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Analysis of the 2020 Spending Review

26 Nov 2020

James Tooze looks through the details of the Spending Review and reflects on the impact for R&D

After postponing a multi-year Spending Review last Autumn due to the ongoing Brexit negotiations and a General Election, 2020 was set for the year that public spending would be set for the years ahead. As it turned out, this year has been even more disruptive for the country and, with an ongoing health emergency, it was announced that this year’s Spending Review would also focus on setting budgets for the next financial year only. Despite this, some areas of public spending would receive multi-year settlements, something CaSE has argued is crucial for research and innovation to provide much needed certainty for the sector and allow it to drive the economic recovery. This week’s Spending Review included a multi-year settlement for some parts of the R&D budget, the details of which I shall try to unpick in this blog.

Overall research budget grows for the next financial year

The first thing to notice is that the Government continues to show its commitment to a more research intensive UK. The Chancellor explicitly mentioned the increase that the public R&D budget was set to receive in his speech and the Spending Review document is littered with references to the Government’s investment plan. The Chancellor announced that next year’s R&D expenditure across government will be £14.6bn in 2021/22, an increase of £1.7bn from the previous financial year. Given the circumstances that the UK finds itself in financially, this settlement is very positive and means the UK is still on the path to reaching public R&D investment of £22bn by 2024/25, albeit requiring further sizeable increases in the years ahead.

The Business Department, BEIS, is set to receive £11.1bn of this settlement, which includes the budget they will allocate to UKRI. A significant chunk of the remainder will be set aside for the Ministry of Defence, who’s R&D budget is set to be £6.6bn over the next four years. Another £1.3bn is being made available to support health R&D to be administered through the Department for Health and Social Care. Fairly rough calculations would suggest that a little over £500m will be shared across the remaining government departments to undertake R&D, which further exemplifies the trend of increased concentration of public R&D through a small number of departments. My last calculations in 2017 showed that 68% of the public research budget was being administered by BEIS. This 2021/22 settlement shows that 76% of the public research will be filtered through BEIS, with both of these figures including funding for Research Councils, Innovate UK and Research England. While it is great to see BEIS research budgets growing, it is also important to maintain and grow the capacity for other government departments to invest in research and innovation. These investments can not only support a greater diversity of research activities in the UK but also improve and inform policy for the benefit of the UK public.

So what about the multi-year settlement?

While the majority of government departments only received a one year financial settlement, UKRI received a multi-year settlement for the explicit purpose of funding ‘core’ research. The Spending Review document shows that this increased investment will be directed towards UKRI’s core research budgets and funding for the National Academies.

 2020/21 (estimated)2021/222022/232023/24
Core research (£bn)

The allocations in the table show that these core research budgets will grow by £1.4bn between this financial year and 2023/24, averaging over £400m per year. From our early discussions with HM Treasury, we understand that this ‘Core research’ refers to the 7 constituent Research Councils of UKRI and Research England, excluding Innovate UK. This means that across the constituent parts of UKRI, research budgets are set to increase by 32% which is extremely positive and welcome. Not only does this represent a significant increase but the multi-year settlement will allow UKRI and the constituent councils to plan with certainty for the coming years. Being able to plan ahead will mean UKRI can achieve greater value from this investment.

Innovate UK has received its own allocation for 2021/22, with at least £490m directed towards Innovate UK programmes to support businesses and new technologies. UKRI is also set to receive £350m in the next financial year to support strategic government priorities, build new science capability and support the whole research system.

Within that £350m for UKRI, £50m will be directed to start funding ‘high risk, high-payoff’ research. While the name ‘ARPA’ appears to have been dropped by the Government, this is the first part of the £800m pledged to fund this ‘high-risk’ research over the next few years. This detail that has emerged from the Spending Review suggests that UKRI will be the stewards of this funding, at least for the time being.

What else?

Much of the focus of the Chancellor’s speech centered around ‘levelling up’, with some initial announcements relating to the Shared Prosperity Fund (SPF) being made in the Spending Review document. The Chancellor announced that the SPF would at the very least cover UK receipts from EU structural funds, which on average will reach £1.5bn a year. Previously, EU structural funds have been very important across the UK in supporting research capacity and funding research endeavours. It is vital for those areas that have been most reliant on these funds can still receive equivalent support through the SPF. We hope that the Government will open the SPF to support research and innovation across the UK.  There is a real opportunity for investment in R&D and innovative businesses to drive economic growth and development across all parts of the UK. To fully realise these opportunities that growing R&D provides for ‘levelling-up’ the Government needs to do more to connect its policy development in these two areas.

Read CaSE's immediate response to the Spending Review

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