Data for business expenditure on research and development in 2017 were released yesterday by ONS. Here are some key takeaways from the data.
1. Business expenditure on R&D performed by UK business has continued to grow
Total business expenditure on R&D by UK businesses reached £23.7 billion, up from £22.2 billion in 2016. The business sector is the largest contributor to the UK’s expenditure on R&D as a percentage of GDP (GERD), and increases in business contribution, as well as public sector contribution are vital to helping to reach the government’s goal of 2.4% spent on R&D by 2027, and 3% later on.
2. Pharmaceuticals remains the biggest spender on R&D
An update on UK R&D wouldn’t be complete without a mention of how pharma tops the charts. The sector retains its leadership position in R&D expenditure, spending £4.3bn in 2017, contributing 18% of total business expenditure on R&D. However, as noted in our pharma bulletin, the share of expenditure is decreasing, currently spending in nominal terms 12% less than it did 2011. As the biggest contributor, this could mean trouble for the government if it is to achieve its 2.4% target.
The automotive sector remained the second biggest spender on R&D, growing by 4.6% and representing 15% of total business expenditure on R&D.
3. Employment in R&D has reached an all-time high – but things aren’t necessarily as they seem
Employment of R&D workers (categorised as administrative, clerical, industrial and other staff; technicians, laboratory assistants and draughtsmen; and scientists and engineers) has been rising steadily since 2008. Although the share of researchers has decreased since 2016, R&D employment has reached an overall high, which can largely be attributed to the increase in “other supporting staff”.
However, as ONS also states, total employment in the UK labour market has increased, and as such, this rise in R&D employment should be taken in the context of that.
4. Business R&D is increasingly funded by domestic funding…
UK businesses funded £17.7 billion of R&D, an increase of 6.7% from 2016. Overseas funding of R&D decreased by 7.4% from 2016, primarily due to a significant fall in European Commission (EC) grants. ONS noted that this fall in EC funding should be seen in the context of fluctuating year on year levels of funding since 1993.
As discussions on the UK’s participation in EU R&D programmes continue, the level of funding that UK businesses can access and the relationship between the UK and the EU on science and innovation will be important to track.
5. …but over half of all UK business expenditure on R&D is performed by foreign owned businesses.
Our report last month, Piecing Together the Puzzle, showed that foreign owned businesses in the UK generally have higher productivity levels, and that investment by foreign owned companies in manufacturing is generally higher. Although we didn’t specifically analyse R&D investment in the report, we know that there is a clear link, and that R&D expenditure plays a critical role in supporting long-term growth and productivity.
As government, industry and the HE sector work together to raise levels of R&D expenditure as a percentage of GDP to 2.4%, it will be important to see how the groups work together to continue to help achieve the target. It will also be important for government to continue to support the manufacturing sector in this as it continues to lead the charge in its contribution, particularly in the context of Brexit and the related funding and research opportunities that may be involved.
EEF as the voice of UK manufacturing will continue to set out the needs of the sector on this important topic.