Gross domestic expenditure on research and development, UK: 2016

• Research and development (R&D) continued to grow, expanding by £1.4 billion to £33.1 billion in 2016, an increase of 4.3%, above the long-term annual average increase of 4.1% since 1990.

• Most of this year’s growth came from the business sector, where it grew by £1.2 billion to £22.2 billion, an increase of 6%.

• Total R&D expenditure in the UK in 2016 represented 1.67% of gross domestic product (GDP), unchanged from 2015, remaining below the European Union (EU-28) provisional estimate of 2.03%.

• As a percentage of GDP, the UK ranked 11th of all EU countries, unchanged from 2015.

• Funding of UK R&D from overseas fell for the second year running and in 2016 is 7% lower than the all-time high reached in 2014 of £5.6 billion.

“Research and development spending in the UK continued to grow in 2016, to reach a new record high. Most of this growth came from the business sector, which now accounts for two-thirds for all R&D.”

Daniel Groves, National Accounts and Economic Statistics, Office for National Statistics.

This release provides estimates of research and development (R&D) performed in and funded by the following four sectors of the UK economy, as defined in the “Frascati” Manual (2015):

• business enterprise (BERD)

• higher education (HERD)

• government, which includes research councils (GovERD)

• private non-profit organisations (PNP)

These sectors’ R&D data are known collectively as gross domestic expenditure on R&D (GERD).

GERD is the preferred measure of R&D activity for use in international comparisons. This release reports on R&D expenditure in the UK irrespective of the country of residence of the ultimate owner or users of the R&D produced.

R&D is measured by the expenditure on R&D performed by an organisation, or the funding received by an organisation for R&D work. These are often but not always the same. R&D performed is regarded as a more accurate measure than funding received by an organisation, as not all funds received may be used on R&D as intended.

The business sector is the largest component of GERD; its estimates in this release are derived from the Business enterprise research and development 2016 statistical bulletin, published on 21 November 2017.

A definition of “R&D” can be found in the Frascati Manual (2015). This is the internationally agreed standard as defined by the Organisation for Economic Cooperation and Development (OECD).

The gross domestic product (GDP) measure used is non-seasonally adjusted money GDP between 1955 to 1956 and 2015 to 2016 (1955 to 2016) consistent with UK Economic Accounts published on 22 November 2017.

All figures quoted are in current prices unless otherwise stated.

Expenditure on research and development (R&D) performed in the UK was £33.1 billion in 2016, reaching its highest level on record. This was up from £31.8 billion in 2015, an increase of 4.3%, above the long-term annual average growth since 1990 of 4.1%.

In constant prices (adjusted to remove the effects of inflation), the 2016 estimate surpassed 2015’s previous high by £0.6 billion, with growth of 2%. With an average annual growth rate of 1.9% since the 1990 level of £20.4 billion, the long-term upward trend, in constant prices, is still evident (Figure 1).

In 2016, the UK spent £505 per head of population, an increase of 145% from £206 in 1990. Removing the effects of inflation this represents an increase of 42%.

Figure 2 shows gross domestic expenditure on R&D performed in the UK, as a percentage of gross domestic product (GDP). Total expenditure on R&D in 2016 represented 1.67% of GDP, unchanged from 2015. As a percentage of GDP, this expenditure declined steadily between 1990 and 1997. Since then, the level has fluctuated between 1.53% and 1.67% with an average estimate of 1.61% for the period 1998 to 2016.

UK estimates of research and development (R&D) cover the four sectors of the economy, namely business, higher education, government (including research councils) and private non-profit organisations. Figure 3 shows the contribution each sector made to the total UK R&D expenditure estimate in 2016.

Figure 3: Composition of UK gross domestic expenditure on research and development by performing sector, 2016

Source: Office for National Statistics

Download this image Figure 3: Composition of UK gross domestic expenditure on research and development by performing sector, 2016

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Business

The business sector performs the most R&D in the UK. In 2016, it performed £22.2 billion, representing 67% of total expenditure on R&D in the UK. This grew 6% from £21.0 billion in 2015.

On an annual basis, the 400 largest business R&D performers are asked to select the industry product groups that best describe the type of R&D they undertake. For the smaller R&D performers, no product group data are collected; however, these businesses’ dominant Standard Industrial Classification (SIC) is used as a proxy to determine product group. The concept of "product groups" is described in more detail in the UK business enterprise research and development Quality and Methodology Information (QMI).

