According to business consultancy Rousseau Associates, the rate of investment by UK businesses into R&D, a key driver of innovation, is a fifth lower than the EU average.
Figures show that expenditure on R&D by the UK business enterprise sector is just 1.05 per cent of GDP, compared to 1.29 per centacross the EU as a whole.
UK business spending on R&D, which is down from 1.06 per cent of GDP ten years ago, is well below that of Finland, which has the highest business spending on R&D as a percentage of GDP of any EU country at 2.29 per cent followed by Sweden at 2.19 per cent.
Businesses in Germany and Denmark both spend 1.99 per cent of GDP on R&D, with the percentage in both countries increasing over the last decade, from 1.74 per cent of GDP in Denmark, and 1.72 per cent of GDP in Germany.
Rousseau Associates said the UK is in danger of falling behind EU rivals with businesses not fully appreciating the benefits of R&D spending such as improved margins from developing more innovative and competitive products. It said UK-based SMEs, in particular, need to invest more.
These figures reveal that as proportion of total GDP, British businesses are not investing in research and development to the same extent as many other leading European economies.
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“The UKs reputation for innovation could be put at risk if we fail to keep pace with our peers. SMEs in particular could benefit significantly from making more use of tax reliefs for R&D to help them move up the value chain, enhancing their contribution to the economy as a whole at the same time,” said Michael Heath, business development director at Rousseau Associates.
“While recent changes to R&D tax credits should be helping stimulate research and development and boost innovation, policymakers should take note that UK plc has still got a long way to go to catch up on many of its European counterparts. Focussing on innovative products and high value production techniques is the best way for the UK to compete in the globalised economy businesses should be making R&D more of a priority.
The survey found that within the UK, Cheshire spends the most of any region on R&D at 6.28 per cent, followed by East Anglia at 5 per cent. This compares to just 1.21 per cent for inner London and 0.51 per cent for outer London.
Cheshires strength in the aerospace and defence sector is likely to be a key factor, putting it at the forefront of R&D in the UK. Its not surprising to see East Anglia not far behind, given Cambridges position as a hotbed of innovation, centred around one of the worlds leading universities,” Heath added. SMEs should be taking advantage of the tax incentives of the governments Patent Box scheme while they can.
The Patent Box as it currently stands allows companies to reduce tax liabilities on profits from products developed through R&D to as little as 10 per cent. The scheme closes to new entrants in June 2016.
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