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Business Enterprise Research and Development in Scotland 2002

2 Headline Figures

2.1 In 2002 businesses enterprise research and development (BERD) expenditure in Scotland amounted to 640 million. Expenditure on R&D in Scotland has nearly doubled (+95%) in real terms in the 5 years between 1997 and 2002.

2.2 The value of BERD in the UK was 13.1 billion in the same year. This represents a 22% increase in real terms during the 5 years from 1997.

2.3 Despite the faster rise of BERD in Scotland, Scotland still accounts for only 4.9% of the total UK expenditure, an improvement from the 4.2% in the previous year and the 3.0% back in 1997 (see Table 1 and Chart A).

2.4 Compared to the Gross Domestic Product, expenditure on research and development in Scotland has risen to 0.77%, three fifths of the UK figure of 1.24% and half of the average of all OECD countries.

2.5 Scotland's relatively low share of UK BERD is reflected in R&D expenditure per employee: in 2002 this was £390 in Scotland compared to £669 in the UK. Scotland now reaches 58% of the UK level, a 10 percentage point increase since the previous year. The average spend per manufacturing employee in Scotland (£2093) is closer to the UK average of £2885, now reaching 73% of the UK figure. The increase compared to 2001 is due to both a decline in manufacturing employment and a rise in R&D spending on manufactured products.

Table 1: Value of Business Expenditure on Research and Development 1995 - 2002 (million current prices)

Source: ONS/SE (Table 1) and Employment from ABI
1. Excluding public administration, education and health(SIC 75, 80, 85)
2. UK employment data calculated using ABI employment data for GB + Northern Ireland COE employment
3. 2001 employment and expenditure data revised

Note: Expenditure is adjusted here for price changes, using a GDP deflator.

Gross Domestic Expenditure on R&D in Scotland (GERD)

2.6 In addition to businesses, government establishments (including those managed by the research councils), higher education institutions and not for profit organisations also undertake research. The private non profit sector undertook R&D to the value of 290 million in the UK, 1.5% of the total; as a regional breakdown of this figure is not available the private non profit sector is excluded from Table 2 and the other comparisons in this chapter.

Table 2: Value of Total R&D Undertaken in Scotland and the UK 2002 (million)

Source of expenditure: Economic trends article September 2004 Table 14 and Table 15

Notes:
Regional breakdown is based on the GOR (Government Office Region) classification
Employment in Government sector covers Central Government only. Local Authorities, NHS and those areas of Central Government not available from the Government suervey are excluded.
Labour Force figure used is a head count. An estimate of the Labour Force in full-time equivalents (FTE) is not available.
Using the head count figure gives a lower percentage than the FTE would give.
Labour Force figures relate to those in employment rather than all those economically active.
Regional GDP figures are not available at time of publication and therefore it is not possible to show R&D expenditure as a percentage of regional GDP.
Expenditure Figures include estimates for those areas of central government not available from the Government Survey and local authorities

2.7 While 4.9% of UK business R&D is carried out in Scotland 14% of UK research in government establishments and 13% of all University research is undertaken in Scotland, similar percentages as in the year before. The total value of R&D within these two public sectors in Scotland is higher than the expenditure for research in businesses. For the UK as a whole R&D undertaken in government establishments and higher education institutions amounts to less than half the value of R&D undertaken in businesses.

Comparison with other UK Regions

2.8 The bulk of UK business expenditure on research and development is undertaken in the Regions South East (25%) and East (21%). In these two areas R&D expenditure per employee in 2001 was well over 1,000, and three or four times higher than in Scotland. Table 3 shows the breakdown of expenditure in 2002 for the countries and regions of the UK in order of R&D expenditure per employee. Scotland's expenditure per employee in 2002 reaches nearly 60% of the UK value, 10 percentage points more than a year before. Compared to 2001 the share of the South East and Eastern Regions has dropped from 52% to 46% of the UK total, while all other regions apart from Northern Ireland increased their share.

Table 3: Business R & D Expenditure in 2002 and Qualifications of Workforce

Source: ONS First release DTI, ABI employment, Regional competitiveness indicators
1 excluding public administration, education and health (SIC 75,80,85)
2 percentage of economically active adults aged 18-59/64 with higher education qualifications
(NVQ level 4 or above) in autumn 2002
3 Northern Ireland employee data from Northern Ireland Census of Employment

2.9 Table 3 also shows that the level of qualifications of the workforce is not directly related to R&D investment. After London, Scotland has the highest percentage of workers with higher educational qualifications, similar to the South East, but a much lower level of R&D. Qualifications and skills are explored further in Chapter 4.

