UK R&D Expenditure: The 2.4% Target Achieved
In 2017, the UK’s Industrial Strategy set a target to increase total R&D expenditure to 2.4% of GDP by 2027. Previously, the latest available data from 2018 showed that R&D expenditure made up only 1.71% of GDP, placing the target seemingly out of reach.
Luke Sampson from Invo Capital previously wrote this blog post about the enormous task of hitting the target: https://invocapital.co.uk/shooting-for-2-4/
However, a recent statement from the Office for National Statistics (ONS) has presented a substantial shift in this narrative and presented a much easier route to success…
The ONS acknowledged that the Business Enterprise Research and Development (BERD) statistics and the HM Revenue and Customs (HMRC) R&D statistics, which have traditionally shown different levels of R&D activity due to their distinct coverage and methodologies, should ideally be more closely aligned.
In particular, the ONS identified that smaller UK businesses, which have been accounting for an increasing amount of R&D activity in the HMRC statistics, were not adequately represented in the BERD statistics. In response, the ONS has made interim methodological improvements to better represent these businesses.
The updated ONS’ BERD survey now indicates that the expenditure on R&D performed by UK businesses was £15.0 billion, £15.6 billion, and £16.1 billion higher in 2018, 2019, and 2020 respectively than initially estimated. This revision brings the ONS estimates considerably closer to HMRC statistics.
The impact of this change is significant. The updated figures reveal that the UK has now reached the R&D expenditure target of 2.4% of GDP, well ahead of the 2027 deadline.
This adjusted data will be incorporated into the next annual BERD publication released in November 2022, which will also include new data for 2021. The changes form part of a wider redevelopment of all ONS’ R&D statistics, set to conclude in 2024. It is expected that this interim methodological improvement will be the most significant change to the levels of business R&D.
Granted, this change in narrative does seem convenient given the simultaneous concern around fraud and abuse in the R&D Tax relief scheme from HMRC. However, taken on ‘face value’ it would make sense for both figures to be more closely aligned. Some commentators have suggested that it has acted as a pre-cursor to reducing the rate of relief available through the R&D schemes.
In any event, the aim of this aspect of the Industrial Strategy was to get better at turning exciting ideas into strong commercial products and services, creating the next generation of technologies to revolutionise productivity in all sectors from construction and agriculture to manufacturing and the creative industries.
So, the results will speak for themselves in the end … now what’s that statistical methodology like for measuring productivity?
