UK ranks eighth globally for R&D spending

Nearly half of total UK R&D spend is from the healthcare industry

UK companies invested £16.5 billion in research and development in the fiscal year ending June 2016, accounting for 4% of the global total (£446 billion), and ranking as the eighth highest investment by country.

The healthcare industry is leading the way in the UK, investing 48% of total R&D spend, according to the 2016 Global Innovation 1000 Study by Strategy&, PwC’s strategy consulting business.

The automotive and consumer industries complete the top three for R&D spending by UK companies, investing 18% and 8% of the total, respectively.

Germany is currently the leading market in Europe by R&D spend, representing double the investment of the UK at 8%, ranking third globally after the US (43%) and Japan (15%).

The report found 37 UK-headquartered companies made the Innovation 1000 list this year, spending on average 3% of revenue on R&D, up slightly from 2% the year before, but considerably lower than the global average of 4%.

Mark Couttie, Strategy& partner in London, said: “Innovation is an essential component of competitive advantage and UK business leaders clearly recognise the importance of R&D to their future success. Brexit has only made R&D investment more pertinent in the UK. It’s vital that companies continue investing and remain agile to exploit new opportunities. To do this they need to ensure they have the right talent in place, invest in ambitious innovation models, and employ a strategic approach to M&A to help build the capabilities they will need to thrive.”

The report found that companies are shifting R&D spending away from physical products to software and services, with spending on software offerings increasing by 65% since 2015, from £56 billion to £93 billion. Those who allocated more budget to software R&D reported significantly faster revenue growth, the study found. By 2020, the majority will have completed this shift.

The study found that by 2018, the healthcare sector will surpass computing and electronics to become the largest R&D spending industry globally, and the software and internet industry will leap ahead of the automotive sector.