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Reflections on the UK’s R&D funding landscape

16 Mar 2018

James Tooze picks the bones out of the latest UK gross expenditure on R&D statistics.

The release of comprehensive statistics breaking down UK-based expenditure on R&D always gives us the opportunity to take stock of the funding landscape. Although this statistical release covers the time of the European referendum 2016, it is very unlikely that any effects of the Brexit vote will have been felt, as investment decisions are mostly made far in advance. The Government’s pledge of an additional £4.7bn over the coming years only became available in 2017, and the Government’s target to spend 2.4% of GDP on R&D by 2027 was also made in 2017, so we cannot draw conclusions based on such pledges from this release.

Increased R&D funding in line with GDP growth

CaSE has set out what we think is needed to reach the Government’s target to spend 2.4% of GDP on R&D by 2027. These statistics show us the baseline for the climb towards this target. In 2016 the UK spent 1.67% of GDP on R&D, representing a real terms increase of £1.4bn to reach £33.1bn for the year. This 1.67% spend mirrors the level of investment in 2015, but gross expenditure on R&D as a proportion of GDP had increased in every year since 2012 before this plateau.

These figures mean that the UK remains well below the EU-28 average of 2.03% of GDP spent on R&D, which is also lagging far behind the Europe 2020 target of 3%. When looking more internationally, the average percentage spend of GDP on R&D for OECD countries is 2.35%, where countries like China have more than doubled the percentage of their GDP spend on R&D since the turn of the millennium. The UK is renowned in the quality of research we produce, but could risk being left behind developed and rapidly-developing countries should investment in R&D not increase.

Increased Business investment grows UK R&D spend

Business has always provided the lion’s share of R&D spend in the UK, at somewhere between 65 – 70% of investment. The latest release shows that in 2016, business investment accounted for 67% of performance on R&D, followed by 24% from Higher Education, 7% from Government and Research Councils and 2% from Private Non-profit organisations. Business performance R&D rose from 66% in 2015, and although this doesn’t sound significant, this increase represents a difference of over £1.2bn in a 12-month period. This did not come as a surprise to us, following the release of business investment data late last year.

The Higher Education performed £8bn of R&D funding in both 2015 and 2016, but the increase in business investment meant money from HE represented a smaller proportion of total R&D expenditure. Government and Research Council investment fell in both current and constant terms between 2015 and 2016, the level of Government investment decreased from £6.8bn in 2013 to £6.5bn in 2016 at constant prices, while business investment over this period rose by £3.5bn at constant prices. This is a disappointing trend to witness, and we hope that with funding pledges made over the last 18 months, the Government can rectify this fall in investment.

Poor uptake of Government and Research Council funding by devolved nations

The release of GERD statistics also give us the opportunity to assess the regional differences in R&D expenditure. It is perhaps of little surprise that England receives more gross R&D investment than the devolved nations, and that London and the South East (encompassing Oxford) continues to dominate the volume of R&D funding. These two regions benefit from over half of R&D expenditure in England, which amounted to over £11.5bn in 2016. Given the volume of research-intensive business within these regions, it may be more understandable why London and the South East receives higher amounts of business investment, a figure that was just over £9bn in 2016.

An area in which the contrast between the South East and the rest of the UK is extremely stark, is the amount of Government and Research Council grants each region was awarded in 2016. The London and South East attract over five times the amount of grant funding than Scotland, Wales and Northern Ireland combined, visualised below.

This comparison perhaps does not even do the contrast justice – London and the South East received £1.06bn of Government & Research Council grant funding in 2016, Wales received just £15m and Northern Ireland £14m. There are warm words over the future of European funding in the UK, but no certainty has been provided on the matter. The European Regional Development Fund (ERDF) plays a key role in Wales in particular, as the nation receives more than 5 times the UK average of ERDF funding per capita. Building upon work carried out by Sir Ian Diamond in Wales and Professor Graeme Reid in Scotland should be an immediate priority. Whether closer coordination of devolved government’s, assemblies and research councils & Innovate UK, or better dissemination of UK grant availability to researchers in the devolved nations, these regional disparities must begin to be addressed.

We have taken these statistics from the ONS website, namely the Gross domestic expenditure on research and development, UK: 2016 statistical release. The ONS also produce an informative brief on the statistics