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Budget 2018: how did science & engineering fare?

02 Nov 2018

Was there any new money for R&D? What does the budget mean for the 2.4% target? How did science & engineering fare? Deputy Director Naomi Weir takes a look.

CaSE responded to the budget on Monday afternoon after the Chancellor took his seat just before 5pm. As ever, that’s when the budget document is published and we can begin to dig into the announcements. Overall it was a budget going in the right direction, with some positive announcements that impact on science and engineering and a small amount (£65m) of new money for R&D. However, it was very much a budget in the shadow of a looming spending review. So my on the fence appraisal is that we’ll have to wait and see what the spending review brings. For now, there are some good announcements but much more ambition and creativity will be needed in the Spending Review if the Government’s stated ambitions on research and innovation for the UK are to be realised. 

R&D investment

What is not clear (and is never very clear) from the speech and document is what is new money and what is just more detailed allocations of previously announced money. We now understand that the although the bulk of announcements were the latter, there was some new money in there for science.

Most of the announcements described how some of the previously announced National Productivity Investment Fund (NPIF) would be used. Two thirds of this major fund is split between Housing, Transport and Digital Infrastructure with the final third allocated to R&D. Up to this point, £7bn of NPIF has been allocated for R&D spread out over 5 years and rising to around £2.3bn a year in 2021-22. This funding has been announced in two chunks of £4.7bn (2016 announcement) and £2.3bn (2017 announcement which extended the funding for an additional year – to 2021-22). 

This week’s announcement didn’t increase those budgets, in fact compared to last year’s autumn budget NPIF for R&D in 2021-22 has reduced marginally by £20m – which in budget terms is probably a rounding error. However, what we did get is an announcement that extends the total NPIF pot (across all four areas) by an additional year with a slight increase. We only have the R&D portion of NPIF detailed up to 2021-22, but now the total NPIF envelope has been announced for 2022-23 (£6.5bn) and, with this new announcement, 2023-24 (£7.25bn). So, although this new announcement isn’t directly on R&D, it would seem reasonable to conclude that a similar proportion of the budget in those years would go on R&D, resulting in a budget just under and then just over £2.3bn in each year respectively. But it is of course not in the bank yet.

How would that match up with Government ambitions for R&D spending across the economy to reach 2.4% of GDP? Well, it wouldn’t get us closer as it would be holding the public portion flat when our calculations show the public portion would need to be on an upward trajectory. Of course, this is just one funding stream – all be it a rather large one. We wouldn’t expect (or want) all public R&D funding to be channelled through NPIF and all these questions will form part of the discussions in the Spending Review next year.

Onto the specifics.

The document set out how £1.6bn of previously announced NPIF money would be allocated for spending over the three years from 2019-20 to 2021-22. This included:

  • £1.1bn of Industrial Strategy Challenge Fund – detailing funding for Made Smarter manufacturing challenge (£121m) and the Stephenson Challenge on electric motors (£78m) and £70m on quantum technologies
  • £150m on Global AI and future talent fellowships focusing on attracting global talent
  • £120m for the Strength in Places fund, extending the programme by a year to 2021-22
  • £10m on fisheries innovation for UKRI to establish an innovation fund to help transform the industry and ensure the UK is a world leader in safe, sustainable and productive fishing. (On the map showing investment announcements by region they have managed to pin £10m in the South West and in Scotland – but it is only one pot)
  • £50m (starting in 2021-22) that is aiming to stimulate the use of cutting-edge science and innovation in government and will focus on joint programmes between government and industry, and will begin in 2021-22. This is an interesting one. From our annual analysis of departmental R&D budgets we know they’ve been in significant decline since 2010 seen as an easy target for cuts. Our report on the use of evidence in policymaking also highlighted that with much outsourcing of science and engineering expertise in recent years had led to government struggling to be an intelligent customer for R&D in many cases and has in part resulted in the drop in internal demand for R&D. With the 2.4% target requiring buy-in and action from every part of government if it is to be realised, any activity to support government to be an innovation adopter is welcome.

