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Table of contents

On 13 October 2022 the House of Lords is due to debate the following question for short debate:

Lord Hunt of Kings Heath (Labour) to ask His Majesty’s Government what steps they are taking to increase the UK’s share of global pharmaceutical research and development spending.

1. What is research and development?

According to the OECD, to be classified as research and development (R&D), work must be:

  • novel (aimed at new findings)
  • creative (based on original and not obvious conceptions and hypotheses)
  • uncertain (not guaranteed to give specific results)
  • systematic (conducted in a planned way)
  • transferable or reproducible

The UK government has defined R&D for the purposes of claiming tax relief. It states that for companies to claim R&D tax relief the work must be an innovative project in science and technology. To obtain relief companies must demonstrate how a project:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • tried to overcome this uncertainty
  • could not be easily worked out by a professional in the field

2. Who funds R&D and how much do they spend?

Research and development can be funded by businesses, government, higher education funding councils, overseas institutions, and not-for-profit organisations such as medical research charities and higher education institutions.

Total expenditure by all these sectors on R&D performed in the UK was £38.5bn in 2019, the latest year for which statistics are available. This was an increase of 3.4% on the previous year but the lowest percentage growth since 2013. It represented 1.74% of gross domestic product (GDP). R&D spending as a percentage of GDP increased from 1.59% in 2008 to 1.72% in 2018 and 1.74% in 2019.

Businesses were the largest funder of R&D in 2019 at £20.7bn. The large majority of business’s R&D funding stayed within its sector. Government departments and UK Research and Innovation (UKRI), a public sector body, together provided the second-highest amount.

Table 1: Funding of R&D by sector, 2019
Sector Funding (£mn)
Business enterprise 20,660
Government and UKRI 7,587
Higher education funding councils 2,859
Overseas 5,583
Private non-profit 1,766
Higher education 66

In 2020 net government expenditure on R&D was £15.3bn, an increase since 2019 of £1.7bn in current prices. This represented the largest percentage increase in current or constant prices since 2013.

The biggest distributor of government R&D spending is UK Research and Innovation (UKRI). UKRI distributes funding to researchers and research organisations, institutions and businesses. Funding for researchers is for specific projects and facilities. Universities receive 90 percent of UKRI’s funding for institutions, amounting to approximately £2bn, as a block grant that they use to fund their own projects. Some UKRI funding is available for businesses.

In March 2022, the government announced its R&D budget for 2022–25 would be £39.8bn. Under these plans, spending will increase by £5bn to £20bn per year by 2024/25. The government intends this funding to help it achieve its target of total R&D spending (from all sectors) reaching 2.4% of GDP by 2027. The government has not confirmed these plans since Liz Truss became prime minister.

3. Who performs R&D?

As well as providing the most funding, businesses also spend the most on performing R&D.

Table 2: Spending on performing R&D
Sector Spending (£mn)
Business enterprise 25,949
Higher education 9,068
Government and UKRI 2,661
Private non-profit 843

4. How much does the UK spend on pharmaceuticals R&D?

In 2020, expenditure on pharmaceutical research performed in UK businesses was £5bn. This was 18.6% of total expenditure on R&D in businesses, significantly more than any other product group. The next highest product group was motor vehicles and parts, at 10.8%.

Of the £5bn spent on pharmaceutical R&D performed in businesses, £3.8bn was from the businesses themselves, £1bn was from overseas and £12mn was from the government. Pharmaceuticals was 13th of 33 product groups by level of government funding for R&D performed in businesses.

5. How does UK spending compare to other countries?

In 2019, the latest year for which UK statistics are available, the UK ranked 23rd out of 44 OECD and selected other economies for gross expenditure on R&D as a proportion of GDP.

