Modelling the impact of public R&D spending plans

Modelling the impact of public R&D spending plans

Oxford EconomicsIn 2017, the UK government set a target for research and development (R&D) spending—public and private combined—to reach 2.4 percent of GDP by 2026/27, up from 1.7 percent of GDP in 2016/17.1 To help meet this target, in the 2020 Budget the government announced a large expansion of public support for R&D, increasing public R&D investment to £22 billion by 2024/25 (0.8 percent of GDP). The government hopes that increased public R&D spending will not only directly increase the amount of innovative activity, but also stimulate, or “crowd in”, private R&D expenditure.

The increase in private R&D investment which results from each additional unit of public R&D investment is known as the “leverage rate” and is a key measure used by policy makers to understand the ripple effects of public investment. In March 2020, the Department for Business, Energy & Industrial Strategy (BEIS) published a study by Oxford Economics that provided updated estimates of the R&D leverage rate in the UK and other OECD countries.

In this research note, we combine the government’s commitments for public R&D expenditure from the 2020 Budget with our updated leverage rate estimates from our research for BEIS to assess the likely impact on private R&D. We then consider how much further private R&D investment will be required for the UK to meet the government’s target of investing 2.4 percent of GDP in R&D by 2026/27.

To read the research note, see pdf here (628 KB) .

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