The product groups with the largest R&D expenditure in 2016 were:

• pharmaceuticals (£4.1 billion)

• motor vehicles and parts (£3.4 billion)

• aerospace (£1.9 billion)

• computer programming and information service activities (excluding software development) (£1.8 billion)

• miscellaneous business activities (£1.3 billion)

• research and development services (£1.0 billion)

In 2015, the computer programming and information service activities group was the third largest with £2.5 billion. For 2016, R&D into software development has been separated from this group to be monitored individually.

More detailed information on business R&D expenditure can be found in the Business enterprise research and development 2016 statistical bulletin published on 21 November 2017.

Higher education

The higher education sector, which includes universities and higher education institutes, was the second-largest sector, performing 24% (£8.0 billion) of total UK R&D expenditure in 2016, a growth of 0.4% from the 2015 estimate.

Please note that new higher education financial reporting standards for reporting periods starting on or after 1 January 2015 have introduced significant changes in the way financial performance is reported, which present difficulties in comparing results from 2015 onwards with historical trends. The funding for this sector is provided mainly by the higher education funding councils for England, Scotland, Wales, the Department for Employment and Learning in Northern Ireland and the seven UK research councils.

Government and research councils

The UK government owns many research institutes and laboratories that carry out R&D. These are managed by various government departments, including the Department for Business, Energy and Industrial Strategy, the Department for Environment, Food and Rural Affairs and the Department of Health.

In 2016, R&D expenditure in the UK performed by the government and research councils sector grew by 4% from £2.1 billion in 2015 to £2.2 billion. This sector performed 7% of total expenditure on R&D carried out in the UK in 2016.

Research Councils UK (RCUK) is the strategic partnership of the UK's seven research councils. Each year the councils perform research covering the full spectrum of academic disciplines from the medical and biological sciences to the arts and humanities. RCUK also offers access to the UK’s research facilities and infrastructure to individuals and businesses overseas.

Research councils’ R&D expenditure grew by 9% from £771 million in 2015 to £837 million in 2016.

Private non-profit organisations

The private non-profit (PNP) sector includes registered charities and trusts specialising mainly in health and medical research and development. This sector includes, for example, a number of cancer charities that carry out extensive research, from cancer prevention to drug development and clinical trials.

The PNP sector is the smallest R&D-performing sector in the UK. In 2016, expenditure on R&D performed by these organisations was £0.7 billion, which contributed 2% to total UK-performed R&D expenditure. However, this sector did see the largest increase overall in percentage terms, up 10% from 2015. It should be noted that from 2011 the PNP survey has been biennial and therefore the 2016 results were estimated based on previous years’ data. The increase in the 2016 estimate has taken into account the large increase in 2015 due to the addition of several organisations, set up specifically to carry out large R&D projects.

In 2016, the largest funder of research and development (R&D) performed in the UK was the business sector, which funded £17.2 billion (52%), of total UK-performed R&D. This was an increase of 10% from £15.6 billion in 2015.

The government sector was the second-largest sector of funding with £6.5 billion (20%) of total UK R&D funding in 2016. This was a decrease of 0.5% from the 2015 estimate. In comparison, the sector itself only spent £2.2 billion in 2016 performing R&D in the UK.

Since 1990, there has been a change in the profile of how UK R&D expenditure has been funded. In 1990, R&D funding from overseas in constant prices was £2.4 billion, 12% of total UK-performed R&D. Since then, there has been a steady increase in the value of funding from overseas to the all-time high of £5.8 billion in 2014, which represented 18% of total UK funding. Funding from overseas has fallen for the second time since 2014, reducing 10% to £5.2 billion in 2016, while the average annual growth rate since 1990 was 3%.

Figure 4 shows the breakdown of UK gross domestic expenditure on research and development by funding sector since 2012.

It is important to note that sectors can fund themselves. For example, in 2016, the business sector performed £22.2 billion, of which £16.7 billion was funded by the business sector itself. The remaining £5.5 billion of R&D expenditure performed by businesses was funded by other sectors or from overseas.

Research and development (R&D) expenditure in the UK for defence purposes was 5% of total R&D expenditure (£1.8 billion) in 2016. This was an increase of 4% from 2015. In constant prices, defence R&D expenditure has fallen by 61% since the 1990 estimate of £4.5 billion.

The business sector was by far the largest performer of both civil and defence R&D in 2016, at £20.7 billion (66%) and £1.6 billion (88%) respectively. Business expenditure on performing R&D in the civil sector grew by 90% in constant prices since 1990, but business expenditure on performing R&D in the defence sector fell by 48% over the same period.

