Business enterprise research and development, UK: 2011

Key issues specific to this bulletin

This is the latest in a series of annual releases about expenditure and employment in R&D by UK businesses by Office for National Statistics (ONS). The results in this release are in respect of 2011. ONS began publishing annual data on business expenditure and employment in R&D in 1993. The source of the information is the Business Enterprise Research and Development (BERD) survey. A quality report (242.6 Kb Pdf) for the BERD is available on the ONS website.

The BERD survey is conducted annually by the ONS. As part of the 2011 survey, approximately 5,000 questionnaires were sent to businesses known to perform R&D ; this included around 400 of the largest R&D spenders, which accounted for approximately 80% of the 2011 total R&D expenditure figure. Smaller R&D performers and others believed to be performing R&D were selected using various sampling fractions. Industry product group and business employment size were the stratification variables. Completed questionnaires were returned by 4,733 businesses representing a response rate of 92%.

This Statistical Bulletin reports business R&D performed in the UK irrespective of the residence of the ultimate owner. Overseas activities of affiliates of UK businesses are not included. Gross expenditure of R&D in the UK performed by all sectors of the economy (137 Kb Pdf), commonly referred to as GERD, is reported separately.

National Statistics

The UK Statistics Authority has reviewed this publication in its report: “Assessment of compliance with the Code of Practice for Official Statistics: Statistics on Research and Development” which was published on 28 June 2012. This review recommended that the UK Business Enterprise Research and Development estimates be designated as National Statistics, subject to ONS carrying out certain requirements. ONS is working hard to meet the requirements set out in this assessment report.

Timeliness and punctuality

An internal investigation has been carried out to identify if it is feasible to publish these R&D statistics earlier than they are at present. Unfortunately, this investigation concluded that it is not possible for ONS to bring forward the publication of these estimates in the short-term.

The main reason for this is that the Department for Finance and Personnel, Northern Ireland (DFPNI) runs a business R&D survey in Northern Ireland on an annual basis, and provides ONS with estimates for Northern Ireland to allow aggregate UK statistics to be produced. DFPNI cannot release these data to ONS earlier than mid October each year, so production of the BERD UK statistics cannot be brought forward from November.

It is important to note that improvements have been made to the processes underpinning the production of these estimates over the last few years and as a consequence timeliness has been improved. For example, 2007 data were published in January 2008, five months after the close of the survey. In contrast this statistical bulletin has been published only three months after the close of the survey.

As part of this investigation ONS sought the views of some of the known users of this publication. They unanimously stated that they are content with the current publication timetable.

Completeness of coverage

As part of the assessment of ‘Statistics on Research and Development’ by the UK Statistics Authority (UKSA), a further requirement was placed on the ONS to review the methodology for producing R&D statistics to identify potential gaps in coverage and meet the coverage requirements of the European System of Accounts (2010). To meet this requirement and to assist users in their understanding of this complex issue, an Information Note entitled ‘ Coverage of the Business Enterprise Research & Development Survey’ (147 Kb Pdf), has been published today which seeks to address this issue.

Revisions

The 2009 and 2010 estimates have been revised where necessary to take account of businesses misreporting and late returns.

One indication of the reliability of the key indicators in this release can be obtained by monitoring the size of revisions. The table below records the size and pattern of revisions that have occurred over the last five years. Please note that these indicators only report summary measures for revisions. (The revised data may itself be subject to sampling or other sources of error).

A spreadsheet is available giving the revisions of estimates (42 Kb Excel sheet) from 2004 and the calculations behind the averages in the table.

The revisions table covers estimates of the UK business enterprise R&D expenditure first published from November 2005 (for 2004) to November 2009 (for 2008).

A statistical test has been applied to the average revision to find out if there is bias in the estimates. No statistically significant bias was identified.

Sampling variability

It is possible to calculate the standard error for each detailed product group, as a measure of sampling error. To illustrate this, the total expenditure for the aerospace product group is £1,417 million. The calculated standard error, as shown in Table 25, is £29 million.

The 95% confidence interval for this estimate is then given as £1,359 million to £1,475 million that is £1,417 million +/- two standard errors. A 95% confidence interval means that it is expected that in 95% of samples, this range would contain the true value.

