The UK Innovation Report 2022

Policy questions and key messages

1. Is the UK spending enough on R&D?
2. How do the public and private sectors contribute to national expenditure on innovation?
3. How does the UK compare with other countries?

The UK spends less on R&D than the OECD average; a significant increase in public funding for R&D has been announced but delayed

• At 1.74%, the UK’s gross domestic expenditure on R&D (GERD) remains well below the 2019 OECD average of 2.5%.
• The UK’s expenditure on R&D has risen steadily over the past decades but, as a proportion of GDP, its growth has been slower than the OECD average.
• The UK government has committed to investing £22 billion in R&D by 2026/27 (pushing back the original target date of 2024).

Compared to other countries, the business sector in the UK contributes less to R&D funding; universities perform significantly more of the country’s R&D and the government significantly less

• In the UK the business sector funds around 55% of R&D – less than in Germany (64.5%), Korea (76.9%) and Japan (78.9%).
• The UK’s higher education sector stands out from comparator countries, performing 23.1% of the country’s R&D in 2019, compared to 20.1% in France and 17.4% in Germany.
• The government sector in the UK performs only 6.6% of R&D, well below comparator countries.

Very few firms headquartered in the UK are global leaders in R&D investment and patent applications

• Only two companies headquartered in the UK are among the top 100 R&D investing firms in 2020.
• Among the top 2,500 R&D investing firms in the world, only 105 were UK-based in 2020 (779 were based in the USA, 597 in China, 293 in Japan and 124 in Germany).
• There were no firms headquartered in the UK among the top 100 patent applicants at the United States Patent and Trademark Office (USPTO) in 2020.

R&D expenditure: international comparison

Source: OECD (2020). Main Science and Technology Indicators.

• At 1.74%, the UK’s gross domestic expenditure on R&D (GERD) remains well below the 2019 OECD average of 2.5%.
• The UK spends less on R&D as a percentage of GDP than OECD countries, including Israel, Korea, Japan, Germany and the United States.
• The UK also spends less than non-OECD countries such as China and Singapore.
• The UK government has set a target to boost investment in R&D to 2.4% of GDP by 2027. This includes a commitment to increasing public funding for R&D to £22 billion per year by 2026/27.

Actual UK R&D expenditure against 2.4% target

Source: Office for National Statistics, ONS (2021). Gross domestic expenditure on research and development time series (GERD).

• The UK’s gross domestic expenditure on R&D (GERD) as a share of GDP increased from 1.59% in 2000 to 1.74% in 2019.
• This represents an average annual growth rate of 0.5%, while the OECD average grew at an annual rate of 0.9%.
• To narrow the gap between the UK’s GERD and the OECD average, the UK’s 2017 Industrial Strategy committed to spending 2.4% of GDP on R&D by 2027.

UK government net expenditure on R&D against the 2026/2027 £22bn target

Note: * Estimated. ** Budget announced at Spending Review 2021. Net R&D expenditure is defined as: “In-house R&D plus purchased or funding provided for R&D less funding received for R&D“ (ONS). Source: Office for National Statistics, ONS (2021). Research and development expenditure by the UK government; HM Treasury (2021). Spending Review 2021.

• From 2007 to 2019 the UK government’s net expenditure increased from £9.8 billion to £13.1 billion in current prices. This represents an annual growth rate of 2.8%.
• The government net expenditure in 2020, however, was expected to be lower than in 2019.
• Reaching the £22 billion target would require an annual increase by more than 10% in the next four years.
• In the March 2020 Budget the government announced that public R&D expenditure would rise to £22 billion by 2024/25.
• However, in the 2021 Autumn Budget and Spending Review, the date to reach the £22 billion target was pushed back to 2026/27.
• Reaching the 2.4% target (R&D investment as a percentage of GDP) will require a significant increase in private investment, in addition to public investment.

R&D expenditure by source of funding

Note: *US$ billion PPP – current prices. 2018 data for the UK. Source: OECD (2021). Main Science and Technology Indicators database

• In the UK the business sector contributes to around 55% of R&D funding. This is less than in comparator countries, such as Germany (64.5%), Korea (76.9%) and Japan (78.9%).
• The UK government (including national and regional governments, as well as their agencies) funds roughly 26% of total R&D expenditure, which is higher than Japan, Korea and China.
• The UK has a relatively high share of R&D funded by businesses and institutions located abroad (13.7% in 2018).

R&D expenditure by sector of performance

Note: *US$ billion PPP – Current prices. Source: OECD (2020) Main Science and Technology Indicators database.

