London, February 8:

Britain lags behind the United States and the leading European economies when it comes to research and development (R&D) and has much ground to make up if it is to achieve the Blair government’s goal of heading the world’s innovation league, the west’s leading economics thinktank said yesterday.

The Paris-based Organisation for Economic Cooperation and Development (OECD) bracketed the UK with Australia and Ireland in the third rank out of four in its assessment of innovation, judging Britain to have a “somewhat below-average” performance.

In a ‘health check’ of structural policies to enhance growth, the OECD called on the government to boost spending on public R&D and to direct the financial help it provides for the private sector through tax credits towards small and medium-sized firms. Jean-Philippe Cotis, the OECD’s chief economist, said the strength of the service sector in Britain might explain why its record on patents was no better than average across the organisation’s 30 countries. The picture looked less bad, he said, if trademarks and intellectual property rights were taken into account.

“But I would still not describe it as outstanding. The UK has good fundamental research, but improving the links between the public and private sector is a challenge.” To boost innovation, Britain should ensure the long-term capability of the public R&D system by securing adequate funding for the maintenance and upgrading of research infrastructure. It should consider boosting the funds of universities which had a record of successful collaboration with business.

With UK finance minister Gordon Brown now reviewing the R&D tax credit ahead of the budget, the OECD called on the government to improve the effectiveness of the taxpayers’ money it spent on boosting innovation. It said the money would be better spent on smaller firms which were experiencing trouble raising finance than larger firms, where support was now focused.

The OECD also supported the finance minister’s objective of increasing the numbers of children staying on at school after the age of 16 in order to improve the skills base. Ministers needed to improve “the relevance and quality of vocational programmes at the secondary level”, it said. The high drop-out rate from upper secondary education was identified as a particular weakness for the British economy. “The most important problem for the UK is human capital,” Cotis said.

Elsewhere, the report, which delivered policy recommendations for all OECD countries for the labour market and innovation, was sharply critical of Europe’s failure to get more of its population into the workforce. The reforms identified by the OECD “have in most cases neither taken place nor been planned”, it said.

Little had been done to increase the number of people working beyond the age of 50, while reforms of employment protection legislation, the cost to employers of hiring labour and wage bargaining systems ‘have been virtually absent’.