Tuesday, 11 March 2014

How much do companies invest in innovation?

How much do firms spend on innovation in the UK?  People say that its R&D, but of course spending on knowledge is more than that: its also spending on software, training, design, branding and organisational change.   So what are the numbers?  Very happy to say that my work for NESTA with Peter Goodridge and Gavin Wallis is out today and featured in the BIS Annual Innovation report, 2014, Chapter 3 and in the Economist.

The bottom  line is this.
1. UK intangible investment has held up much more over the recession than tangible.
2. When R&D is capitalised, on the official data, intangible investment (in software, R&D, artistic originals) will be the largest category of business investment.
3. Including other intangibles, like training, design, branding and organisational change, intangibles are more than all tangible investment combined.

Here are some details.

Start with the official data.   The most recent data show that, although it has moved around a bit, aggregate nominal market sector investment (national accounts: tangible & including some intangible, see below) is currently at about the same level it was in 2005.  See below chart:

Nominal business investment, £bn, ONS data

Within the aggregate, ONS breaks it into investment in tangibles and intangibles.  The graph shows the pattern.  Plant is at the same level it was in 2003, and investment in vehicles is declining.  All the growth in the 2000s came from two sources: 1) Buidlings and the commercial property boom; and 2) Intangibles (note, here we refer the official measure of intangibles as recorded in the national accounts (software, artistic originals and mineral exploration).  

We can also include R&D, which will be capitalised in the National Accounts next year.  The chart therefore also shows that once R&D is capitalised, intangibles will be the largest component of UK market sector investment in the national accounts, higher than buildings.   Note too that UK intangible investment has held up remarkably well over the recession.

Note, these are the official measures of intangibles so do not include other assets such as staff training, design, organizational change, branding etc.. The series “Additional intangibles in the next chart includes these other assets.

So, what's the lesson?  UK investment in intangibles has held up, relative to tangibles, remarkably well over the recession.  And its big, and getting bigger.  The knowledge economy is not going away.

 Note all this data is nominal (i.e. in current prices)
The sources are a working paper released by Imperial, here: https://spiral.imperial.ac.uk/bitstream/10044/1/12846/2/Haskel%202014-01.pdf