new products and services to market.

Underpinning this, we have suggested two measures:

  • Real business enterprise sector investment by businesses of all sizes in R&D returned to pre-recession peak by 2015
  • 60% increase in the take-up of the SME R&D tax credit by 2015

Clear, measurable targets would help ensure government policy was focused on achieving a stronger, growing economy.

And even if we don't have targets, our competitors do*.

  • The Japanese government has set itself the target of increasing R&D expenditure to 4% of GDP by 2020
  • Germany is committed to spending 3% of GDP on R&D by 2015
  • In Sweden they already spend 4% of GDP on R&D

And it's not just developed economies. Emerging economies are getting in on the act too:

  • China expects to spend 2.2% of GDP on R&D by 2020
  • Brazil aims to spend 2% of its GDP on R&D by 2020

In the UK R&D spend accounts for less than 2% of GDP.

While R&D intensity varies from sector to sector (in manufacturing it is about 4%, and rises to 15% for pharmaceuticals) lower R&D intensity puts the UK at a distinct disadvantage compared with our competitors.

These R&D targets include both government and business spending on R&D, but some of them have supplementary targets for business spend on R&D (for example, the Japanese government is targeting business spend on R&D of 2.7%). This is crucial, because the government has the ability to influence business spend on R&D through a series of policy levers. The government already recognises this fact; in the Innovation White Paper, they state that "government can be an important driver of innovation".

For this reason, we will be monitoring the government's progress against our ambitions anyway. The next data releases will be:

  • Business invesment in R&D returned to pre-recession peak: November 2012
  • 60% increase in the take-up of the SME R&D tax credit: October 2012


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