Scottish Government

Business Enterprise Research and Development in Scotland 2000

2. Business Expenditure on Research and Development in Scotland

Headline figures

2.1 In 2000 businesses in Scotland performed research and development costing just under 400 million. Expenditure on R&D in Scotland has increased by 52% in the 6 years since 1994 in cash terms and 30% in real terms (calculated at 2000 constant prices).

2.2 BERD in the UK was 11.5 billion in the year 2000. This represents a 30% increase in cash terms and an 11% increase in real terms in the 6 years since 1994.

2.3 Despite the faster rate rise of BERD in Scotland, Scotland still accounts for only 3.5% of the total UK expenditure in this field. The percentage has risen from 3% in 1994. By comparison 11% of UK research in government establishments and 12% of all University research is carried out in Scotland. The total expenditure on R&D within these two public sectors in Scotland is 1.5 times the expenditure for research in businesses. This has decreased from 1.6 times in 1994. In the UK government funded research remains about half of the expenditure for BERD (1999 figures).

2.4 BERD in Scotland has grown faster than R&D expenditure by government establishments and higher education institutions. From 1994 to 1999 BERD increased by 49% in current prices compared with a 20% increase for higher education institutions and government establishments.

2.5 Compared to the Gross Value Added in the Manufacturing and Service sectors expenditure on Research and Development amounts (in 1999) to 0.6% in Scotland and 1.4% in the UK as a whole, with little change over the past 5 years. As a percentage of total GDP the figures are 0.53% for Scotland and 1.27% for the UK; the average of OECD countries is 1.54%.

2.6 Scotland's low share of UK BERD is also shown clearly by examining R&D expenditure per employee, which in 2000 was 246 in Scotland compared to 592 in the UK. If business in Scotland spent the same amount of R&D per employee as in the UK then expenditure on R&D in Scotland would rise to 963 million.

Table A: Business Expenditure on Research and Development 1994-2000

( Million current prices)

Source: ONS/SE (Table1) and employment from ABI
¹ excluding public administration, education and health (SIC 75,80,85)
² Rescaled ABI employment data was not available for 1994
³ UK employment data calculated using ABI employment data for GB + Northern Ireland COE employment

2.7 Despite the fact that R&D is a key determinant of productivity, labour productivity in the manufacturing sector is not lower in Scotland than in the UK. In fact in 1998, the latest year for which figures are available, the Gross Value Added by each employee in manufacturing was 40,200 compared to 36,500 in the UK. Scotland has a more highly automated manufacturing sector than the rest of the UK. In other words the fruits of R&D efforts elsewhere are imported to Scotland. In other sectors productivity is higher in the UK than in Scotland.

Table B: GVA per employee 1995-1998 in 000

Source: ABI employment data and ONS data on GVA
* Excluding public administration, education and health (SIC 75, 80, 85)

Comparison with other UK Regions

2.8 The bulk of UK business expenditure in Research and Development is undertaken in the Regions South East (26%) and East (24%). In these two areas R&D expenditure per employee in 2000 was over 1,000. Table C shows the breakdown of expenditure in 2000 for the countries and regions of the UK in order of R&D expenditure per employee.

Table C: Business R & D Expenditure in 2000 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)
³ Northern Ireland employee data from Census of employment

2.9 The difference in these regional shares of R&D expenditures can be partially explained by the different sectoral composition of the industries. The effect on Scotland is explored further in Section 3. The UK tables show that of all R&D expenditure performed in businesses in 2000, nearly 25% was for the development of pharmaceuticals, medical chemicals and botanical products. This is far greater than any other sector. The next largest expenditure on R&D was by the aerospace industry (9.5%), followed by radio, television and communication equipment (8.9%).

2.10 The importance of the sectoral composition of the industry becomes clearer when looking at the research intensity for manufactured products measured by R&D relative to sales. In 1999 in the UK, 32 out of every 100 of sales revenue in pharmaceuticals, medical chemicals and botanical products was spent on R&D, followed by aerospace at 9 per 100 of sales revenue.

2.11 Table C 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, but relatively few of them work in R&D. The South East has a highly qualified workforce and also high spending in R&D.

International Comparisons

2.12 The OECD provides comparisons of business research and development expenditure. Table D below shows that expenditure on business research and development in the UK is lower than in important competitor countries and considerably lower as a percentage of GDP than in the US. The latest available figures are for 1999.

Table D: International Comparisons 1999: BERD as a percentage of GDP

Source: OECD STI Scoreboard 2001 Table A5.1.1 (some figures are estimated).

Type of Companies Performing R&D in Scotland

2.13 In the 2000 survey 631 companies were identified as performing R&D activities in Scotland. This included 26 companies that employed 1,000 or more people in the UK. The number of R&D performers has grown by over 100 since 1999. Around half of all companies were in manufacturing, with the remainder providing a variety of services. Table E1 provides the details.

Table E1: Size of Companies Performing R&D: Scotland 2000

Source: ONS/SE (Table 15)

2.14 As may be expected, larger companies accounted for a larger share of the R&D spending. However, as Table E2 shows, Scotland has a higher proportion of expenditure in smaller companies than the UK as a whole.

Table E2: Expenditure by Company Size: Scotland and UK, 2000 ( million)

Source ONS/SE (Table 12)