The estimates in this publication are based on a stratified sample drawn from the population of businesses known to actually perform R&D or are likely to be R&D performers. As with any sample survey, the R&D survey is subject to two types of possible errors:

• sampling errors, due to only a sample of the population being surveyed. These errors can be quantified, as shown in Table 25

• non-sampling errors. These include factors such as population coverage, misreporting and non-response bias. These errors are generally hard to quantify, because of the difficulty in identifying the population of actual/likely R&D performers and because of the problems ensuring that businesses adhere to Frascati R&D definitions. An Information Note (147 Kb Pdf) has been published which provides an overview of the survey design and looks at the methods and sources used to update the sampling frame

Discontinuities in data

The BERD questionnaire was redesigned after the 2007 survey to better reflect user needs and to address concerns about data quality and difficulty in completion. While these changes are viewed as being an improvement, they may have had an impact on the comparability of the data returned. Unfortunately, it is not possible to measure this impact.

General information

These points should be noted when examining the data tables:

• there may be discrepancies between totals and the sum of their independently rounded totals

• in some tables, entries have been aggregated to avoid disclosure of figures in which the returns of individual businesses could be identified. Where this happens, footnotes have been added to the tables

• respondents were asked to make a return for the calendar year 2011 or the nearest 12 month period for which figures were available. Data for all years published in this Statistical Bulletin were collected on the same basis

• it is sometimes necessary to suppress figures for certain items in order to avoid disclosing data from individual institutions. Tables which contain data which are disclosive will contain a relevant footnote

Product groups

The 400 largest R&D spenders are asked to select the industry product groups that best describe the type of R&D activities they undertake. In 2010, these product group descriptions were updated to better reflect the new Standard Industrial Classification (SIC 2007) descriptions. For the smaller R&D performers, no product group data was collected. However, the businesses’ Standard Industrial Classification (SIC) codes are known from the Inter-Departmental Business Register (IDBR). An assumption is therefore made that the R&D expenditure is for the detailed product group that corresponds to the individual businesses’ dominant SIC. This approach must be regarded as an approximation since, in practice, an individual business can perform R&D for a range of product groups.

The implementation of SIC 2007, in 2010, resulted in some businesses’ R&D moving to a different product group than previously published. The largest impact was with businesses with publishing activities as these moved out of the manufacturing sector and started to be included under miscellaneous business activities. There was also an increase in the other manufactured goods product group due to businesses being reclassified from textiles, clothing and leather products, pulp and paper products, rubber and plastic products, fabricated metal products, machinery and equipment and precision instruments and optical products.

The broad product groups, which consist of aggregations of the detailed product groups, were refined and expanded in 2002 in order to more accurately categorise the data within the manufacturing and service sectors. In 2011, sewerage and waste management is now included in the other total when previously it was included in manufacturing.

Standard Industrial Classification

The Authority placed a requirement on ONS, as part of the assessment of Research and Development statistics, to ‘Review the statistical disclosure practices for BERD statistics, with a view to presenting industry statistics in BERD, and publish the results’. To this end, ONS, as part of this publication, has published a table (Table 27), for the first time, detailing estimates of R&D by SIC.

The SIC was first introduced into the UK in 1948 for use in classifying business establishments and other statistical units by the type of economic activity in which they were engaged. The classification provides a framework for the collection, tabulation, presentation and analysis of data, and its use promotes uniformity.

Estimates by SIC are derived by allocating business expenditure to industry classifications using the IDBR. The IDBR is a list of UK businesses that is maintained by ONS and holds information on the business activity (based on SIC) of every business.

Employment

Employment estimates are provided by businesses on the basis of ‘full-time equivalent’ staff, averaged over the year. The categories of employment used are:

• researchers – engaged in the conception or creation of new knowledge, products, methods and systems

• technicians – perform scientific and technical tasks normally under the supervision of researchers

• others – support staff including skilled and unskilled craftsmen, secretarial and clerical staff participating in R&D projects

Small and Medium Enterprises (SMEs)

A table providing estimates of R&D expenditure by Small and Medium Enterprises (SME) is included as part of this publication (Table 26). The SME definition used is that under the European Commission Recommendation (96/280/EC) of 3 April 1996, in which SMEs are defined as enterprises with fewer than 250 employees. In addition, a criterion of independence is used to exclude enterprises that are part of a larger enterprise group, so that only true SMEs are evaluated. This criterion is important in the context of R&D estimates, given that R&D activity is often carried out by smaller businesses which form part of larger, sometimes multinational, businesses. To apply the SME definition, historic information on business ownership has been obtained using that currently held on the IDBR. Caution should therefore be exercised in making comparisons over time.

Regional data

The following process is used to produce regional estimates of R&D. The businesses receiving the long questionnaire (the 400 largest R&D spenders) account for approximately 80% of total R&D expenditure. Each business is asked to provide the workplace postcodes for all the sites at which the business performed R&D, and to allocate the total expenditure figures of the business to the sites on a percentage basis. Regional data for the remaining businesses, which account for the remaining 20% of total expenditure, all have a value estimated by grossing up using county region codes from the business register of R&D performers. Aggregation is undertaken at broad product group and county level.

