Budget briefing 2016

The Chancellor is due to deliver his second budget of this Parliament tomorrow. Here, we take a look at some of what we’ve learnt from the Spending Review and the recent BIS allocations as well as some of the questions that remain outstanding.

The headline figures for science investment from the spending review were:

• 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.

For the science resource budget the spending review announcements will bring the £4.7bn real terms protected budget to £5.1bn in 2019/2020. 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. Take a closer look at the spending review research figures on our blog.

We learnt a little more about Global Challenges Research Fund (not to be confused with Grand Challenges capital) last week with the publication of the BIS allocations document. This funding from DfID along with the Newton Fund will account for just over 10% of the resource budget by the end of the Parliament (£518m out of £5,094m in 2019/20). 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.

Even with this additional funding, the spending power of the resource budget is only being maintained at the same level – but with additional priorities thrown in – and is lower than it was in 2010. 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. Indeed, the Science & Technology and BIS Select Committees have both called on the Government to “produce a long term ‘roadmap’ for increasing public and private sector science R&D investment in the UK to 3% of GDP — the EU 15 Target”. Nicola Blackwood MP has also written to the Chancellor ahead of the Budget to reassert this, as well as to recommend a number of practical actions he could announce to support science.

One of the key questions yet to be answered is whether DfID will retain its own departmental R&D budget of around £260m a year. If this budget dwindles then the funding coming to BIS in the form of the GCRF is just a shift of funding between departments. But Departmental R&D spending is difficult to scrutinise in advance as budgets don’t tend to be published, so instead we are left to look at spend once it has already happened. And departmental R&D is something we’re still waiting to hear about from Government. In the 2014 Science and Innovation Strategy the Government stated:

“We will examine how to ensure that R&D spending by departments is properly prioritised against other capital investment spending, for example by considering controls that can be placed on this spending to ensure that valuable R&D is not unduly deprioritised in favour of short-term pressures. We will report on this by the next Spending Review.”

With around 40% of total government investment in R&D sitting outside BIS, this is no small matter for UK science. But the spending review has been and gone and so far there has been no news. We wondered whether the ministerial committee on science (or beefed up CST) proposed by Nurse would be a mechanism to do this, but both Sajid Javid and Jo Johnson have distanced themselves from this idea. Will this be something George Osborne announces tomorrow?

In recent years we have got used to fiscal events being used by the Chancellor to announce big ticket science spending, largely by putting a name on previously announced capital funding. The National Audit Office (NAO) last week published a report on BIS’s capital investments in science projects which we commented on in the media. CaSE along with others in the sector have been increasingly concerned about the ad-hoc nature of capital investments in the last Parliament and the apparent disconnect between capital investment and resource. We raised both these issues as priorities that we wanted to see urgently addressed in this term of Parliament. And, unfortunately, the NAO’s report confirms that we were right to be worried.

The report concludes:

“In 2014-15, BIS’s capital spending on science was above £1 billion and the 2015 Spending Review confirmed that this level of spending would be maintained up to 2021. Many projects have been delivered on time and within budget, have high levels of demand and have made notable scientific impacts.”

(That’s the good news)

“However, since 2010, BIS has lacked a clear process for deciding which projects are investment priorities, and BIS’s processes for prioritising projects and taking spending decisions have not been consistently supported by good-quality information such as what projects could cost to run. BIS also lacks adequate analysis of whether its investment in a portfolio of science capital projects is optimising scientific and economic benefits. We regard these shortcomings as avoidable and undermining of BIS’s ability to prioritise and deliver value for money across the range of its capital funding of scientific research.”

“The analysis supporting recent business cases has not always been complete. We reviewed 20 business cases approved between 2008 and 2015 and found that some of the more recently approved business cases lacked key analysis, such as an assessment of alternative options, estimates of what projects could cost to run, or assurance on how ongoing costs would be funded.”

This ad-hoc, rapidly pulled together approach to capital funding no doubt enabled BIS to claw back funding from Treasury following the major cuts to capital in 2010. But it cannot become business as usual.

Running costs of science infrastructure can be substantial. BIS has committed £3.2 billion of capital expenditure to 56 projects since 2007. The NAO estimate that these projects may cost some £2 billion to run between 2015-16 and 2020-21. They report that BIS believes its 2015 Spending Review resource settlement will cover the costs of running projects but they have not seen analysis to support this.

