The UK is performing well when it comes to funneling money into research and development, according to the latest report from the Department for Business, Enterprise and Regulatory Reform.

Overall the UK is spending more on such development than many of its European counterparts, and this is a trend that the government hopes to support and continue. Introducing the report the UK science and innovation minister Ian Pearson, said, "Research and development is important in so many sectors, and we are seeing many encouraging signs of progress."

Ian Coleman of Price Waterhouse Coopers presented the findings, explaining that the biggest gains in UK research and development spending were seen in fixed line telecoms. Unsurprisingly, it was incumbent operator BT that had spent the lion's share.

Overall UK spending on R&D has gone up, Coleman said that it was indicative f the fact that the country was becoming much more focused on innovation. However, the results could be skewed because of the sheer impact of BT's investment. Overall, the fixed lined telecommunications sector channeled some £1,119m into R&D, and BT is responsible for 99 percent of this amount.

Pearson said, "BT is migrating into a more broadly based IT business, so its increased investment is to be expected. Pricing pressures overall in that industry may have had an effect on revenue growth, but [by looking at their investments] you can see that confidence remains."

Despite these investments BT’s second quarter and a half year results, which are dated until September 30th 2007, show its profits have fallen. The firm's profits fell from £600m in its first quarter in June 30th 2007, to £435m at the end of its second quarter.

The fall in profits is because of employee leaving costs and costs of restructuring, according to the firm. BT spent £167m on its restructuring and transformation activities, which it announced it would undertake earlier this year. BT created two new divisions: BT Design and BT Operate.

Spokesperson for BT, Mike Bartlett, said the loss of profit was down to “new systems, new processes, and voluntary leaver packages.”