Investment in intangible assets in the UK: 2020

• Investment in intangible assets in 2020 declined by 19.2% because of the impact of coronavirus (COVID-19) on the UK economy.

• The manufacturing sector was the biggest investor in intangible assets, with most of this investment (54%) going to research and development (R&D).

• In 2020, the largest positive change in investment was in financial product innovation which rose by 8.7%, while the sharpest decline was in mineral exploration, which fell by 64.7%.

Intangible assets include products such as software and databases, research and development (R&D), mineral exploration, and artistic originals, as recorded in the UK National Accounts (capitalised). These are collectively referred to as Intellectual Property Products (IPP). However, there is an additional set of intangible assets, such as branding, financial product innovation, firm-specific training, and design, that are not included in the UK National Accounts. These are referred to as “uncapitalised intangible assets.” This bulletin discusses both capitalised and uncapitalised intangibles.

Investment in intangible assets is less volatile to economic shocks compared with that in tangible assets throughout the period examined in our data. However, in 2020, both tangible and intangible asset investment significantly declined because of the impact of coronavirus (COVID-19) on the UK economy. In 2020, investment in intangible assets declined by 19.2% (excluding firm-specific training investment estimates), to £134.5bn in current prices. Meanwhile, investment in tangible assets declined by 13.6% to £137bn in current prices.

This is the first instance in our time series (covering the period from 1997 to 2020) when investment in intangible assets declined more than investment in tangible assets.

Disaggregating intangible assets, we observe different investment behaviour between capitalised Intellectual Property Products (IPP) and uncapitalised intangible assets. In 2020, investment in intangible assets included in the UK National Accounts (IPP) grew by 2.7%, while investment in uncapitalised intangibles dramatically declined by 32.9%. The latter accounts for a larger proportion of the total, which is why the overall contraction in investment in intangible assets was 19.2%.

Investment by asset

Coronavirus (COVID-19) in the UK accelerated the shift to new ways of working, such as working remotely. This caused businesses to make more intensive use of the technologies already available to them.

The high levels of investment in 2020 in organisational capital and software and databases indicate this change in usual ways of working. Investment in organisational capital increased by 1.5% in 2020 compared with 2019, driven by a 3.6% increase in own account organisational capital. Investment in software and databases in 2020 increased by 4.4% compared with 2019; own account production of software and databases grew by 3.8%, while purchased software and databases increased by 5.5%. The increase in the latter could possibly be explained by businesses adapting quickly to the new ways of working and doing business by purchasing off-the-shelf technological solutions. Investment in research and development (R&D) also increased by 3.2% in 2020 when compared with the previous year.

The highest rate of change compared with 2019 was in financial product innovation which rose by 8.7%. The sharpest decline was in mineral exploration which fell by 64.7%, possibly as a result of environmental initiatives.

Investment by sector

In 2020, the manufacturing sector led in investment in intangible assets, investing £28.5bn, followed by the information and communication sector, at £23.6bn, and the financial services sector at £22.1bn. Although the levels of investment are significantly lower compared with 2020, these sectors remained the most active in investment in intangible assets.

In 2020, 54% of the intangible assets investment by the manufacturing sector was in research and development (R&D). The gas and utilities sector invested mostly in software and databases, with 38% of their investment in intangible assets. Similarly, reflecting the change in ways of working because of the coronavirus (COVID-19) pandemic, the professional, scientific and technical activities sector directed 47% of their investment in intangibles in software and databases (purchased and own account). Similarly, the administrative and support service activities sector also invested 41% of their total intangible assets investment in software and databases (purchased and own account). Unsurprisingly, the information and communications sector also dedicated most of its intangible asset investment to software and databases, purchased and own account (28%). Both accommodation and food services, and financial services, invested their total investment in intangible assets mostly in organisational capital, at 46% and 43%, respectively. The wholesale and retail sector invested mostly in branding, at 41% of their total investment in intangibles.

A detailed glossary of the working definitions of the assets in this publication can be found in our Investment in intangible assets in the UK by industry: 2019 bulletin.

Notes on measurement

Total estimates include a high level of suppression at different processing levels, and so there is a small difference between the totals in Table 2 and Table 3 of the accompanying dataset.

The published estimates exclude the non-market sector (Standard Industrial Classification 2007 (SIC) 84-88). Real estate activities (L) are excluded from own account branding as well as design and organisational capital because of imputed rental, to ensure there is consistency with the previous estimates.

Estimates on firm-specific training intangible investment for 2020 are not included in this publication, because of a lack of updated microdata.

Table 4 of the Supply Use Tables (SUTs), which contain Gross Fixed Capital Formation (GFCF), were not available at the moment of writing. Therefore, estimates of purchased design, purchased branding and purchased organisational capital have been extrapolated for 2020, and as such will be subject to revision, and should be treated with caution.

Quality

The estimates in this bulletin and dataset are based on experimental data and are subject to revision.

More quality and methodological information on strengths, limitations, appropriate uses, and how the data were created is available in our earlier publications.

In addition, the Office for National Statistics (ONS) will continue to work with the international community, sharing insight and experience in contribution to revisions of the System of National Accounts (SNA) and other guidance.

User feedback is crucial in informing our work. Please send any questions or comments on the development of these statistics to nfa-development@ons.gov.uk.

Strengths

The current publication accounts for revisions in business investment estimates, as outlined in our Business investment in the UK: July to September 2021 revised results bulletin. The revisions consider the availability of new survey data, other revised source data, an in-depth seasonal adjustment review and a correction to transport data that was identified after the provisional publication of Gross Fixed Capital Formation (GFCF) estimates in late 2021.

Limitations

In this publication we were not able to produce new constant price estimates for intangible investment because of ongoing improvement in deflator methodology for intangible assets.

Likewise, we have not been able to produce estimates of investment in intangible assets by industry at the Standard Industrial Classification 2007 (SIC) division level. This is because of ongoing developments that will improve the disaggregation of data in a methodologically consistent way at this level of granualarity.