According to forecasts from the Office for Budget Responsibility, the overall economic outlook for the UK has improved since the Autumn 2022 Statement. It forecasts the economy will avoid a recession and that UK inflation will more than halve before the end of 2023. Despite this, economic conditions remain challenging, with high inflation and an ongoing cost of living crisis. Against this, the Spring Budget 2023, dubbed the “Budget for growth” by the UK Government, aims to boost the UK economy, putting science, innovation and technology at the heart of its plans for economic growth. There were welcome announcements around incentivising business investment and supporting R&D across UK regions. However, the budget was silent on association to Horizon Europe and the missing £1.6bn.
Increasing business investment
The Spring Budget outlined a series of measures designed to support the business environment, such as tax incentives and changes to regulation. The Chancellor announced an enhanced R&D tax relief rate for “R&D intensive SMEs”. SMEs that are investing over 40% of their total operating costs in R&D and not yet making a profit will receive a cash payment of 27p for each £1 they have invested in R&D. This new rate follows plans in the Autumn 2022 Budget to reduce the overall rate of R&D tax relief for SMEs. The partial reversal of cuts is good news for innovative businesses investing in the UK and developing new technologies, products and services. It is a success for the sector who have worked closely with the Treasury to make sure this change happened and it is positive that the Treasury listened to and acted on the concerns of the sector following the Autumn Statement.
The Government has identified five high growth sectors that it would like to focus on: green industries, digital technologies, life sciences, creative industries and advanced manufacturing. Alongside this the Government is keen to ensure that regulators can support innovation. It has announced it is taking forward all of Sir Patrick Vallance’s recommendations on the regulation of emerging digital technologies, published alongside the Spring Budget. Further recommendations on regulation of other sectors will be announced over the coming year. CaSE has long stated the importance of regulation as a tool to encourage and enable innovation. This was part of the recommendations of our Building on Scientific Strength report, published in 2019.
Supporting R&D across the UK
One of the Government’s aims is to ensure that economic and social benefits, including from R&D, are spread across the UK. To support this, the Chancellor announced the creation of 12 high-potential knowledge-intensive growth clusters across the UK to drive growth in the five sectors listed above. The scheme is backed by £80m of investment over five years in each of the new high-growth zones based around universities, and is designed to accelerate research and innovation in the UK’s most promising sectors. Investment zones are planned in eight areas in England – the East Midlands, Greater Manchester, Liverpool, the North East, South Yorkshire, the Tees Valley, the West Midlands and West Yorkshire – as well as one in each of Scotland, Wales and Northern Ireland.
It is important that strong local leadership from local government, civic groups and the research sector is involved in these investment zones and can have ownership of the decisions made so that they have the biggest impact possible in their local areas. At CaSE we have argued that investing in regional R&D can play a significant role in the Government’s ambitions to become more research intensive as long as the focus is on investment on R&D excellence that already exists nationwide and that it is led by strong local leadership.
It is welcome to see an increased focus on the societal benefits of R&D. CaSE’s recently published Discovery Decade work (a major study of public opinion) shows that the public often struggles to see the benefits of R&D. The findings show that R&D suffers from low local visibility, and is perceived as being clustered in already wealthy areas (particularly in London and the South East). About two-thirds of people polled don’t feel well informed about R&D happening in their local area. However, the findings show that people would welcome seeing more R&D in their area and see a range of benefits that could stem from that. There is also a great deal of appetite among the public to hear more about local R&D and hear from those conducting it locally. Therefore, it will be important to ensure that new investments in R&D generate local profile and better highlight the spill over benefits of R&D.
The Budget was quiet on a few areas. There was no mention of Horizon Europe association, nor of the £1.6bn that was surrendered by the former Department of Business, Energy and Industrial Strategy (BEIS) back to the Treasury. We were disappointed by the loss of £1.6bn previously earmarked for Horizon Europe association or alternative research and innovation investment. The Chancellor did not indicate whether he will be reallocating that money elsewhere nor what actions will be taken to mitigate this loss. CaSE continues to call on the UK Government and the European Commission to rapidly conclude the UK’s association to Horizon Europe.