Does the UK’s scientific research translate into industrial success?

This article draws on Section 2 of the UK Innovation Report 2024. Like in past editions, the report provides different perspectives on the UK’s investment in innovation performance, assessing whether the UK is spending enough on Research and Development (R&D) compared to leading countries and how the public and private sectors contribute towards fostering innovation.

Despite being a global leader in scientific research and development, the UK’s industrial performance is relatively weak and declining. Technologies invented in the UK are often commercialised and manufactured elsewhere, negatively impacting national competitiveness, economic growth, and the availability of well-paid jobs.

Several key findings emerged:

1. Although the UK has made significant strides in scientific knowledge, it has lost its edge in key industrial sectors, resulting in a decline in competitiveness and global industrial leadership.
2. The UK’s spending on R&D is higher than the average of the OECD countries, but it is still below that of leading nations.
3. Among the top 100 R&D-investing companies in the world, only three have headquarters in the UK.
4. The UK has only few global leaders in patent applications.
5. Despite the UK being attractive for venture capital investments and Unicorns, there are cases of technologies developed in the UK and then manufactured abroad.
6. The manufacturing sector has generally been declining as share of the economy in most industrialised countries, but more prominently in the UK.

In this article, we examine these findings in more detail and explore the underlying reasons.

(1) Although the UK has made significant strides in scientific knowledge, it has lost its edge in key industrial sectors, resulting in a decline in competitiveness and global industrial leadership.

The UK is a global hub of scientific knowledge, ranking top in the world for both the quality and the quantity (when normalised for the population) of research outputs, and having 3 of the top 10 universities in the world.

In 2020, the UK ranks:

• 1^st in the world for quality of academic publications, as measured by the field-weighted citation impact (FWCI),
• 3^rd in the world for the share of total world publications, only after China and the US.
• 3^rd in the world for the share of total world citations, after China and the US

The UK produces 57% more academic publications than the US and six times more than China in per capita terms (Table 1). The UK has maintained its leadership in generating scientific knowledge despite in recent years indicators related to the world shares have shown a declining trend, associated with an increase of publications and citations from countries such as India and China, which has also impacted the world rank of other leading research countries such as the US and Germany.

However, the UK’s global leadership in creating novel scientific knowledge is struggling to find practical applications that can be translated into value creation opportunities and well-paid jobs in the domestic economy.

To better understand the UK’s outstanding research excellence and its ability to translate this into innovation for industrial competitiveness, Figure 1 compares the performance of the UK against the G7 countries, namely Canada, France, Germany, Italy, Japan, and the US, across different stages of innovation. For ease of reading, in Figure 1 the performance of Germany, the UK and the US are highlighted.

The left side of Figure 1 – research, and development – shows how the UK performs in the early stages of innovation in comparison to G7 countries:

• Research: where innovation is generated, the UK is first for academic publications (per thousand population); and fourth for R&D expenditure on GDP, above the G7 average.
• Development: the output of research, the UK ranks fourth, above the G7 average, for share of R&D funded by the business sector, and fifth for patents applications (per thousand population).

The right side of Figure 1 – scale-up, and value added – shows the performance of the UK in later stages of innovation in comparison to G7 countries:

• Scale-up: the stage of innovation where research activity finds a practical technological application and it is commercialised, the UK is fourth for venture capital investments (as a share of GDP), and second for Unicorns (per million population).
• Value-added: the stage where innovation adds value to the economy, supporting economic growth and well-paid jobs, the UK is sixth in terms of employment in medium/high technology manufacturing (per million labour force), and fourth, below the G7 average, in terms of productivity levels, as measured in GDP per hour worked.

The following sections of this article provide more details on the UK performance in each of the innovation stages described above. The UK’s spending on R&D is higher than the average of the OECD countries, but it is still below that of leading nations.

(2) The UK’s spending on R&D is higher than the average of the OECD countries, but it is still below that of leading nations.

According to the latest OECD estimate, the UK’s gross domestic expenditure on research and development (GERD) as a share of GDP was 2.91% in 2021, above the OECD average of 2.72%. However, the UK lags behind countries such as Korea, the US, Japan and Germany, which in the same year invested between 3.13% and 4.93% of their GDP in R&D (Figure 2).