On the subject of R&D beyond BEIS, there was some NEW money announced for plastic innovation. The Chancellor made a very expensive (£10m of Defra’s existing budget) joke about reducing plastic waste (referring to the Shadow Chancellor incurring an injury due to tripping over rubbish in the street, or something similar) by developing “innovative approaches to boosting recycling and reducing litter, such as smart bins”. He also announced £10m of NEW money for UKRI to fund plastics R&D.

There was £65m of new money for R&D overall, with the other two announcements of new money divided into £20m in 2019-20 to fund UK Atomic Energy Authority research on nuclear fusion and £35m over 4 years from 19-20 for a quantum computing centre. We understand this is fiscal capital without a specified site or structure for the centre yet – it could be building on existing infrastructure or something new.

The rest of the announcements, including on £80m on extending the Quantum Technology Hubs, £115m for the (not without its faults) Digital Catapult and the Medicines Discovery Catapult come out of existing core budgets from BEIS and Innovate.

Business environment, enterprise support and skills

Beyond R&D investment there were a range of announcements that impact on the environment for research and innovation in the UK, particularly focusing on enterprise and business support. I’ll pick out a selection of the announcements that particularly chime with some of the findings of our programme of analysis and member engagement on improving the R&D environment in the UK.

Following on from last year’s Patient Capital Review, there was welcome movement on working with pension funds to unlock patient capital. This is something CaSE has raised based on input from members and more substantial work leading on this issue by the BioIndustry Association. Sticking with finance, the Chancellor announced a change to R&D tax credits that hasn’t gone down universally well. With the stated aim of preventing abuse of payable R&D tax credit, the amount that any qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year. This is a reintroduction, albeit at a raised level, of a cap based on payroll that was abolished in 2012. There is support for the idea that companies claiming R&D tax credit should be employing people in the UK, however unintended consequences could be felt by companies that outsource R&D to other companies, common practice for many legitimate R&D intensive companies. This will need careful interaction with Treasury to ensure legitimate companies aren’t hit.

There was a package of announcements designed to support management capability, a factor that is critical if we’re to start and, most importantly, grow R&D based businesses in the UK and improve productivity in existing companies. Interestingly, it was good to see in the same announcement, an additional £25m for 200 more Knowledge Transfer Partnerships, which have been widely praised in my discussions with members. A welcome recognition of the productive links between business and academia. This was placed alongside a new small business leadership programme and funding to support peer-to-peer networks focused on business improvement, specifically referencing technology adoption – something the UK is notoriously slow to do across most of the economy.

On skills, we constantly hear that a focus on improving and growing apprenticeships is welcome but that the levy in its current form doesn’t deliver. So it was good that in addition to recent announcements of increased flexibility on use of the levy by businesses in the supply chain, the Budget announced a halving of the co-investment needed by small businesses from 10% to 5% (historically it has been 0%) to support more apprenticeships in smaller companies.

Of personal interest was an innocuous line under the heading of digital tools for business saying, “The government will also improve the customer experience for businesses accessing online government information and services”. A common thread in all our roundtables (BEIS event write upHMT event write up) and member interviews has been the need for better join-up, communication and presentation of the UK’s research and innovation offer. It is highly fractured, information and support are difficult to find out about even for those in the know, and this needs fixing to make the most of some of the good incentives and support available. It will be essential if we’re to attract investment and activity to the UK, support start-ups and scale-ups to grow, and to make the most of public investment in R&D and business support. 

To demonstrate the point, we pulled together a list of government web pages articulating part of the innovation offer. We want to see a ‘digital shop window’ for the UK innovation offer. This is not just a communications challenge, but also should spur functional improvement and join up across different parts of national and local government systems, messages, portals and opportunities. This one link could then be easily shared to direct people to the array of support available in the UK and internationally. I have since shared our list with a number of relevant officials to demonstrate the need for action, with one saying ‘I knew it was bad but…”. It’s always difficult to make a direct link, but if this is the first steps towards our budget ask of a ‘digital shop window’ then I’ll take that as a win.

There is much more that could be said but you will have done well to get this far. So instead, like Phil, I will leave further comment for our work on the Spending Review in the months ahead.

A full list of the announcements that the budget red book contained for science and engineering is at the bottom of our budget response.

You can also read our submission to the the Autumn Budget consultation  and our one pager outlining the required R&D trajectory needed if we’re to meet the target of spending 2.4% of GDP on R&D.

Read our original response to the budget.