• In terms of R&D expenditure by sector of performance, the UK’s higher education sector stands out from comparator countries, with a 23.1% share in 2019, above countries like China, Korea, Japan, the United States, Germany and France.
• Conversely, the government sector in the UK performs only 6.6% of R&D, well below comparator countries.
• In line with comparator countries, the business enterprise sector performs the highest share of R&D, at 66.6% in the UK in 2019.

UK government net expenditure on R&D by department

Note: HEFCE closed in 2018 and its functions were divided between the Office for Students and Research England. Source: Office for National Statistics, ONS (2021). Research and development expenditure by the UK government.

• In 2019 most (38.9%) of the UK government net expenditure on R&D was allocated to UK research and innovation (UKRI). This represents an increase by 10 percentage points in comparison to the proportion spent by research councils in 2016.
• The proportion of government expenditure on R&D by higher education funding councils also increased, from 19.6% in 2016 to 21.9% in 2019.
• Meanwhile, the absolute and relative expenditure on R&D of civil departments decreased from £3,249 million (28.9%) in 2016 to £3,190 million (24.4%) in 2019.

BEIS R&D funding allocation, 2021-2022

Source: BEIS (2021). BEIS research and development (R&D) budget allocations 2021 to 2022.

• Most of the public expenditure on R&D in the UK is delivered through the Department of Business, Energy and Industrial Strategy (BEIS), which allocates funding to different agencies and programmes, including UKRI, the UK Space Agency and the National Academies.
• UKRI funding includes the investments of the seven research councils, Research England and Innovate UK.
• In the March 2020 Budget the UK government committed to the creation of the Advanced Research and Invention Agency (ARIA), an independent research body to fund high-risk, high-reward scientific research.
• The commitment to create ARIA involves an allocation of £800 million over the next four years. From this amount, £50 million is included in the 2021–22 Budget.

Top 20 R&D investing companies in the world

Source: European Commission (2021) The 2021 EU Industrial R&D Investment Scoreboard

• The chart shows the top 20 R&D investing companies in 2020.^[1]
• The USA (nine companies) and Germany (four companies) are followed by companies based in Japan, Switzerland, China and Korea.
• Industries of specialisation include: pharmaceuticals and biotechnology; automobiles and parts; software and computer services; technology hardware and equipment; and electronic and electrical equipment.^[2]

^[1] R&D investing companies are the 2,500 firms that invested the largest sums in R&D worldwide in 2020, as defined in the EU Industrial R&D Investment Scoreboard. Those companies have headquarters in 39 countries and represent 90% of the expenditure in R&D by the business sector in 2020.

^[2] Sectors are defined according to the Industry Classification Benchmark (ICB) FTSE International.

Top R&D investing companies in the world

Note: R&D investing companies are the 2,500 firms that invested the largest sums in R&D worldwide in 2020, as defined in the EU Industrial R&D Investment Scoreboard. These companies have headquarters in 39 countries and represent 90% of the expenditure in R&D by the business sector in 2020. Source: European Commission (2021). The 2021 EU Industrial R&D Investment Scoreboard

• The chart shows how the 2,500 companies that invested the largest sum in R&D in 2020 are distributed across countries, focusing on the top 15 countries.
• There were 105 companies with headquarters in the UK among the top 2,500 R&D investing companies in 2020.
• Most of the top R&D investing companies have headquarters in the USA (779), China (597) and Japan (293), accounting for 66.8% of the total 2,500 R&D investing companies worldwide.
• Germany has 124 firms among the top R&D investing companies, accounting for 31% of the top R&D investing firms based in the European Union.

Expenditure of top R&D investing companies

Note: RoW = Rest of the World; R&D investing companies are the 2,500 firms that invested the largest sums in R&D worldwide in 2020, as defined in the EU Industrial R&D Investment Scoreboard . Those companies have headquarters in 39 countries and represent the 90% of expenditure in R&D by the business sector in 2020. Source: European Commission (2021) The 2021 EU Industrial R&D Investment Scoreboard

• In 2020 the top 2,500 R&D investing companies worldwide invested a total of €908.9 billion in research and development activities, as reported in the EU Industrial R&D Investment Scoreboard.^[1]
• Companies headquartered in the USA invested €343,6 billion, accounting for 38% of the total expenditure worldwide and more than what companies based in China, Japan and Germany invested all together.
• R&D investing companies based in the UK invested €28.9 billion, making the UK the eighth in the world country rank.