2.10 As noted above, Scotland's share of UK R&D is substantially higher when gross domestic R&D (undertaken by businesses, government research establishments and higher education institutions) is considered. Table 4 provides details, the Regions are ordered by expenditure per head of population. The level of GERD expenditure per head in Scotland in this measure is nearly 90% of the UK figure, ten percentage points more than previously. As a percentage of GDP, Scotland's total R&D expenditure is only marginally below the UK level.

Table 4: Gross Expenditure on R & D in 2002 (GERD)*

Source: ONS Population Trends Summer 2003 Tables 1.3 and 1.4 and ONS Scottish analysis on BERD

* excluding private non profit sector

International Comparisons

2.11 Table 5 below shows that expenditure on business research and development in Scotland and the UK is lower than in important competitor countries though ahead of Italy and at about the same level as Ireland. The EU average is 50% higher than Scotland. The OECD average is twice as high and the leading country in the comparison, Sweden, spends a four times higher share of GDP on R&D.

Table 5: International Comparisons 1997 to 2002: BERD as a percentage of GDP

Source: OECD Main Science and Technology Indicators and Regional Trends
1. European Union expanded from 15 nations to 25 in 2004. These figures are for the 25 nations. The same table published last year for 2001 data was for the EU15 nations.
2. 2002 data are not available for Sweden and Ireland. 2001 figures are entered here.

Note: ONS and OECD use slightly different GDP figures. The UK 2002 figure of 1.24% from Table 3 is preferred for comparisons within the UK

Funding

2.12 This report mainly discusses research and development activity by type of the enterprise where it is performed (sometimes called 'intramural R&D'). This section in contrast contains information on where it is paid from. Respondents were asked to identify the source of funding for research and development.

2.13 As Table 6 shows, funding for R&D in Scotland comes predominantly from firms' own funds or from other enterprises. Compared to the UK as a whole the proportion of funds received from overseas (including any overseas parent company) is smaller than for the UK; the UK government has in 2002 commissioned less business R&D in Scotland than in previous years. Altogether 82% of R&D is funded by UK businesses themselves, compared to 66% in the UK. Charts B and C show the funding composition of business R&D for 2002.

Table 6: Sources of Funding of Business R&D 1995-2002

Source: ONS/SE Table5

Charts B and C: Sources of Funding for R&D 2002

Commissioned Research

2.14 The survey also collects data on the value of R&D that is contracted out by firms, that is 'extramural R&D' from the viewpoint of the funding firm. Table 7 compares the amounts spent by businesses undertaking R&D on commissioned research with the value of work undertaken by R&D consultancies. These businesses undertake some but not all of the commissioned work. As Table 22 in Appendix 3 shows, R&D consultancies work predominantly for the Chemicals sector, mainly on the development of pharmaceuticals: 89% of R&D undertaken in R&D consultancies supports chemical products. The rest of manufacturing is different: 94% of R&D for non-chemical products is undertaken in-house or by another manufacturing firm (Scottish percentages).

Table 7: Extramural Research and R&D Services 2002

Source: ONS/SE (Table 4 and 22)

2.15 As the table shows enterprises undertaking R&D in Scotland tend to sub-contract less compared to the UK (8% of the value of their own research compared to 20% in the UK). Sub-contracted R&D in Scotland amounted to only 2% of the UK total. Compared to 2001 the amount contracted out by Scottish enterprises has risen as it has in the UK. Scottish firms commissioned 59% of their external R&D from UK enterprises.

2.16 The share of R&D undertaken in enterprises specialising in R&D services in Scotland is relatively high, 34% of total R&D, an increase by 10 percentage points from the previous year. The UK figure is 26%, similar to 2001. Although the level of sub-contracting by Scottish R&D providers is lower, Scottish R&D consultancies attract a large part of total Scottish BERD. The pharmaceutical sector is a major user of such contract research. In fact 80% of chemicals and pharmaceuticals R&D is undertaken by consultancies.

2.17 In addition to R&D consultancies other firms absorb some of the R&D that is contracted out. As seen above, 51 million of Research and Development was contracted out by Scottish firms. The total amount of Scottish R&D funded by other UK enterprises however stands at 142 million i.e. far more R&D is undertaken in Scotland than is commissioned from Scotland ⁶.

Capital Expenditure

2.18 In 2002 Scotland spent 7% of R&D expenditure on capital goods, compared to the UK figure of 9%. Both the Scottish and UK percentages are lower than in the previous year - 11% and 13% respectively.

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