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Strengths and weaknesses in the UK innovation system

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The 2018 European Innovation Scoreboard (EIS) was published last month, and shows the UK in the group of Innovation Leaders for the second year in a row.

Whilst some doubt the usefulness of composite indicators like the EIS (including me, in my blog, Measuring national innovation strengths: not such a clear picture, published last year), there’s a lot of use in examining the details.  In this blog, I delve beneath the headlines to examine the UK’s strengths and weaknesses, and how they have been changing over time.

Strength and weakness process showing heads with cog wheels and a magnifying glass.

Leading and improving

The UK sits fifth in the ranking of 28 countries, in a group of six countries who are Innovation Leaders, with innovation performance well above the EU average. Not only that, our performance has been increasing fairly steadily over time, and in 2018 the UK has extended its performance lead over the EU average by 50% compared to 2010. This reflects a real commitment in the UK to protect and grow science and innovation during the tough economic times we’ve been through.

Overall EIS indicator - % difference between UK and EU average, 2010-2017.
Source: Innovate UK analysis of EIS data

As we’re used to seeing, the UK is especially strong when it comes to the science & research indicators, with our world-leading universities providing 60% more PhDs than the EU average, and two and a half times the number of international scientific co-publications. Overall, our research system’s performance in 2017 was 80% better than the EU average, according to EIS indicators. Put simply, UK universities include the best in Europe, and so can attract the best researchers and produce talented graduates.

Room for improvement

However, there are areas where improvements could still be made. The UK’s long-standing lag in terms of R&D investment is highlighted once again, with public sector funding of R&D slipping even further behind the EU average since 2010. Private co-funding of public R&D expenditure has similarly fallen, which is to be expected given the known link between the two.

However, these figures are relative to what the rest of the EU is doing, rather than absolute – in my last blog,  Breaking down the latest research and development statistics, I looked at UK R&D expenditure and found that whilst public sector funding has been fairly flat since the financial crisis, businesses were stepping up to more than fill the gap.

 Innovate UK analysis of ONS Gross Expenditure on R&D data.
Source: Innovate UK analysis of ONS Gross Expenditure on R&D data

What’s promising about EIS 2018 is that the really important indicators of business innovation – the innovation outputs – are improving. R&D expenditure is an input, with limited benefits in itself. The key is how effective we are at converting those inputs into outputs.

The 2018 figures show that the UK is now performing much better in terms of the number of SMEs who are introducing new product and process innovations, and marketing or organisation innovations. The number of SMEs innovating in-house is still only around half the EU average, but in terms of SMEs collaborating with others, the UK’s performance is more than twice that of the EU.

Crucially, the impact of innovation is an area of strong performance for the UK, in terms of employment, fast-growing companies, and sales of innovative products. In fact, looking at how the sub-categories of the EIS have changed since 2010, the biggest relative increases have been in the Innovators and Sales Impacts categories.

The chart below plots how the UK’s relative performance in these categories has shifted since 2010, moving from being far below the EU average to about the same (in the case of Innovators) and over 20% above (for sales impacts).

 Innovate UK analysis of EIS data- showing % difference between UK and EU average 2010-2017.
Source: Innovate UK analysis of EIS data

Blue and red starburst Industrial Strategy logo next to wording 'Industrial Strategy'

An Industrial Strategy to boost innovation

The Industrial Strategy sets out the five foundations of productivity that it focuses on to transform our economy. It is no coincidence that these align so strongly with the sub-indicators of the EIS. Innovation is central to productivity growth, and to a strong, competitive economy.

Our five foundations align to our vision for a transformed economy. 5 foundations of productivity = Ideas, People, Infrastructure, Business environment and Places.
Source: BEIS – Industrial Strategy

As part of UK Research and Innovation, we have already begun implementing new programmes to support the science & innovation, the researchers & businesses, the people & places, and the infrastructure we need to make the UK the productive, competitive economy we need. We work across all indicators within the EIS, and all five foundations of productivity.

We know (in my blog Measuring the impact of our innovation grants) Innovate UK support for business-led innovation helps companies invest more in innovation, work more openly with others, accelerate technological development, and bring novel goods and services to market. It’s great to see the UK’s performance as a whole is moving in the same direction, and that the UK is an Innovation Leader in Europe.

With Innovate UK at the heart of the Government’s implementation of an Industrial Strategy with innovation at its core, including an aim to increase the UK’s R&D intensity to 2.4%, we hope EIS 2019 will show an even stronger innovation system in the UK.


Follow Dan Hodges on Twitter @EconDanH

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