Is the UK losing the innovation race?

Posted on 23 Jul 2012

Felicity Burch, an economist at manufacturers’ organisation EEF, blogs on the juxtaposition between how the government says it is going to support R&D and what is actually happening on the ground…

In the Government’s recent Innovation White Paper, it states that innovation will be the key driver of long-term sustainable growth.

So you would expect that the Government’s Plan for Growth, which it describes as the “plan to put the UK on a path to sustainable, long-term economic growth,” would be keenly focused on encouraging innovation.

But innovation and R&D is not mentioned once in the Government’s four ambitions and the benchmarks for achieving such growth. 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?

EEF has suggested that the government aim to increase the number of companies bringing new products and services to market via the following two measures:

  1. Real business enterprise sector investment in R&D returned to pre-recession peak by 2015.
  2. A 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 and they already spend 4% of GDP on R&D in Sweden.

And it’s not just developed economies. Emerging economies are getting in on the act too, with China expecting to spend 2.2% of GDP on R&D by 2020 and Brazil aiming to spend 2% of its GDP on R&D by 2020.

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

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 to 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%). Government has the ability to influence business spend on R&D through a series of policy levers.

Click here to read the full version of this blog.