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Delaying R&D target would cost UK billions in private investment

29 Sep 2021

Ahead of the Spending Review, CaSE analysis shows that the UK risks missing out on billions in private R&D investment if the government delays its timetable for investing in science.

Following recent correspondence between the House of Commons Science and Technology and BEIS, concern has grown over whether the UK Government still intends to meet its target of increasing public R&D investment to £22bn by 2024/25. Our analysis has shown that should the Government delay reaching the £22bn target by three years, the UK would lose out on over £11bn of private R&D investment between now and 2027.  

CaSE is therefore calling on the government to re-commit to its timetable of investing £22 billion in public R&D by 2024/5 and to use the spending review to deliver on this pledge.

How has this issue arisen? 

In March of 2020, there was a great deal of enthusiasm and excitement for the UK research and innovation community following the UK Government’s Spring Budget. The Chancellor announced plans to introduce record increases in R&D investment, pledging to reach a public research budget of £22bn by 2024/25. This would see the budget for R&D roughly doubling, and set the UK well on course to reach a research intensity equivalent to 2.4% of GDP by 2027.  

Over the past few months, however, the restatement of the commitment to increase public investment to £22bn has not had a date attached, which is a cause for concern. So much concern in fact, that it prompted House of Commons Science and Technology Committee Chair Greg Clark to write to Kwasi Kwarteng to ask him to confirm that it was still the Government’s intention to increase investment to £22bn by 2024/25. The Committee have this week published a response from the Secretary of State, which appears to avoid committing to answering the question entirely. While it remains clear the Government is seeking to increase public R&D budgets to £22bn, it is no longer clear what the Government intends the timeline to be. CaSE is urging the government to use the upcoming Comprehensive Spending Review to re-introduce the 2024/25 date back into the £22 billion commitment.

The role of public R&D investment in attracting private industry 

As outlined in our recent 5-point roadmap, creating a long-term plan for public R&D investment is crucial in showing that the UK is serious about become a more research-intensive nation. Being able to reach this investment target is vitally important in building the strength of the UK’s research base and gives businesses the confidence to invest in the UK. 

The effect of dropping the date of 2024/25 from the £22bn investment target will have a hugely significant impact on the amount of private investment the UK could receive over the coming years. I wanted to investigate the impact of pushing the target back and the effects this would have on levels of private R&D investment. Two reports published by BEIS, the first in 2015 and latest in 2020, have shown the causal link between additional public investment in R&D and the amount of private investment that can be stimulated as a result of public spending. These reports have allowed models to be built which can analyse how varying levels of public investment will affect private investment.  

The Russell Group has recently undertaken modelling to outline two ways in which the UK could reach public investment of £22bn in 2024/25. The first, and most beneficial route, is a linear model steadily increasing investment in equal increments. The second is a ‘hockey stick’ model, which would see small increases to investment in the next two years and then ramping up quickly. With thanks to the Russell Group, I have been able to compare three scenarios: the first is meeting £22bn by 2024/25 through a linear model, the second is meeting £22bn by 2027/28 through a linear model, and the third meeting is £22bn by 2027/28 through a ‘hockey stick’ model.  

The results are stark and are displayed on the graph below, but for ease I have also included a summary table.  

Model Cumulative private investment leveraged by 2027/28 UK research intensity in 2027/28 
Meeting £22bn by 2024/25 £28.5bn 2.43% 
Meeting £22bn by 2027/28 £17.1bn 2.30% 
‘Hockey stick’ by 2027/28 £12.2bn 2.27% 

As can be seen, delaying the increases in public R&D investment could cost the UK over £11bn of private investment between now and 2027/28, or even £16bn should the Government delay increases in investments until later years. Private investment plays an incredibly important role in UK R&D, not least in reaching our research intensity target. The figures show that if the Government does stick to the pledge it made in 2020, the UK will reach a research intensity of 2.4% in 2027/28, while delaying increases to £22bn will see the UK miss its target.  

Being able to reach the £22bn target by 2024/25 is the most important commitment to the research and innovation sector since CaSE and others had to fight to retain flat-cash for science in 2010. Not only is the target important for the potential for growth it gives to the UK’s research base and in facilitating inward investment, but also in the confidence it will give to the sector that the Government is intent on keeping its promises. Rowing back on pledges will do nothing to make people believe the UK has serious intentions of becoming a ‘science superpower’. Britain’s science has long been super, now it’s time to turn the power on.