Budget had positives, but public and private investment risk being eroded.

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Last Wednesday’s spring budget received a broadly positive, if muted, response from the research and innovation sectors.

Organisations representing academic and industrial R&D welcomed both its specific, often relatively small-scale initiatives and the overall sentiment that science and innovation are powerful drivers of economic growth. The response from the National Centre for Universities and Business (Ncub) echoed this, while noting a lack of “bold new” announcements.

Cuts to national insurance were the headline. These had been trailed and, while economically significant, are not specifically so to research and innovation. The science and innovation content of the budget was dominated by announcements that had been made in November’s autumn statement, complemented by further detail or updates. For example, following reforms to R&D tax relief announced in the autumn, there was news that an expert advisory panel will be established to support their administration.

Elsewhere, sector-specific announcements included a “new £7.4 million upskilling fund pilot”, aimed at helping small and medium-sized businesses develop skills in artificial intelligence, along with a £100m investment in the Alan Turing Institute, the national centre for data science and AI. Additional content on investment zones, aimed at boosting local economies, was also included. A statement from the Department for Science, Innovation and Technology highlighted investments in life sciences manufacturing and careers in medical research.

Considerable challenges

The settlement delivered in the 2021 Comprehensive Spending Review lasts until the 2024-25 financial year. This includes increasing public investment for R&D. The settlement’s last year, in which a general election will take place, begins next month. There was also barely more than 100 days between last week’s spring budget and last year’s autumn statement, and the public finances remain constrained.

It’s no surprise, then, that new multi-year funding commitments were out of the budget’s scope. So why note their absence? Because, despite significant increases in public investment, the UK research and innovation system faces considerable challenges.

The latest figures from the Office for National Statistics on business R&D, published the week before the spring budget, show a real-terms decline of 0.4 per cent between 2021 and 2022. Analysis by Ncub notes that while this fall is limited, it is a warning against complacency and a sign that further action may be needed to encourage increases in private investment that match growing public R&D spending.

The challenges to the financial sustainability of higher education institutions are well documented but remain unaddressed. Additionally, while we are still within the current spending review settlement period, many organisations in the sector, including Ncub, had called for a commitment to a target for total expenditure on R&D of 3 per cent of GDP to at least 2030. This would provide certainty and confidence to actors across the research and innovation system—not least as a signal to industry.

Policy shifts

A general election must take place by January 2025. Both May and November have been suggested as potential dates. Conventional wisdom around the government’s polling suggests that a later date is more likely, although the possibility of May has been talked up recently.

If the election is in November, there is scope for another fiscal event between now and then. This would be followed by yet another after the election. Amid such frequent policy shifts, continued calls for long-termism, more coherent university funding and competitive approaches to attracting private sector investment will be necessary.

Whatever the election’s outcome, the fiscal environment is likely to remain constrained. The latest economic and fiscal outlook from the Office for Budget Responsibility predicts a challenging medium-term economic outlook.

The spring budget shows that the government understands the role of R&D in driving innovation-led growth. Labour’s messaging is the same. Still, while a commitment to a 3 per cent spending target appears attainable, significant additional investment beyond that seems unlikely.

In this context, it will be necessary to pay greater attention to the policy mix in place to incentivise additional private investment. A clear, ambitious expenditure target will be an important part of this, but it cannot be the totality. Alongside this, ongoing efforts to address the financial sustainability of higher education institutions will require deliberate action. We do not have a quiet year ahead of us.

This article also appeared in Research Fortnight

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