What's happening with R&D expenditure? (and why you should care)

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After all the excitement of this week’s Budget(s) has died down (and check out Lee’s blog from Wednesday for our views on that) our attention inevitably turns to the next five years, and the things we would like to see at future Budgets.

 

And what we really want to see is growth finally making its way from the wobbly baby deer walk of recent years and finding its way onto a more stable footing.

So the question is, how do we know when we’re on our way to walking tall?

Well, at our conference last month, we published a set of metrics which would tell us just this, they’re detailed below.

EEFmetrics

The point in these metrics is that they help us understand whether the economy is becoming more balanced. Instead of growth skewed towards debt and consumption, success here points to an economy where growth is being driven by investment, exports and productivity. This balanced approach should lead to a more resilient economy, and more stable long-term growth.

Today I want to take a look at the first metric: business expenditure on R&D as a percentage of GDP. To date, growth in this has been limited, and while some data released by ONS today shows an improvement, we still lag behind our competitors, both for business spending and total spending on R&D.

As the ONS summary says:

“Total R&D expenditure in the UK in 2013 represented 1.67% of Gross Domestic Product (GDP), an increase from 1.62 % in 2012. International comparisons show that UK R&D expenditure in 2013 was below the European Union (EU-28) provisional estimate of 2.02% of GDP”

This matters because R&D expenditure plays a critical role in supporting long-term growth and productivity.

Today’s data also gives us a picture of what’s happening with government expenditure on R&D. The good news is it increased in 2013, though at a slower pace than business expenditure. We need to see continued improvements in Government R&D expenditure as it is a key driver of business spending on R&D.

Recent improvements reflect some pretty positive policy trends. There has been good progress on innovation support in the last few years, with the introduction of Catapult centres, increasing the value of the R&D tax credit, and increased funding for the innovation support agency, Innovate UK.

What’s more there was some good news for innovative companies tucked away in the Budget earlier this week as well. A couple of key things stood out:

This goes to show that there are ways government can boost the economy that don’t necessarily involve new spending. These two measures should help make the process of companies bringing new products and services to market simpler and more straightforward. If that happens, it’s a win for manufacturing, and a win for the whole economy.

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