How UK accidentally met its R&D target, spent $18 billion annually above threshold over the past five years

How UK accidentally met its R&D target, spent $18 billion annually above threshold over the past five years


The UK government has unexpectedly met its research and development spending target – an achievement revealed by changes in how industrial investment is calculated.

The adjustments were announced on September 29 in a briefing note from the UK Office for National Statistics (ONS), a non-ministerial government body. They show that over the past few years, businesses have been spending between £15 billion and £16 billion (between $16.9 billion and $18 billion) more on research and development each year than previously thought.

The ONS plans to report its official figures in November, but the briefing note suggests that UK businesses have been investing between £40 billion and £43 billion per year, rather than the £25 billion to £27 billion calculated using the ONS’s previous method.

That means that the government’s 2017 pledge to increase public and private research and development (R&D) funding to 2.4 per cent of gross domestic product (GDP) by 2027 might already have been met. Although science campaigners and others have welcomed the news, it raises fresh questions about future government investment in science. Nature looks at the issues.

The ONS figures on businesses’ R&D investments have been shrouded in uncertainty for years. The office previously based its estimates on a survey of 5,400 relatively large companies known to be performing R&D, representing about 40,000 such firms in the country.

But statistics on tax credits told a different story. These credits are doled out to companies as an incentive to conduct R&D, and data from almost 85,000 companies of all sizes suggest that business investment in this area was much higher than the ONS figures reported.

The ONS survey and the tax-credit data-collection process approach the definition of R&D slightly differently, so the results would never have been an exact match. And because tax credits offer a financial incentive to report R&D, those data might be an overestimate.

Nevertheless, the ONS has now used other data on small businesses’ R&D activities to scale up its existing survey data, bringing the results closer to the tally based on tax credits. The ONS thinks this should offer a truer picture of R&D spending.

It seems so. Tax data weren’t the only hints that firms were investing more in R&D than the ONS recognized. The UK Department for Business, Energy and Industrial Strategy (BEIS), which oversees science, runs its own innovation survey.

This has previously suggested higher investment levels, says Paul Nightingale, who studies innovation at the University of Sussex in Brighton, UK. He adds that people have had suspicions about the ONS’s numbers for years, “You can’t have an economy as successful as the UK if there is so little research and investment going on as suggested by these [original] figures,” he says.

Yet Stian Westlake, chief executive of the UK Royal Statistical Society in London, says that the “jury is still out” on what the rise in reported spending reflects. It might capture genuine R&D activities among small businesses that were previously unseen or merely echo inflated tax-credit data. “In reality, it is probably a bit of both,” he adds.

Nightingale says that the revision also prompts further questions about the UK economy. The country’s economic growth has been stagnant for many years, which some experts have blamed on a lack of R&D investment by businesses. But the new data suggest that firms have been investing all along, so there could be other factors at play. “Are we spending the money the right way?” he asks.

Historically, the United Kingdom has lagged behind other countries in its R&D spending. In a bid to make it more competitive and spur economic growth, the government launched a new industrial strategy in 2017; that’s when it promised to boost overall R&D spending from 1.7 per cent to 2.4 per cent of GDP within a decade. The target was based on the then-current average R&D spending of countries assessed by the intergovernmental Organisation for Economic Co-operation and Development (OECD) in Paris.

The ONS revision means the UK might have reached its 2.4 per cent target, but the OECD average has grown to almost 2.7 per cent in the past few years. UK investment still trails that of comparable leaders in R&D: Israel and South Korea spend more than four per cent of their GDP on R&D and Germany, Japan and Switzerland spend over three per cent according to the Campaign for Science and Engineering (CaSE) in London.

In a blogpost this month, CaSE policy officer Camilla d’Angelo welcomed the ONS revision as a more accurate measure of R&D spending, but added that the UK should not rest on its laurels.

Most countries calculate R&D spending in similar ways, and it’s not unusual for them to revise their estimates if they discover more companies investing in R&D. But the ONS revisions are an order of magnitude larger than those previously made by other countries, according to a source familiar with the OECD’s R&D statistics.

The OECD will next collect national R&D spending data at the end of this year and will publish updated global comparison figures in March 2023. It declined to comment on the revised UK data or say whether it would accept them.

Some policy watchers worry that having met its 2.4 per cent target, the government could renege on previous science-spending promises.

The new UK Prime Minister Liz Truss has not yet confirmed her commitment to maintaining the target, and has proposed a raft of tax cuts that have sent the value of the pound crashing.

The Institute of Fiscal Studies, a think tank based in London, suggests that the government will have to find £60 billion in savings to fund the tax cuts, sparking fears that the budgets of government departments, including BEIS, will be slashed to make up the shortfall.

On October 12, however, UK science minister Nusrat Ghani told a science and technology parliamentary committee that the government remains committed to its existing spending promises.

  • A Nature report
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