R&D in the 2025 Spending Review

R&D investment

The settlement set out will see Government R&D investment stay broadly flat to the end of the decade in real terms, after a decade or so of rising budgets. In difficult fiscal circumstances, where other areas of Government spending are being cut and there are many competing pressures, this is perhaps the best outcome the sector could’ve hoped for. However, it is not the ambitious settlement that we have called for, that could see the UK lead the G7 in R&D and that takes full advantage of the opportunity the UK has to build on its R&D strengths.

Over the Spending Review period, 2026/27 to 2029/30, investment in R&D will be £86 billion overall, rising from £20.4 billion in 2025/26 to £22.6 billion in 2029/30. Based on Office for Budget Responsibility (OBR) forecasts for inflation, the overall spending plans announced today represent a small above-inflation increase by the end of the Spending Review period, with a slightly below inflation increase for 2026/27.

The table above shows the allocations to different departments. Of the departmental budgets published in the Spending Review, all except the Department of Science Innovation and Technology (DSIT) and the Ministry of Defence (MoD) have received flat cash settlements – a cut in real terms. This is a change from recent years when departmental R&D budgets outside DSIT have been growing. This is likely to lead to some difficult allocation decisions ahead at the departmental level.

DSIT’s R&D budget will rise from £13.9 billion in 2025/26 to £15.2 billion in 2029/30 in cash terms. While the DSIT R&D budget is growing overall in real terms, there is a real terms cut in 2026/27.  

As expected, it is still to be confirmed how the R&D budget will be allocated within DSIT. However, the Spending Review states that between 2026/27 and 2029/30, the DSIT budget will include funding for UK Research and Innovation (UKRI) and association to Horizon Europe and its successor (a positive sign the Government is open to association to the successor programme although this will be subject to negotiations).

DSIT’s allocations are also expected to include:

• £500 million for an R&D Missions Accelerator Programme to “break down barriers and accelerate the delivery of the Government’s missions”
• £410 million for a Local Innovation Partnership Fund to “support local leaders to drive innovation excellence across the UK”
• At least £1 billion to “scale up the Advanced Research and Invention Agency (ARIA), to fund breakthrough R&D designed to catalyse future growth”
• Up to £750 million for a new supercomputer at Edinburgh University

These additional commitments will need to be funded out of the allocated budget alongside existing commitments. This makes the discussions about the allocations within DSIT and UKRI very important, and they are likely to be tight, particularly in 2026/27. Unlike in previous spending reviews, the Government has not specified a ring-fenced amount for ‘core research’. We will continue to work with our members and Government as these conversations progress and more detail becomes available.

Industrial Strategy

The Spending Review recognises that R&D investment will be central to the Government’s Industrial Strategy, which is expected to be published later in June. Ahead of its publication, the Spending Review sets out the Government’s measures to support the growth-driving sectors, with full details to be set out in forthcoming sector plans.

Specific announcements include:

• Over £3 billion R&D and capital funding for advanced manufacturing over the next four years
• Over £2 billion to drive the AI Action Plan including a 20-fold increase in support for compute capacity, with £160 million for TechFirst to ensure people have the right skills to deliver technological change
• Up to £600 million from 2026/27 to 2029/30 in collaboration with DSIT and the Wellcome Trust to launch the world’s first Health Data Research Service to accelerate the discovery of life-saving drugs
• Up to £520 million life sciences manufacturing funding from 2025/26 to 2029/30 to build resilience for future health emergencies

It is not yet clear which of these commitments, if any, would be funded out of the DSIT R&D budget or from those of other departments.

On innovation and support for high tech industries, there was a focus on supporting start-ups and scale-ups. This includes providing better access to finance, with a commitment of £2.9 billion a year for the British Business Bank to increase its overall financial capacity to £25.6 billion. CaSE has previously called for increased financial support for R&D intensive businesses at the scale-up stage. It is therefore welcome to see the Government commit to making it easier for start-ups and scale-ups to access external sources of financial support.

The Spending Review also states that defence spending will prioritise R&D and innovation. The defence R&D budget, which has already increased in recent years following a commitment from the previous Government, will continue to rise. UK Defence Innovation will be established with an initial budget of £400 million per year from 2025/26 to “fast-track innovative technology to the frontline while supporting the UK tech sector”.

Regional R&D

The Chancellor announced the ambition to ensure the benefits of innovation are felt across the UK. As part of this, the Government is launching a £410 million Local Innovation Partnerships Fund, which aims to give local leaders the freedom to co-create R&D programmes and target R&D investment to support local economies. It is worth noting however that this figure is less than the “up to £500 million” announcement trailed ahead of the Spending Review. It is welcome to see a focus on empowering regional government, as CaSE has previously set out it is important that all regions of the UK are empowered to develop thriving R&D and innovation ecosystems. We now await the details of how these plans will be developed and implemented.

What is missing?

Universities

It was welcome to hear the Chancellor recognise the strength of the UK’s universities, stating that “our universities are world leading, we are proud of them.” This sentiment is shared by the UK public – CaSE research has found that a majority (69%) think that the universities in the UK are some of the best in the world, with the same proportion of people regarding this as an important strength for the country. However, there was no mention in the spending review of the financial challenges facing universities or any measures to mitigate against this. Universities require a sustainable financial footing to be able to deliver on the Government’s ambitions for growth. CaSE will be working to inform the Government’s plans on higher education reform later this year.

Ten-year budgets

The announcement today was silent on initial recipients of ten-year budgets despite the expectation that more information would be detailed following the recent publication of guidance by DSIT. It is important that the Government enables departments to make full use of this guidance as part of the package for R&D.

What next?

Over the coming weeks, CaSE will be looking further at the detail that has been published to understand the full implications of the changes announced. We will be working to scrutinise the R&D budget allocations as they appear, and how UKRI is affected. We are also awaiting the launch of the industrial strategy, which will further detail the Government’s long-term plans for R&D, helping to provide predictability for R&D and innovation. As this progresses, we will continue to work with our members and the wider R&D community to inform the evidence base and our advocacy plans.