Figures released by the Office of National Statistics (ONS) reveal a drop in overall R&D spending in the UK in 2022, reaching 2.77 per cent of Gross Domestic Product (GDP) – compared to 2.81 per cent in 2021 and 2.97 per cent in 2020.
Some in the sector have reacted negatively to this data. The Times Higher Education called the data “hugely concerning”, while the National Centre for Universities and Business (NCUB) called it evidence of an “investment stagnation” in the UK.
As operators within the R&D space, a decline in R&D spending is certainly a concerning trend, as this is likely to lead to an associated drop in R&D tax claims.
However, looking further into the data, it looks as though these figures are evidence of a pattern of change to stimulate the sector, rather than decline.
A data delay
We should certainly mention that any data used to analyse R&D spending in the UK is a couple of years behind the calendar.
The reason for this is that it takes time to collate and process this data, hence why the ONS has recently released statistics for 2022 in August 2024.
When viewed in the context of the R&D tax relief scheme, this gap is a veritable epoch. Since this data was collected, the scheme has undergone major changes, including anti-abuse measures, the merged relief scheme and the requirement for the Additional Information Form.
What we see from this is that we can’t take a full view of the sector as it is today, following significant changes and a renewed focus from the Government as a priority for growth, from ONS data.
The overall trend
On the face of it, UK R&D spending looks to be falling.
However, it’s important that we view these trends in the long term. R&D projects often involve seven or eight-figure investments which take years to fund, approve and set in motion.
It isn’t, therefore, hugely concerning to see a few years of modest decline in R&D investment.
For example, 2020 saw a substantial increase in R&D spending over 2019, despite the pandemic, indicating that the R&D sector itself has some degree of in-built stability due to its diversity of output and operators.
Instead, we need to look long term. The next five to ten years will demonstrate more conclusively whether the UK is going through an R&D investment desert or if these figures represent the natural ebb and flow of cash within the sector.
Sector-specific spending
While the data reveals a decrease in the overall levels of R&D spending in the UK, this is only as a percentage of GDP – which is on the increase.
The financial value of R&D investment made in the UK has grown by over £4 billion from 2021 to 2022, with a steady growth of £12.4 billion between 2018 and 2022.
In particular, we’ve seen a substantial growth in investment from the private sector, with businesses investing almost £50 billion in 2022 (71 per cent of the UK total), a growth of almost £6 billion from 2020.
What we’re seeing is therefore not R&D slipping down the priorities list, but becoming the purview of businesses as public finances face challenges.
As a firm, we’re unlikely to see a long-term drop in the amount of R&D tax claims we see, nor are you likely to see a drop in interest from clients in submitting a claim. Quite the opposite, in fact.
So, is the UK investing less in R&D? Yes, as a percentage of total GDP. No, in terms of money spent. On balance, it seems unlikely that any decrease will last in the long run, considering the pledged Government funding and appetite for innovative investment in the private sector.
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