Table 3: Gross expenditure on R&D as a proportion of GDP, 2019
Country Gross expenditure on R&D as a proportion of GDP (%)
Israel 5.14
Korea 4.63
Chinese Taipei (non-OECD economy) 3.49
Sweden 3.39
Japan 3.21
USA 3.18
Germany 3.17
Belgium 3.16
Switzerland 3.15
Austria 3.13
Denmark 2.90
Finland 2.80
OECD (total) 2.52
Iceland 2.33
China, People’s Republic of (non-OECD economy) 2.23
France 2.19
Netherlands 2.18
Norway 2.16
European Union 27 (from 01/02/2020) 2.11
Slovenia 2.04
Czech Republic 1.93
Singapore (non-OECD economy) 1.89
Australia 1.80
Canada 1.75
UK 1.71
Estonia 1.63
Hungary 1.48
Italy 1.46
New Zealand 1.40
Portugal 1.40
Poland 1.32
Greece 1.28
Spain 1.25
Ireland 1.23
Luxembourg 1.18
Türkiye 1.07
Russia (non-OECD economy) 1.04
Lithuania 0.99
Slovak Republic 0.83
South Africa (non-OECD economy) 0.68
Latvia 0.64
Romania (non-OECD economy) 0.48
Argentina (non-OECD economy) 0.46
Chile 0.34
Colombia 0.32
Mexico 0.28

In 2020, the UK came third in government budget allocations for health R&D spending among OECD and selected non-OECD economies.

Table 4: Government budget allocations for health R&D spending, 2020
Country US$mn (purchasing power parity dollars, current prices)
United States 48,055.00
Japan 6,649.86
United Kingdom 3,862.63
Germany 3,751.90
France 2,868.05
Korea 2,454.48
Italy 2,055.22
Chinese Taipei (non-OECD economy) 1,563.48
Spain 1,555.56
Australia 1,199.45
Norway 603.18
Denmark 503.94
Netherlands 487.25
Mexico 347.89
Hungary 339.18
Greece 286.52
Czech Republic 212.31
Austria 196.08
Portugal 130.78
Poland 130.19
Türkiye 116.53
Belgium 105.19
Sweden 99.11
Luxembourg 87.01
Finland 75.39
Ireland 73.39
Slovak Republic 64.38
Slovenia 52.52
Romania (non-OECD economy) 22.80
Latvia 21.29
Israel 15.72
Switzerland 14.43
Lithuania 9.82
Estonia 6.40

Research by PWC, a consultancy, states that in 2020 total global pharmaceutical R&D was £154bn, of which the UK’s share was £5bn, representing 3.2%.

6. What is the government’s pharmaceuticals R&D strategy?

In March 2022, the government announced that it would increase spending on R&D by £5bn to £20bn per year by 2024/25. The government intends this funding to help it achieve its target of total R&D spending (from all sectors) reaching 2.4% of GDP by 2027.

This funding is to support the aims set out in the July 2021 ‘UK innovation strategy’. The strategy includes measures intended to “make Britain a global hub for innovation” across all science and technology sectors. This includes measures to:

  • support businesses in their innovation by improving access to finance, including through the British Business Bank’s life sciences innovation programme
  • introduce new visa routes to attract talent
  • invest in R&D in regions throughout the UK
  • support university-business innovation
  • identify key issues to be tackled and potentially transformational technologies

In its 2021 ‘Life sciences vision’ paper, the government emphasised its high levels of government funding for health R&D when compared with other countries. It said improving access to finance to help innovative companies to scale up was the area the UK most needed to improve on.

In 2021, the government launched an independent review of research, development and innovation organisational landscape. The goals of the review are to:

  • explore the features and characteristics of organisations performing research, development and innovation (RDI) across the UK
  • identify whether improvements to the organisational research landscape are required to deliver the government’s objective for the UK to be a “science superpower”
  • “futureproof” the UK landscape of organisations undertaking all forms of RDI to be able to respond quickly to changes

The review is being led by Professor Sir Paul Nurse, chief executive and director of the Francis Crick Institute. In January 2022 the review issued an ‘engagement update’ in which it invited stakeholders to share their views. In July 2022 the government stated that the review was ongoing.

In June 2022, the Association of the British Pharmaceutical Industry argued that the UK faced strong international competition in medicines development and discovery. It said that while the UK had the infrastructure, science base and skills necessary to retain and build on its global position, the government should take action to guard against competition from other countries. It said that to improve the UK’s performance in life sciences, action was urgently needed in clinical research, pharmaceutical industry spending on research and development, manufacturing and access to and uptake of new medicines.

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Cover image by DC Studio on Freepik.