Leading UK firms spent almost £21bn on research and development during 2006, a rise of nine per cent, according to figures published by the Department for Innovation, Universities and Skills.
The R&D Scoreboard, produced annually in conjunction with the Department for Business, Enterprise and Regulatory Reform, is an international league table designed as a benchmarking tool for companies, investors and policy makers.
The index is endorsed by 16 leading UK business and technical organisations, including the Confederation of British Industry, the Engineering Employers Federation, the Institute of Directors and the Royal Society.
R&D investment in technology hardware grew by 13 per cent during 2006, but was topped by the global pharmaceuticals sector which grew by 16 per cent over the same period.
"We want to see more R&D and innovation across the board, but this year's figures show that more and more British firms are taking innovation seriously," said Ian Pearson, Minister for Science and Innovation.
"Developments in science and technology are opening up many more opportunities for companies to innovate and grow, and I hope that the R&D Scoreboard will continue to help inform their plans for the future."
The UK government is providing a new package of support for technology and innovation in business, and has allocated £1bn to support the Technology Strategy Board over the next three years.
The report also revealed that British firms compared favourably with their global competitors. The UK's top 75 companies upped R&D spending by 12 per cent during 2006, compared with a global average of 10 per cent.
There is also evidence that companies in some sectors are putting R&D investment before short-term gains, according to Pearson.
The UK's aerospace and software firms put more money into R&D than they reported as operating profit, growing at more than 12 per cent.
Although the pharmaceuticals sector continues to be the UK's largest R&D investor, the fastest R&D growth has been in fixed-line telecoms where increased spending at BT was the main driver behind a 54 per cent increase in the sector's R&D.
"The report shows that UK businesses recognise investments in R&D and innovation as essential to compete successfully in the global economy," said Stephen Timms, Minister of State for Competitiveness.
"In addition to sustained or increasing investment in key areas of manufacturing, such as pharmaceuticals, aerospace and defence, we also see increased investment in sectors such as telecoms and financial services."
Global R&D spending continues to be dominated by companies registered in just five countries: the US, Japan, Germany, France and the UK.
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