R&D enables companies to grow and this filters into the wider economy, so innovation spending figures are keenly watched.
The latest gauge comes in the form of the ONS’s annual Business Enterprise R&D report — and it’s good news.
While the data takes a while to update — latest figures cover 2020 — it shows the situation is more positive than you’d expect. In fact, contrary to expectations, the pandemic and lockdowns that crippled enterprise during that year seemingly failed to dent business R&D spending at all.
R&D spending by UK businesses grew by £900m, hitting £26.9bn in 2020. This 3.5% growth was similar to what came the year before, suggesting the pandemic did not force companies to suddenly bring their plans to a halt. Instead, it was business as usual on the R&D front. This tells us that companies still regard innovation as essential, which is going to be important to post-Brexit Britain.
The pharmaceutical industry dominates the proportion of R&D being carried out by UK businesses, with 18.6% of overall spending carried out by that industry alone.
Considering the Covid-19 treatment and vaccine research being carried out in 2020, it is not surprising that R&D spending in pharmaceuticals increased by 6% in a year to reach just over £5bn — the highest amount spent by the sector since the records began in 2009. The previous high was £4.9bn almost a decade earlier in 2011.
Meanwhile, software development experienced the biggest leap in expenditure, an increase of £314m (18.3%) to take its total to £2bn.
This sector has increased its R&D expenditure every year since being included in the data as a product group in its own right in 2016, and spending has nearly doubled in the five years since.
One area of potential concern is with motor vehicles and parts, where R&D spending fell by 12.6% from 2019 to 2020. The industry has been wrestling with a global shortage of semiconductors, and the number of new vehicles rolling off UK production lines fell five months in a row at the end of last year2. With those challenges, and fewer sales as a result, we could see a further decline in R&D spending when the next ONS figures are released.
Strong growth in the regions
The East of England saw the largest growth of any region in terms of pounds spent, increasing outlay by £425m (7.8%) to £5.8bn. The region also spends more on R&D than any other, accounting for 21.7% of UK R&D expenditure.
Only one region saw spending fall in 2020 — the West Midlands, where there was a decline of 4.6% to take expenditure to £2.3bn for the year.
Growth in R&D spending bodes well for the future
In many ways, R&D spending in 2020 defied all expectations, especially considering the economic shutdowns which defined the year. Spending grew in every region of the UK apart from one and, out of 33 product groups analysed by the ONS, spending fell in just eight of them.
This increased spending reinforces how important businesses know innovation to be. It keeps them ahead of their competitors and allows them to grow. If R&D spending was not knocked off-course by the early days of the pandemic, then this bodes well for the UK’s economic fortunes this decade.