Government funding for R&D however is lower in the UK than other countries. In 2021, government-funded R&D represented 0.57% of the UK’s GDP, below the OECD average (0.63%) and well below countries at the top of this measure, such as Korea, Germany and the US, whose government contribution to R&D was between 0.69% and 1.12% of GDP (Figure 3).

(3) Among the top 100 R&D-investing companies in the world, only three have headquarters in the UK.

In 2022, the UK is home to 95 of the world’s top 2,500 R&D-investing companies, ranking fifth in the world, behind the US, which has 827; China, which has 679; Japan, which has 229; and Germany, which has 113 such companies (Figure 4). However, in the same year among the top 100 R&D-investing companies in the world, only three companies had headquarters in the UK: AstraZeneca (14th) and GSK (39th) in the pharma and biotech sector; and HSBC (86th) in the banking sector.

(4) The UK has only few global leaders in patent applications.

In 2022, the United Kingdom ranks 8^th in the world for total patent applications, in a rank led by China, followed by the US, Japan, Korea, Germany, France and India.

As highlighted in previous editions of the UK Innovation Report, the UK lags behind in organisations (i.e. companies, universities, and research centres) that rank highly for patent applications. For example, in 2021, there was only one UK-headquartered applicant among the top 100 patent applicants at the European Patent Office (EPO), and no UK applicant among the top 100 applicants at the United States Patent and Trademark Office (USPTO). In 2022, the UK’s annual production of patents, as measured per thousand population, is only 53% of the US and 25% of Japan.

In 2021, the UK business-funded R&D as a share of GDP was 1.71%, this is below the OECD average (1.76%), and well below leading countries such as the US (2.35%), Japan (2.57%), and Korea (3.75%).

(5) Despite the UK  being attractive for venture capital investments and Unicorns, there are cases of technologies developed in the UK and then manufactrured abroad.

As indicated by previous editions of the UK Innovation Report, the European venture capital market is highly concentrated in certain regions. Specifically, the UK stands out with three out of ten European regions that have received more than 50% of the total venture capital investment between 2007 and 2019, with London being the most attractive region in Europe for venture capital investment. In 2022, UK’s venture capital investment as a share of GDP was 0.11%, which is higher than Germany’s 0.09%, but lower than that of the US which stands at 0.75%.

The UK is also an attractive location for Unicorns, start-ups valued at over US$ 1 billion. In 2023, the UK ranks 4^th in the world with 52 Unicorn, behind the US (653), China (172), and India (71). In 2023, for example the total number of Unicorns (per million population) with headquarter in the UK is 40% of that of the US.

There are cases of technologies originally developed in the UK that end up being commercialised or manufactured elsewhere. For example, the UK is a leader in drug discovery but lacked the capacity to scale-up vaccine production during the Covid pandemic. Similar examples can be found in sectors such as agri-tech, electronics, telecoms, and more.

(6) The manufacturing sector has generally been declining as share of the economy in most industrialised countries, but more prominently in the UK.

The UK research base and its industrial performance are not well-connected, and this has had a negative impact on the economy’s growth and the creation of well-paying jobs. This is evident in the proportion of the UK’s workforce that is employed in medium and high value-added manufacturing, which is lower than the G7 average, and well behind leading manufacturing countries such as Germany and Japan. Additionally, the GDP per hour worked, a measure of productivity for the whole economy, in the UK is below the G7 average, and below countries such as the US, Germany and France.

Undeniably, this is an ongoing pattern strictly related to the long-lasting decline of the manufacturing sector in the UK. Manufacturing value-added has been declining as a share of GDP from 16% (1990) to 8% (2022).  Manufacturing employment has also declined, with 314,600 fewer workers in ten year, from 2013 to 2023. Critically, the jobs being lost in manufacturing are high-quality, high-wage positions, distributed across UK regions. These jobs are being substituted in many regions by low value-added services, or are being replaced by knowledge-intensive services concentrated in the London area.

The trends discussed in this article suggest that the UK capabilities as a global leader in scientific knowledge creation are not fully exploited to support value capture opportunities across its industrial sectors. As long as novel scientific knowledge is not translated into domestic economic activities, there are missed opportunities to support the economic competitiveness of the country.