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R&D: the state of play now and what’s in store for 2018

The ONS has released its annual R&D spending report. Spending is up but there is more to be done if the UK wants to be a global player.
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Last week, the Office of National Statistics released a detailed report on UK R&D spending in 2016. The results are encouraging in some ways: expenditure is up and has been growing every year, and R&D employment has also increased. However, the figures also show that we are still lagging behind on an international scale, and there is a lot more that the government could be doing to support R&D. Let’s take a closer look at report and what it means for the future of innovation in the UK.

 

UK businesses still keen to invest in R&D

 

The main piece of good news was that UK businesses continued to increase their R&D spending in 2016. The total amount spent rose to £22.2 billion, an increase of 5.6% from the previous year. Encouragingly, this seems to be part of a long-term trend of businesses investing more in innovation. ONS statistician Daniel Grove says that this increase “continues the growth of more than £1 billion a year since 2013.”

 

Employment in R&D is also up, rising 2.1% to 210,000 full time equivalents. The fact that businesses are willing not only to invest money in R&D, but to take on more staff in the area, shows that innovation is increasingly recognised as an essential part of a company’s growth.

 

Aerospace and transport grow steadily

 

The biggest growth area was transport: both terrestrial and extraterrestrial. Aerospace spending increased by 12% to £1.7 billion. The car industry was responsible for the biggest increase in spending, growing by 20% and accounting for almost half of the country’s additional spending. Whether this is related to Chancellor Philip Hammond’s promise of driverless cars by 2021, or if the research took place in other areas, remains to be seen. Either way, the future looks bright for the British car industry.

 

The report shows that London still dominates R&D investment. £2.3 billion was spent in the city in 2016, an increase of 21%. However, there is also positive news outside of the capital. One of the biggest spending increases was in the North West of England, where expenditure rose by 11%. This could be partly due to the government’s Northern Powerhouse scheme, and also reflects Manchester’s status as a new UK tech and startup capital.  

 

Outside of England, the picture is less encouraging. Although spending in Wales and Scotland has increased a great deal, overall spending is still very low. Northern Ireland spends the least on R&D and, worryingly, spent even less in 2016 than it did in 2015. Clearly, more needs to be done to support innovation in the other nations of the UK.

 

A worrying trend for SMBs

 

One of the more worrying statistics in the report is that 43% of R&D is concentrated amongst 100 top companies. This suggests that already successful companies are spending more on R&D to cement their dominant position, while smaller startups are struggling to break into the market. More needs to be done to support smaller businesses as these are frequently the companies with the most innovative ideas.

 

Perhaps the most disappointing statistic in the report was the decrease in government investment in R&D in 2016. Overall spending is up, but the private sector is picking up most of the cost. Government investment in R&D decreased for the second year running, dropping by £86 million (5%). It is also worth mentioning that the majority of government spending (57%) was in the defence sector: hardly the most positive form of R&D.

 

Investment ought to begin in the North West

 

So what needs to be done? The North West of England will play a key role in the future of UK business and it’s great to see the region investing so much in R&D. Other regions of the UK need to be supported too. The Northern Powerhouse scheme has been a success. Maybe something similar should be attempted elsewhere.

 

Overall government spending in R&D needs to increase. Investing less and less in innovation shows a lack of confidence in UK business which, against the backdrop of Brexit, could prove fatal. Luckily, there are encouraging signs in the latest budget. In his Autumn statement, Philip Hammond pledged £2.3 billion in R&D investment for 2018, calling it “The largest boost to R&D support for 40 years.”

 

It remains to be seen if this will materialise, but cautious optimism seems in order. With private R&D funding backed up by increased government spending, the UK could be truly unstoppable in 2018.

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