The UK government’s funding of defence R&D in 2016 was unchanged from 2015 at £1.1 billion. As a proportion of total UK defence funding, government sector funding has decreased from 67% in 2015 to 64% in 2016. The business sector provided £0.5 billion (27%) of funding, up from 23% in 2015, and £0.1 billion (8%) came from overseas compared with 9% in 2015.

Research and development (R&D) expenditure can be analysed by UK country and region (Figure 5). In this context, the country and region refers to the location where the R&D is performed.

In 2016, the South East and East of England dominated R&D activity in the UK. These regions together accounted for 37% of total UK R&D expenditure (£12.3 billion).

The majority of UK R&D expenditure was carried out in England at £29.4 billion (89%) in 2016. Scotland accounted for £2.3 billion (7%), with Wales and Northern Ireland performing £0.7 billion (2%) and £0.6 billion (2%) respectively.

In 2016, the business sector remained dominant throughout the UK. However, the higher education sector had a similar value to the business sector in Scotland with expenditure of £1.1 billion. In 2015, the higher education sector had the highest expenditure on performing R&D in both London and Scotland, which had been evident for some time. In 2016, the business sector overtook higher education in both regions.

Since 2001, the largest annual average increase in the business sector was in London at 8.2%, while the South East had the lowest growth at 2.6%.

While the UK spent £505 per head of population in 2016, England spent £533, Scotland £431, Northern Ireland £348 and Wales £230 respectively.

Figure 5: UK gross domestic expenditure on research and development by sector, country and region, 2016

Source: Office for National Statistics

Notes:

1. East Midlands and West Midlands regions data have been combined due to confidentiality.
2. Differences may occur between totals and the sum of their independently rounded components.

Download this image Figure 5: UK gross domestic expenditure on research and development by sector, country and region, 2016

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Europe 2020 targets specify five targets for the European Union (EU) to achieve by 2020, including a target of 3% of the EU’s gross domestic product (GDP) to be invested in research and development (R&D). Therefore, the estimates in this release are used in monitoring progress towards this target.

The latest preliminary estimates produced by Eurostat indicate that for the EU as a whole the percentage of GDP spent on R&D fluctuated between 1.74% and the high of 2.04% in 2015 before declining slightly to 2.03% in 2016 (Figure 6). Please note that the 2016 results for the EU-28 and Organisation for Economic Co-operation and Development (OECD) countries are early estimates and are provisional at the time of this release.

Figure 6: GERD to gross domestic product ratio as a percentage (research and development intensity) by country, European Union (EU-28), 2016

Source: Eurostat

Download this image Figure 6: GERD to gross domestic product ratio as a percentage (research and development intensity) by country, European Union (EU-28), 2016

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Figure 7 shows the UK’s R&D as a proportion of GDP compared with other EU countries.

It includes the average for the EU-28, compared with the Europe 2020 target of 3%. The UK’s GERD represented 1.67% of GDP in 2016, unchanged from 2015. The UK remained the 11th-highest GERD as a percentage of GDP of all EU-28 countries, where the average was 2.03% of GDP.

When comparing total R&D intensity across countries, it is important to take into account differences in individual countries’ economic structures. The OECD has produced a Science, Technology and Industry Scoreboard to facilitate these comparisons.

This release includes data tables (LF1 and LF2) on qualified scientists and engineers in the labour force by sex. These estimates are from our Labour Force Survey and are categorised by type of qualification and occupation from the population of Great Britain aged 16 to 64. Occupation is based on the Standard Occupational Classification 2010: SOC 2010). Prior to 2015, this information was previously published in the UK government expenditure on science, engineering and technology statistical bulletin. However, these data are more relevant in the context of GERD R&D and can be made accessible at an earlier date.

Further statistics on research and development expenditure in the UK are available.

The UK gross domestic expenditure on research and development Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how they compare with related data

• uses and users of the data

• how the output was created

• the quality of the output including the accuracy of the data

About the data

These points should be noted when examining this bulletin or the data tables:

• there may be differences between totals and the sum of their independently- rounded components

• in some tables, entries have either been aggregated or suppressed to avoid disclosure of figures in which the returns of individual organisations could be identified – where this happens, footnotes have been added to the tables

• note that £1.0 billion equals £1,000 million in this release

• the majority of the data series started in 1989 and constant price comparisons have been made using the start of the next decade in 1990

• the 2015 and 2016 estimates have been revised where necessary to take account of businesses misreporting and late returns

• all figures quoted are in current prices unless otherwise stated