US and Japan storm ahead as UK puffs along behind

A long-term lack of investment in research and development (R&D) has left the European knowledge economy limping behind Japan and the US.

On average European businesses invest the equivalent of just 1.19 per cent of GDP (gross domestic product) into R&D - 74 per cent less than the US at 1.98 per cent, and almost half that of Japanese companies, which invest 2.18 per cent.

Despite an increase in research funding over the last year by all but three of the EU's 15 member states, their rate of investment falls well short of overseas competitors.

Publishing its first annual 'Innovation Scoreboard' on Monday the European Commission will be disappointed by the results.

Last September the Commission admonished Europe's inferior performance and warned that member states must intensify their efforts to catch up with their competitors.

The rate of investment between different EU states varies wildly with Sweden, Finland and Denmark leading the pack. UK firms are the seventh biggest R&D spenders behind France, Belgium and Germany.

Dr Mike Tubbs, a senior industrialist at the DTI, told silicon.com that the link between R&D and an increase in productivity, sales growth and market value is well established. "Companies get into a virtuous circle where they spend a greater percentage of profits on R&D than their competitors, and end up having a greater percentage of profit per sale," he said.

According to Dr Tim Bradshaw, senior policy advisor at the CBI, the initial outlay can be discouraging. "If you're going to do it, you have to make an investment up front - and you have to balance that with short-term returns," he said.

The findings echo a DTI report released earlier this month which claimed many UK firms failed to recognise the importance of R&D, a situation which is damaging UK competitiveness in the international market.

Bradshaw said: "The UK's R&D intensity is historically around half the international average and that's always a worry. Lots of companies want to try and increase research but keep development costs to a minimum."

According to Tubbs, British R&D is very strong in key markets like aerospace, health and pharmaceuticals, but suffers in electronics, engineering and software.

"But even in the sectors where we are not so good there are still companies which are excellent, and that shows we can do it when we try," he added.