GERD 2022

The latest Gross Expenditure on R&D (GERD) release shows that in 2022 the UK invested £70.7bn in R&D. This continues an existing trend of increasing, cash investment in recent years, with £61.8bn and £66.3bn invested in 2020 and 2021, respectively, in current prices. However, high inflation over this period has negated this cash increase, with levels of R&D investment in constant prices plateauing since 2021.

Much of the increase in investment is driven by an increase in business expenditure in R&D. We see an increase in investment between 2021 and 2022, even after accounting for inflation (constant prices: £41.3bn in 2021; £43.8bn in 2022). Notably, we also see a substantial real terms decrease in overseas investment in R&D from £7.53bn (2021) to £5.97bn (2022). It will be important to monitor this change to determine if this is a momentary dip or the start of an ongoing trend. Foreign direct investment has long been a small but significant part of the make up of investment in UK R&D.

Given these expenditure trends, building and maintaining an attractive environment for businesses conducting and investing in R&D in the UK will be crucial to increasing GERD. In our recent report, Backing Business R&D, CaSE explores some of the barriers that UK businesses face when investing in R&D and sets out recommendations for the UK Government to strengthen the UK business R&D environment.

This latest ONS release also includes data on R&D expenditure as a percentage of GDP. It should be noted that recent revisions to the estimation methodology for R&D expenditure have not yet been incorporated into the calculations of GDP itself, therefore estimates should be treated as indicative. While the current data seems to show a decrease in R&D spending as % of GDP in recent years, this trend is predominantly driven by a peak in 2020, at 2.97% of GDP. The global and national impact of the COVID-19 pandemic that year had a major dampening effect on UK productivity, with GDP falling and only returning to pre-pandemic levels towards the end of 2021. As such, data from this period may not represent a reliable trend.

When comparing 2018 and 2022, we see an increase in R&D expenditure as a % of GDP from 2.68% to 2.77%. As the recent ONS methodology revisions were only backdated to 2018, longer term comparisons are no longer possible.