The £2bn running costs estimate includes the costs of operating the infrastructure, but not the costs of carrying out research. BIS believes that, given research grants account for a large proportion of the research councils’ expenditure, there is considerable flexibility for the research councils to meet the running costs of future projects.

Assuming that £2bn resource cost is split evenly across the period, 8% of the total resource allocation for the research councils, hefce, uk space agency and the as-yet unallocated global challenges pot combined will be taken up in running costs. And that is before you take into account the research grants to actually do any science.

For instance, of the 15 new projects that BIS selected from the recent capital consultation responses, over half were not scored on what they would cost to run. That is terrifying.

The report also says that in 2014, when BIS committed to joining two international programmes: the European Spallation Source and the European X-ray Free Electron Laser, at a capital cost of £195 million, BIS had not decided how it would fund the ongoing costs of at least £14 million per year or whether the UK would need to withdraw from another international programme to meet these new commitments.

I hope this is a helpful reminder to BIS, and to Treasury, that every shiny new project comes with long term costs. And those costs will come out of the science budget. This would be no problem at all if we had confidence that BIS was making strategic, well informed decisions on projects prioritised by the research councils. But our hunch that this isn’t the case has been fully set out in the NAO’s report.

So as the Chancellor takes the stage tomorrow we have a stable research base budget, capital and resource, to the end of the Parliament. Its spending power is retained but it has to cover more – 8% of the resource budget will have to fund running costs of new facilities (and this will increase with every new facility announced) and 10% by the end of the Parliament will have to be ‘ODA-able’. Using the resources we do have strategically and to greatest effect will be increasingly essential, including making sure we have enough resource to fund research grants and capital to fund essential maintenance and upkeep (a bill that will go up with every new facility too).

This does outline the real need for increasing investment in research over the long-term. Regardless, the NAO report sets out a number of recommendations (see below) and I hope BIS takes action so that the significant investment Government are putting into science is put to best use, for everyone’s benefit.

Recommendations in the NAO report

BIS needs to develop a more systematic and informed approach to investing in science projects. In particular, BIS should:

• Set out a more structured and strategic process for proposing projects, identifying priorities and taking funding decisions, potentially as part of its plans for the recently proposed integrated Research UK organisation. BIS’s aim should be to optimise the value of its portfolio of investments. To ensure decision-making is soundly based, the prioritisation process should be supported by robust analysis of, for example, the likely costs of running projects and the anticipated economic and scientific benefits.
• Conduct a systematic analysis of the existing infrastructure. To take informed decisions on capital investment, BIS needs to ensure there is an adequate picture of the existing infrastructure and its ability to support BIS’s science strategy, including current gaps and emerging priorities, the need for future upgrades and renewals, and the extent to which international facilities can meet UK requirements. To gain this picture, BIS should draw on existing information and analysis held by its partner organisations and other sector bodies.
• Ensure that decisions to invest in capital projects are not taken without a robust assessment of the costs likely to be incurred over the life of the projects. At a time when available resources are limited, taking decisions without sufficient information on what projects could cost to run may have long-term consequences for how the UK science budget is spent.
• Optimise the value from its investment decisions by carrying out an appropriate level of analysis before committing to individual projects. In particular, BIS should consider what options are available to achieve desired outcomes, analyse the demand for projects and assess the scientific and economic impact expected from the project.
• Take a more systematic approach to evaluating the impact of operational projects. BIS’s current approach may not be capturing all the economic and scientific benefits of the projects it has funded. While the extent of analysis that is possible will depend on the nature and scale of each project, assessing projects in a more structured way will help to inform BIS’s future investment decisions.
• Work with HM Treasury to consider how best to provide a predictable funding framework for planning scientific capital investment as part of any review of future spending. Funding allocations for science projects were unpredictable between 2010 and 2014. This led to projects being selected, often at short notice, to match funding that became available unexpectedly. In 2014, the government committed capital funding for science up until 2021, allowing BIS to plan which projects to fund. Decisions about investment priorities are likely to be better informed if decision-making takes place in a more predictable framework for funding longer-term projects.