Users and uses of data

A primary use of the data in this Statistical Bulletin is that it is a key component in measuring the UK’s gross domestic expenditure on R&D. The other components are the UK government, the higher education sector and the non-profit business sector. Gross expenditure of R&D in the UK performed by all sectors of the economy (137 Kb Pdf) is reported separately, as part of a publication commonly referred to as GERD.

Changes introduced as part of the amendments to the System of National Accounts (SNA) in 2008 and European System of Accounts (ESA) in 2010 specify that R&D, from 2014 onwards, should not be considered as an ancillary activity and instead expenditure on R&D should constitute investment in R&D assets, which as a consequence needs to be capitalised in the UK National Accounts. In short, R&D expenditure will now contribute to the compilation of the value of the UK’s net worth and be included as part of Gross Domestic Product (GDP) estimates. Please see the ONS ESA 2010 page for more information.

There are numerous other users within and outside government who use these data to produce various analyses and to inform policy decisions. These include:

• European Union’s Statistical Office (Eurostat) - the UK provides statistics measuring R&D activity in accordance with the European Commission Regulation No. 753/2004 of the European Parliament and the council. The business estimates in this statistical bulletin are used to provide information that is consistent with other EU member states and to enable benchmarking to be achieved. Europe 2020 targets for economic growth include 3% of the EU's GDP (both private and publicly funded) to be invested in R&D/innovation by 2020. This means that these estimates are essential in monitoring progress towards this target

• OECD – use BERD data for constructing internationally comparable data tables and producing regular statistical publications such as the ‘Main Science and Technology indicators’ (MSTI) and ‘The Annual Business Enterprise Research and Development’ statistics (ANBERD). The data are also used for analytical studies, which underpin economic analyses and policy reviews

• The Department for Business Innovation and Skills (BIS) use BERD data to assess policy impact and inform debate. R&D data underpins their assessments of UK innovation performance as well as international work in the field. BIS produced an R&D scoreboard until 2010. The R&D scoreboard was the leading source of information and analysis on the world's top R&D active companies, both in the UK and globally. It listed the 1,000 UK and 1,000 global companies investing most in R&D, enabling companies to benchmark their own investments against sector leaders. The scoreboard was based on data extracted from companies' annual reports and accounts. The last scoreboard to be published includes commentary and analysis prepared by the Economist Intelligence Unit for the year 2010. View the latest R&D scoreboard

• The Welsh Government (WG) and the Scottish Government (SG) use BERD data as a key indicator for measuring the performance of their respective economies within the UK, as well as to monitor and develop R&D policies which seek to increase R&D investment

• HM Revenue and Customs (HMRC) use BERD data to support analysis and advice on policy development. BERD is one of the key data sources for policy evaluation

• The Department for Finance and Personnel, Northern Ireland carry out their own annual survey into R&D and then provide ONS with the Northern Ireland business R&D data for inclusion in the UK published results

• The Research and Development Society is a UK-based organisation formed to promote the better understanding of R&D in all its forms. It holds regular afternoon and evening meetings, usually at the Royal Society in London. The Research and Development Society makes use of BERD data, as a key source of information, for understanding how much UK businesses are investing in R&D on an annual basis and to inform wider debates about R&D

Requests for BERD data are made from a variety of sources including academics, government departments, and economic consultants. This means that the data are used in various publications. For example:

• in 2011, the Royal Society published Knowledge, Networks and Nations: Global scientific collaboration in the 21st century which included data published in ONS BERD 2009 Statistical Bulletin as part of the scientific landscape in 2011 (see page 31 in the above link)

• in one of a series of working papers by the STEPS centre (Social, Technological and Environmental Pathways to Sustainability), the Economic and Social Research Council (ESRC) published Trends in the Global Distribution of R&D since the 1970s, their interpretation and limitations which refers extensively to BERD data

Do you make use of our annual estimates of UK Business Enterprise Research and Development? If yes, we would like to hear from you (RandD@ons.gov.uk) and understand how you make use of these statistics. This will enable us, in the future, to better meet your needs as a user.

Coherence and international comparisons

The UKSA reviewed this publication in their report “Assessment of Compliance with the Code of Practice for Official Statistics: Statistics on Research and Development” published on 28 June 2012. One of the requirements identified as part of this assessment was to publish improved information on the coherence of R&D statistics with other official statistics. This Information Note (807.8 Kb Pdf) has been produced to address this issue.

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Special events

ONS has recently published commentary, analysis and policy on 'Special Events' which may affect statistical outputs. For full details go to the special events page on the ONS website.

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