^[1] The 2,500 R&D investing companies have headquarters in 39 countries and own around 800,000 subsidiaries around the world. The EU Industrial R&D Investment Scoreboard, however, reports R&D investment data, as reported by the 2,500 companies, regardless of where research and development activities are conducted.

Top 10 companies investing in R&D

Note: The 2021 edition of the Scoreboard covers 2500 firms that invested the largest sums in R&D worldwide in 2020. Those companies have headquarters in 39 countries and represent the 90% of expenditure in R&D by the business sector in 2020 Source: European Commission (2021) The 2021 EU Industrial R&D Investment Scoreboard

• The chart shows the top 10 companies headquartered in the UK, which are among the 2,500 firms that invested the most in R&D in 2020, as reported by the 2021 EU Industrial R&D Investment Scoreboard.
• The first two UK-based firms among the world leaders investing in R&D in 2020 belong to the pharmaceuticals sector, with GSK and AstraZeneca ranking 29 and 31 worldwide, respectively.
• The UK top 10 R&D investing companies invested a total of €17.4 billion. However, those companies may have several subsidiaries around the world, while the 2021 EU Industrial R&D Investment Scoreboard reports data on R&D, regardless of where the research and development activities are conducted, whether in the UK or abroad.

Top 100 patent applicant firms at USPTO

Note: the analysis includes patents published with the USPTO in 2020.. Source: Patent data was retrieved from Lens.org

• The chart shows the top 100 patent applicant firms per country for patents published with the USPTO in 2020.^[1]
• More than 70% of all top 100 patent applicants are represented by companies based in the USA (44) and Japan (29).
• Companies from Korea (9), Germany (6) and China (5) are also represented among the top 100 patent applicants in the USPTO in 2020.
• The top 10 patent applicants at the USPTO include the following firms: IBM, Intel, Apple, Microsoft, Qualcomm (USA); Samsung Electronics, LG Electronics (Korea); Canon (Japan), Huawei (China); and Taiwan Semiconductor (Taiwan).

^[1] The United States Patent and Trademark Office (USPTO) is the second largest patent office globally, second only to the National Intellectual Property Administration of the People’s Republic of China. USPTO data is widely used in academia and policy-making and makes analyses comparable. The USA is the country that best represents global technological developments, and therefore they would most naturally be considered when applicants want to protect their invention. USPTO data is also known to be of high quality and well accessible. For a comparison of patent data sources, see Kim J. and Lee S. (2015). Patent databases for innovation studies: A comparative analysis of USPTO, EPO, JPO and KIPO. Technological Forecasting and Social Change, Volume 92, pp. 332–345.

UK top 10 patent applicants at USPTO

Note: Number in brackets indicate the world ranking; the analysis includes patents published with the USPTO in 2020. Source: Patent data was retrieved from Lens.org

• The chart shows the UK top 10 patent applicant firms for patents published in 2020 with the USPTO.
• There is no company with headquarters in the UK among the top 100 patent applicants at USPTO for 2020.^[1]
• ARM is the top UK patent applicant, ranking 103 globally among the top USPTO patent applicants in 2020.
• The second-best UK applicant is Rolls-Royce (635 patents), which ranks the company 135th among the top USPTO patent applicants.
• The presence of few companies with headquarters in the UK among the top patenting firms worldwide is consistent with analyses conducted by the European Commission and the OECD, covering the world’s five largest patent IP offices.^[2]

^[1] A similar analysis was conducted for 2019 and 2018, and companies with headquarters in the UK were not among the top 100 applicants firms for patents published at the USPTO.

^[2] Amoroso et al. (2021). World Corporate Top R&D investors: Paving the way for climate neutrality. A joint JRC and OECD report.

Top 10 UK patent applicants at USPTO by industry

Note: The analysis includes patents published with the USPTO in 2020.. Source: Patent data was retrieved from Lens.org

• The chart shows the top 10 UK patent applicants for patents published in 2020 with the USPTO by industry.^[1]
• The majority of top 10 UK patent applicants in the USPTO in 2020 were companies in the field of semiconductors and aerospace and defence.
• Semiconductor companies account for almost half of all USPTO published patents for the top 10 UK-based applicants, with 1,539 out of 3,228 patents.
• Companies in the field of automotive (Jaguar Land Rover), telecommunications (British Telecomm), chemicals (Johnson Matthey) and commercial support services (University of Oxford Innovation) are also represented among the top 10 UK-based USPTO patent applicants.

^[1] The industry classification adopts the Bloomberg Industry Classification Standard (BICS). The displayed industries match the respective “sub-industry” level, as provided by Bloomberg.