Government’s R&D target hangs in the balance

Government’s R&D target hangs in the balance

By Rosalind Lowe, Head of Policy and Engagement, the National Centre for Universities and Business (NCUB). This article was first published as an opinion piece in Research Professional. See here.

Last Thursday, as the Easter weekend approached, many in the research community breathed a sigh of relief when the government issued a press release announcing a £250 million uplift in research funding.

The additional money provides clarity on funding for the 2021-22 financial year, and allayed mounting concern that UK Research and Innovation would have to raid its other budgets to find the cost of associating to the European Union’s research programme Horizon Europe.

The government states that the additional £250m, coupled with unallocated budget at the Department of Business, Energy and Industrial Strategy, will prevent cuts to the research base in 2021-22. This would be hugely important, particularly as the case for public funding for research has arguably never been so clearly on display.

The UK’s successful vaccine roll-out is paving the way towards economic and social recovery, and science is at the heart of the government’s Plan for Growth and global competitiveness. So do public funding commitments match up to the ambition?

Why 2.4% matters

The £250m uplift is an important battle to have won if the UK is to achieve the government’s target of increasing total R&D spending to 2.4 per cent of GDP by 2027 and 3 per cent in the longer term. But it is just one in what will be a long line of skirmishes.

The government has also, for example, committed to boost annual public research spending to £22 billion by 2024-25, up from £14.9bn in 2021-22. This is just three years—and a very difficult spending review—away. The £22bn will almost certainly include the costs of Horizon Europe, which will make it more difficult to directly compare total public spending levels with previous years.

The government’s target matters not because it is the OECD average, but as a commitment to creating a knowledge-intensive economy. The UK has long underinvested in research and innovation.

Had we invested at the OECD average for the past 10 years, UK research would have benefited from an additional £44bn. To start to rectify this, the 2.4 per cent target is ambitious but essential.

Leveraging effect

As well as the amount, the pace at which public R&D funding rises matters. Achieving the 2.4 per cent target, and all the economic, social and health benefits that come with it, will require businesses to invest £17.4 billion more in R&D by 2027 than they did in 2017. This is estimated to equate to £42.7 billion of private R&D investment per year.

Business R&D spending depends on a range of factors, but the foundations of the system, underpinned by public funding, are among the most important. Steep rises in public research spending as we near 2027 will do much less to leverage private investment than patient, steady investment over a number of years.

The challenge is that most of the benefits of private R&D spending do not fall to the business that is investing, but spillover to other firms and the wider economy. The social rate of return—that is, the impact that R&D done in one firm has on growth in other firms—is conservatively estimated at 30 per cent, compared with a private return of 7-10 per cent.

Such figures show the wider benefits that private R&D brings to the economy, and underline the case for public investment in research to encourage such spending.

Public funding for research lays the foundations of the research and innovation system. It supports knowledge creation, the development of talented researchers and innovators, national equipment and facilities, and creates the conditions for collaboration and innovation. It is particularly important in supporting and enabling the higher risk innovation activities that can lead to transformational breakthroughs.

Analysis by Oxford Economics for the National Centre for Universities and Business suggests that paying for Horizon Europe out of the promised £22bn public research budget would lead to the private sector investing an estimated £1.6bn less in research in 2027 than it would without this de facto cut. This would mean falling short of the 2.4 per cent target.

If research and innovation are to guide us not only out of the pandemic, but also towards a healthier, more prosperous future, now is the time for the government and business to invest towards, not away from, research.

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