A closer look at the Spending Review figures

Analysis of the figures for resource and capital budgets for research and innovation announced in the 2015 Spending Review

CaSE policy intern, Joanna Scales, has spent some time analysing the figures for the resource and capital budgets announced in the recent Spending Review. We consider here what the outlook for the next parliament is far as spending on science is concerned.

The key points regarding the research budget are:

• The £4.7bn flat cash resource funding budget will be protected in real terms until 2019/20.
• The difference between flat cash and real terms will be bridged by £1.5bn from the ODA (Official Development Assistance) budget held in DfID. The £1.5bn covers the period 2016/17 to 2020/21, whereas the rest of the resource budget is only confirmed up until the end of this Parliament in 2019/20.
• The capital budget will receive an investment of £6.9bn between 2015/16 and 2020/21.
• Totalling the resource and capital budgets together the research base budget in 2019/20 will be £6.3bn, rising from £5.8bn in 2015/16.
• The Innovate UK budget will be maintained in cash terms.

The resource and capital research budgets

For the science resource budget the spending review announcements will bring the £4.7bn real terms protected budget to £5.1bn in 2019/2020 (Figure 1), resulting in an increase of £500m by 2020/21. However, this does still leave the size of the resource budget lower than what it would have been had the budget in 2010 been maintained in real terms. This, along with the rising cost of conducting science, and the rate of investment of our international peers, will leave many concerned about the future outlook for the UK research base. The research council’s administration costs are not covered in this budget allocation, which is important when considering the volume of research that this budget can cover.

The spending review also included the announcement that the resource budget will include a £1.5bn Global Challenges fund (running from 2016/17 to 2020/21). This fund will in effect act to bring the flat cash resource budget up to real terms values. From our analysis the difference between the cash and real terms figures over the period is £1.3bn (Figure 2). We will have to wait for more information on the use of this funding, precisely how it relates to the £1.5bn Global Challenges Fund, and how it will be allocated to see what impact it will have on the level of funding across the Research Councils.

The documentation on ODA funding indicates that ‘only research directly and primarily relevant to the problems of developing countries may be counted as ODA’. This could include research into tropical diseases and developing crops designed for developing country conditions, for example. Critically, the expenditure can still be counted as ODA if the research is carried out in a developed country. Another critical piece of information will be whether DfID retains its own departmental R&D budget of around £260m a year.

Figure 1. The UK Science (Resource) Budget 2010/11 to 2019/20

Figure 2. The UK Science Budget 2015/16 to 2020/21 with the total increase in line with inflation highlighted in red

Looking forward, the maintenance of the capital budget (used for the construction of new facilities and investment in and maintenance of equipment) in real terms will help to provide stability through ensuring that investment can continue steadily over the next parliament (Figure 3). The capital budget is protected until 2020/21. Over the previous five years we have seen the capital budget increase, almost in line with inflation due to various capital spending announcements, despite threats of 40% cuts in 2010 (resulting in the sharp decline in the budget in 2012/13). Now that there is a stable settlement for capital, the question will be to what extent the capital is invested in line with scientific priorities and need, or if it is instead used to fund politically-friendly large capital projects.

Figure 3. The UK Capital Budget 2010/11 to 2020/21

The total research base budget moving forwards

Overall, the total research base budget, which includes both resource and capital investment, will be maintained in real terms. This will result in the budget of £5.7 billion in 2015/16 reaching £6.2 billion in 2019/20 (Figure 4) in cash terms. Over the last five years the cumulative shortfall in science investment has been over £1bn, and by 2020 had the budget remained as flat-cash this shortfall would have grown to over £2.3bn; the halting of this downward trend in the amount of funding available for research is therefore a positive step.

Figure 4. The UK Research base investment 2010/11 to 2919/2020 (Cash terms)

Innovation funding

Changes to the funding of Innovate UK were also mentioned in the spending review, with their budget to be maintained in cash terms. We haven’t yet had confirmation for the budget allocation for Innovate UK for 2015/16, with there being the possibility that this may actually be higher (£636m) than 2014/15, and so the figures here are based upon the £540m budget of 2014/15. We will update our figures as and when we hear further news. However, if the budget was to remain at £540m this will result in a shortfall of £100m by 2019/20 (Figure 5).

Over the previous parliament the investment through Innovate UK increased dramatically from a very low starting point. The effect on business R&D and innovation of this flat-cash funding announcement, along with the switching of some existing Innovate UK grants to loans (reaching £165 million per year by 2019-20), we will wait to see.

Figure 5. The Innovate UK research investment 2010/11 to 2020/21 (cash terms)

Notes

• The figures used here are taken from the Spending Review and Autumn Statement 2015.
• We used the GDP Deflators from the Summer Budget 2015.
• The data presented here does not include other areas of government spending, such as departmental R&D spending and R&D tax relief.