2020 Spending Review: Research and innovation announcements

Today, the Chancellor of the Exchequer presented the outcome of the 2020 Spending Review, setting departmental budgets and making spending announcements for 2021/22. Due to the uncertainty caused by Covid-19, the Spending Review mainly covers a one year period rather than the three-four year settlements we usually see.

We have pored over the detail of the Spending Review to consider what it might mean for universities, business and their collaboration.

This analysis concentrates on announcements relevant to collaboration on research and innovation. For analysis of announcements related to skills, talent and levelling up, read our second blog here.

The Government has clearly signalled that research and development (R&D) is central to its vision for the UK economy. However with public borrowing soaring and public services facing pressure, many in the research community worried that commitments might slip.

So what do the announcements made today mean for research and innovation in the year to come? And perhaps more importantly, what does the Spending Review suggest in terms of longer-term priorities and direction?

£14.8 billion of public R&D spending

In an important signal of intent, despite the pressures on public funding, R&D spending is to rise next year in real terms from just under £13 billion in 2020/21, to £14.8 billion in 2021/22. The details of this rise are not yet clear, however it seems to be a mix of both an increase in core funding for core research funding through UK Research and Innovation (UKRI) and increased Departmental R&D spending (including an uplift in military R&D announced earlier in the week).

The Department for Business Energy and Industrial Strategy’s (BEIS) funding for research and innovation represents the majority of public expenditure on R&D in the UK. BEIS’s settlement includes £2.4 billion resource spending and £15.6 billion capital spending. BEIS’s core resource budget has grown by 3.3% and its capital budget by 15.7% in real terms since 2019-20.  This is good news for research, as the majority of R&D spending by Government comes from capital budgets.

In the 2020 March Budget, the Government pledged to increase public R&D funding to £22 billion by 2024/25 in order to achieve a target of 2.4% of GDP spent on R&D by 2027. There is still some way to go to meeting this target and achieving the required level of public spending. NCUB estimates that the £14.8 billion funding in R&D next year, equates to roughly 0.7% of GDP.

A welcome multi-year settlement for research spending

Whilst the uplift in funding is welcome, the Chancellor has also recognised the importance of long-term planning for research. The Spending Review gives UK Research and Innovation (UKRI), the UK’s primary research funder, and the UK’s National Academies, a multi-year rather than one year settlement for their core research budgets. These will grow by more than £400 million on average per year for the next three years. 

Possible uncertainty for public innovation support

Whilst the Spending Review places a clear focus on the importance of R&D, it’s unclear what the announcements will mean for innovation. Whilst the review says all the right things about the importance of innovation, there are few specific announcements related to it. This is worrying, as our recently published report, Research to Recovery, shows that the Government has a bigger role to play in the innovation system than it has traditionally held.

It is unclear how the various components of UKRI will be funded, and which parts are expected to see a steady uplift and three year certainty. The multi-year settlement for UKRI is for “core research budgets”, with no reference to innovation. The Spending Review specifies that Innovate UK, the UK’s innovation agency and part of UKRI, should receive at least £490 million towards its core budgets next year, but this does not represent a multi-year promise and may be lower than its current budget of circa £700 million (depending on the detail of how “core budget” is defined).

Annual Investment Allowance

In a welcome move, the Government has extended the higher £1 million Annual Investment Allowance until 31 December 2021. The Annual Investment Allowance has a proven track record of encouraging business investment, including investment R&D. In our response to the Spending Review consultation, we called for the Annual Investment Allowance to be unlimited, so this is a welcome step in the right direction.

High-risk, breakthrough research

Following the departure of Dominic Cummings from Number 10, there were questions as to whether developing a UK version of the Advanced Research Projects Agency  (ARPA) to fund high-risk breakthrough research and innovation would remain a government priority. A few weeks ago, we were told that the project was to be delayed for a year. The Spending Review commits £50 million to high risk innovation funding in 2021/22.

Entrepreneurship

The Spending Review provides an additional £56.5 million in 2021-22 to support the vitality and entrepreneurship of the UK by expanding the British Business Bank’s Start-Up Loans to meet the increase in demand and support entrepreneurs to start and grow their business 

Research collaboration with the EU

The Spending Review restates that the UK remains committed to maintaining and enhancing the UK’s position at the forefront of global science collaboration, regardless of the outcome of negotiations with the EU to remain part of its Horizon programme.