UK enterprise R&D spending has simply jumped by 60% — or has it?

The UK Workplace for Nationwide Statistics (ONS) is the official keeper of the nation’s information. On daily basis, many 1000’s of individuals depend on the company for information on probably the most dependable estimates of every part from developments in COVID-19 mortality to the well being of mountain ecosystems.

However currently, the company itself has been making the information. Final week, it confirmed a giant change in the best way it assesses how a lot UK companies spend on analysis and improvement (R&D). Beforehand, the ONS mentioned that companies spent £26.9 billion (US$32.4 billion) on R&D in 2020. However as of twenty-two November, that determine is £43 billion — a rise of just about 60%. The change is just not a shock: it was floated in September, and Nature’s information staff reported on it in October. However affirmation that will probably be a part of nationwide statistics has come quick — maybe too quick.

Shock! The UK is spending far more on analysis than it thought

The change would see the UK leaping up the World Financial institution’s 2020 desk of R&D spending as a share of gross home product (GDP) — up from 1.71% in 2019 to 2.4%. That is nonetheless decrease than the 2020 figures for the USA (3.45%) and Germany (3.14%), however increased than that for France (2.35%) and equal to China’s. By pleased coincidence, 2.4% precisely meets the goal that the UK authorities set itself for R&D spending. Because of the ONS’s reassessment, this has been achieved 5 years forward of schedule.

Researchers’ views on the uprating fluctuate. The Organisation for Financial Co-operation and Growth (OECD), the worldwide physique that units requirements for R&D measurement, is reviewing the revised estimates.

On the planet of R&D (particularly in high-income international locations), it’s companies, not educational institutions, that spend probably the most. The ONS’s earlier £26.9-billion determine for enterprise R&D got here from a survey of some 5,400 firms, taken to signify enterprise R&D extra usually. This pattern includes principally small- and medium- sized enterprises (SMEs), but in addition consists of 400 of the biggest-spending firms, from pharmaceutical firms reminiscent of GSK to banks reminiscent of Barclays and the aerospace and defence firm Rolls Royce. Between them, the ten firms that finance probably the most R&D within the nation spend greater than £15 billion a 12 months.

One necessary cause that the ONS made the change was the belief that its survey information (particularly these for SMEs) have been more and more out of step with information from the UK tax company, His Majesty’s Income and Customs (HMRC). After evaluating its figures with these of tax rebates that HMRC awarded to companies for R&D spending, the ONS re-calculated complete enterprise R&D to be £43 billion for 2020.

There are good causes for the 2 companies to collaborate on their numbers. However there are additionally good causes to be cautious and acknowledge the constraints of benchmarking enterprise R&D towards tax information. Tax rebates for R&D spending are grounded in the concept that firms usually tend to innovate if they’re incentivized to take action. The UK has been an enthusiastic adopter: it pays out 2.5 occasions the OECD common as a share of GDP. Because the scheme’s introduction, the variety of SMEs claiming the rebates has shot up, from fewer than 2,000 within the monetary 12 months 2000–01 to just about 86,000 in 2019–20.

This opens up potential for abuse. Recognized R&D tax fraud is rising at a worrying price. Fraud and errors amounted to £469 million within the monetary 12 months 2020–21, up from £311 million in 2019–20. Earlier this 12 months, HMRC briefly suspended funds to firms whereas it investigated. And in October, the company arrested 8 individuals who had submitted greater than 100 claims for R&D tax credit. On 17 November, UK finance minister Jeremy Hunt took motion, citing fraud as his cause for decreasing R&D tax advantages to SMEs.

An assault on the way forward for science: why UK researchers are hanging

Given these issues, the ONS may have taken extra time earlier than finalizing its choice. The company did seek the advice of consultants, however a wider and longer session would have allowed researchers and different information customers to touch upon the change. Innovation economists may have a view on the extent to which firms which might be claiming again taxes are performing further R&D. Researchers in forensic accounting will help to benchmark the UK’s expertise with R&D tax fraud towards information from different international locations. The ONS itself accepts that the UK is ‘uncommon’ in that its R&D spending in line with enterprise surveys is smaller than that from tax receipts; it’s the different manner round in lots of international locations. The OECD’s blessing on the company’s modifications wouldn’t have gone amiss, both.

All of this issues. The argument for reinforcing R&D spending to 2.4% was based mostly on the concept that the UK is an outlier among the many world’s greatest economies. The nation performs effectively on science and innovation indices reminiscent of publications, patents and personnel, however it languishes on funding. If the ONS now says that the goal has been reached, that diminishes the drive for companies to push for additional R&D spending, particularly in an setting wherein robust spending choices are being made. That might be short-sighted at one of the best of occasions.

Researchers have been instrumental in establishing the primary algorithm for R&D spending information, which have been agreed at a historic OECD assembly in Frascati, Italy, in 1963 (see the newest model of the Frascati Handbook). Analysis issues as a lot now because it did then. There isn’t any must rush the modifications. Extra due diligence will solely improve the ONS’s repute as a supply of trusted information.