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The UK Innovation Report 2023: What you need to know

Want to know how the UK’s innovation activity and global industrial performance compare to other countries? The Cambridge Industrial Innovation Policy annual UK innovation Report has you covered.

Using comprehensive quantitative data, it explores if the government and the private sector are investing sufficiently in R&D and investigates whether innovation translates into internationally competitive industries and well-paid jobs.

At EmpowerRD, we’ve sifted through the 103-page report to give you our take.

Estimated UK expenditure on R&D is higher than expected

A new methodology introduced by ONS has pushed the estimate of UK expenditure on R&D up by 55%. The revision was undertaken because the old methodology drastically underestimated the R&D activity conducted by SMEs.

The UK’s gross domestic expenditure on R&D (GERD) as a percentage of GDP was thought to be around 1.7%. However, The Office for National Statistics (ONS) has introduced a significant revision, pushing this figure up to 2.7%, aligning it more with HMRC’s R&D statistics.

How does this benefit you?  

This new evidence reveals that UK companies are undertaking a much higher level of R&D than previously anticipated, surpassing the government’s target to ensure that total R&D expenditure reaches 2.4% of GDP by 2027.

Now that the ONS and HMRC stats are aligned, policymakers can make better-informed decisions on R&D incentives like R&D tax relief – particularly beneficial for companies that are R&D-intensive.

Signs of this are already evident

According to the UK Innovation Report, the government’s expenditure on R&D was 0.12% in 2019 –  half the OECD average of 0.24%. However, the Autumn Statement 2022 shows that the government is determined to push its OECD average up, committing to spending £20 billion annually on R&D by 2024-25, a cash increase of around a third compared to 2021-22.

A look at the UK Aerospace Manufacturing Sector

The UK innovation report revealed that the Aerospace Manufacturing Sector:

  • Was the third largest by value in the OECD in 2019, behind only the US and France.
  • Has one of the highest trade surpluses (US$14.7 billion), ranking it as the third largest in the world in 2021.
  • Is the third highest in labour productivity, increasing year-on-year from 2012 to 2021.
  • Has increased expenditure on R&D year-on-year from 2012 to 2019.  

Decrease in employees due to Covid-19

The Covid-19 pandemic sparked an unprecedented collapse in demand and led to the loss of 14,000 jobs within the sector. Restructuring of companies and supply chain consolidation followed this.

Yet there is still reason for optimism: due to the UK’s specialisation in engines and aircraft components and continued export from foreign OEMs, the market is expected to recover in 2022-23.      

Innovation is a key focus for the sector moving forward

The report emphasises that the industry’s success is underpinned by advancement in R&D. It also suggests that the government are a key enabler in ensuring this happens.

It also recommends that continuous investment in innovation be needed to seize the opportunities arising from emerging market and technology trends, such as the transition from fossil fuels to zero-carbon aircraft, the emergence of new aircraft segments, industrial digitalisation, and space tourism.

A look at the Food and Beverage manufacturing sector

The UK innovation report revealed that the Food and Beverage manufacturing sector was:

  • The sixth largest by value in the OECD in 2019
  • Has increased its overall value-added year-on-year from 2012 to 2019

Innovation is a key focus for the sector moving forward

Over the past ten years, R&D in food and beverages has seen a steady rise – with 2019 displaying an impressive 36% growth compared to 2008.

To take advantage of these positive developments, it’s recommended that the UK increase its investment in R&D. Product development should be a priority – automation and digitalisation being especially important for improving sector productivity.

Despite this, it is acknowledged that economic instability and changes in industry purchasing behaviour could impede investment in innovative projects.

A look at the environmental goods and services sector

The report also looked at the environmental goods and services sector to assess whether the UK is capturing the economic potential of the transition to environmental sustainability.

Key facts show that the OECD estimates that at 6%, the UK had the sixth highest government budget allocation for R&D in environment and energy innovation among OECD countries in 2020. This is higher than that of the United States (3%) but lower than Japan (8%), Germany (8%), Korea (8%), and France (9%).

The UK ranks seventh among OECD countries in patent applications for the group of technologies defined by the OECD as “environment-related technologies”.

And the UK environmental goods and services sector achieved an impressive performance across Europe in 2019, with the nation ranking third for output and second for gross value. Additionally, it placed third when measuring exports as well as fifth when assessing employment numbers.

Seeking a trusted partner to help with your R&D tax claim?

We’re here to help. Over 1000 UK companies have trusted EmpowerRD’s R&D platform and specialists to help them build optimised, compliant claims. Please get in touch with one of our experts today if you have any questions.


2023 & Beyond. Unlocking UK Tech Growth through R&D

2023 and Beyond: Unlocking UK Tech Growth Through R&D

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