My last post looked at the growth in UK government support for R&D over the last decade. But if we are interested in restoring economic growth (as we should be, given the ongoing economic stagnation that the UK has been suffering), it’s R&D carried out by businesses that is more immediately relevant in terms of its direct effect on productivity growth, through the development of new, high value goods and services, and through making existing processes more efficient. This post takes a look at R&D done by UK-owned businesses, taking a snapshot in the year 2024.
First, I’ll pose two similar-looking questions. First, how much R&D do UK-owned businesses do? Second, how much R&D is done by businesses in the UK?
The best answer we have to the first question – how much R&D do UK-owned businesses do? – is £32.1 billion. This comes from the EU R&D scoreboard, which uses publicly available data to list and rank the world’s top 2000 R&D performing companies. According to the scoreboard, the world total of business spending on R&D from these 2000 companies in 2024 was £1.2 trillion, so the share of this total done by UK companies is about 2.7%.
For the second question – how much R&D is done by businesses in the UK? – we turn to the ONS’s survey of Business Enterprise R&D, the BERD survey. For 2024, this gives a total business R&D spend of £55.6 billion.
We don’t expect these two numbers to be exactly the same, and a full discussion of the reasons they diverge so much would be revealing, though that’s beyond my scope here. The primary reasons for the difference is because large companies are multinational in character. A UK domiciled company may well have extensive R&D activities in other countries, while overseas owned companies may choose the UK as the location for some of their own R&D. In fact, the BERD survey reveals that almost half (49.3%) of UK business R&D is done by overseas owned firms. This is a high fraction for an economy of the size of the UK.
The R&D scoreboard reveals that the UK only has two companies in the world top 100 R&D spenders – AstraZeneca (world rank 14) and GSK (world rank 34) , both pharmaceutical companies. A striking feature of the UK landscape that emerges from the EU Scoreboard is how much the UK-owned pharmaceutical sector is dominated by the two long-established giants AstraZeneca and GSK, which account for 94% of R&D by UK owned pharma companies. In contrast to the USA, the UK has been unsuccessful at generating new companies at scale from the biotech revolution, like Gilead, Amgen, Moderna, Regeneron and Vertex. Nevertheless, R&D by UK owned companies represents 7.8% of world pharmaceutical R&D.
The next three UK owned companies are all banks – HSBC (107), Lloyds (168) and Barclays (176). Banks represent just 1% of world scoreboard R&D, but, on these figures, 40% of the world total R&D is done by UK banks. Next in the ranking are the oil company Shell (229) and the consumer goods giant Unilever (245).
The UK’s aerospace champion is Rolls-Royce, whose €944 million R&D spend puts it at 253 in the world ranking. Overall the UK-owned aerospace and defence sector represents about 5.6% of the world total. It’s worth noting that there is significant R&D being carried out in the UK by overseas owned companies such as Airbus, Thales and Leonardo.
What are the sectors in which the UK is under-represented? The automobile sector has historically been a very large driver of R&D, and this remains the case in Germany and Japan, with familiar names like Volkswagen, Mercedes-Benz, BMW, Toyota and Honda all high in the top 100 R&D spenders. China’s BYD has joined these names, with a ranking of 37 and an R&D spend of €6.7 billion, overtaking the USA’s Tesla, now at 55. The highest ranking UK auto company is listed as CNH Industrial, the agricultural equipment firm, which I believe doesn’t do any R&D in the UK at all, despite having an HQ here. On the other hand, the pre-eminent UK automobile firm, Jaguar Land Rover, spends about £1.5 billion a year on R&D in the UK, but since JLR is wholly owned by India’s Tata Motors, this isn’t ascribed to a UK company.
But the top of the R&D scoreboard is now dominated by the USA’s big five ICT firms, Amazon, Alphabet, Meta, Microsoft and Apple, who between them account for R&D worth €215 billion. China’s Huawei and Korea’s Samsung follow in 6th and 7th places. On this measure, the UK has little or no presence in these sectors, with UK owned firms accounting for 0.29% of world R&D in software and computer services, and 0.04% in technology hardware and equipment. Once again, there will be ownership issues here – Cambridge-based ARM is a significant semiconductor design company, but it will not be ascribed to the UK, as Japan’s SoftBank still has a controlling interest. Its $2 billion R&D expenditure would have put it around 150 in the world R&D scoreboard if it was still an independent company. Deepmind is now a wholly owned subsidiary of Alphabet (Google’s parent company), that carries out R&D worth £1.3 billion on behalf of its parent company. While it is true that picture isn’t quite as bleak for the UK as one would think on the basis of the record of UK owned companies, one can’t avoid the conclusion that the UK has largely missed out on the big growth stories of the last couple of decades – software and ICT hardware.
This is a partial lens to view the UK’s business R&D scene through. It’s confined by definition to large companies, there are problems of sector definition, and there are probably varying definitions of what counts as R&D. Finally, one can ask, does ownership or domicile matter, or can it even be clearly defined? It’s difficult to argue, for example, that CNH Industrial is a more British company than Jaguar Land Rover. But as we recede from the high tide of globalisation, the control that comes with ownership may become more important.