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Increase R&D spend but use the increase to change the distribution

28 Aug 2019

Professor Luke Georghiou, Deputy President and Deputy Vice-Chancellor at the University of Manchester discusses the distribution of R&D spend and the impact of raising R&D intensity in Greater Manchester and the North West.

Innovation and research sit at the heart of Greater Manchester’s (GM) Local Industrial Strategy. They are integral to meeting the key challenges the strategy addresses in extending the healthy lives of our citizens, meeting the ambitious clean growth target of achieving carbon neutrality by 2038 and reaping the benefits of the city region’s capabilities in advanced materials and manufacturing, and the digital, creative and media sectors. Innovation and R&D also form a key element in addressing GM’s underlying challenge of lagging productivity. Earlier this year an Independent Prosperity Review by six leading economists highlighted the contrast between the world-class strengths in these sectors and the social disparities in the city region. Life expectancy is nine years less than in the South East (SE) and the gap is widening. Ill health is caught in a vicious circle with declining productivity and pay and skills deficits.

The target to raise UK R&D to 2.4% of GDP is by no means a panacea for these challenges and opportunities, certainly not on its own, but accompanied by other measures it could transform the region. The gap to fill is quite large. While the UK’s R&D/GDP stands at an already very modest 1.7%, for GM it is just under 1%. To meet the 2.4% target an increase of £900m p.a. would be needed on top of the current £600m R&D spend.

A view of Manchester’s Oxford Road Corridor innovation district looking over the campus of Manchester University NHS Foundation Trust, including the expanding Citylabs health and life sciences buildings, a commercial joint venture between the Manchester Science Partnerships science park company and the Trust, with the University of Manchester’s biomedical labs in the background.

To understand the benefits of raising R&D in GM and the North West (NW) it is helpful first to consider some issues of distribution. If we widen the regional lens to the North West as a whole, a problem becomes evident. A report by Regeneris has shown that over the last 10 years NW organisations secured just 5.8% of Innovate UK’s funding, despite accounting for a 9.7% share of UK business and an 11.8% share of business R&D expenditure, a gap that is widening. Causality can be argued in either direction but what is not in dispute is that the region’s share of governments investment is lagging firms’ own investment decisions.

Even greater disparity exists in the regional distribution of health R&D. While all such funding is highly concentrated in the SE, particularly stark numbers are found in precisely the part of R&D spend most expected to address front-line clinical concerns, the NHS investment of £816m over 5 years in 20 NHS/University partnerships, the Biomedical Research Centres. London institutions receive 54% of this funding, and if the SE is taken to include Oxford and Cambridge the figure rises to 83%, leaving £138m for the entire rest of England. This despite the massive inter-regional health inequalities. Some qualification is needed. The SE has a larger population and there is no doubt that it possesses world-class excellence. However, excellence is path-dependent. James Wilsdon and Richard Jones have shown in The Biomedical Bubble that the present distribution is the cumulative result of deliberate policy decisions. It is time to review those policies.

Why does distribution matter in making the case for an increase in the national target? Firstly, there is a case to be made that the marginal return on investment is likely to be greater in an underfunded region so long as the threshold of excellence is met. This plays out more broadly, as investing in overheated regions increases pressure on inadequate housing stock and public services in a situation where early career researcher’s salaries are unlikely to give them an adequate standard of living. Beyond that, medical research in particular has spillover benefits in raising the general level of healthcare where it is most needed; the pre-eminence of treatment at research-intensive hospital trusts is widely recognised. Widening the scope to health and social care, as with GM’s devolved budget, also means resources can be focused on a double win for the problem of low productivity. As noted above, ill health is a major drag on productivity. In addition, the social care sector is notorious for its low productivity and pay. A third level of benefit lies in developing a sector of firms innovating in the technologies and processes needed to transform social care. Research and innovation directed to these issues potentially has a large multiplier on the social return it yields.

It is far easier to rebalance spending in a rising budget than it is to wrest resources away from institutions which are structurally adjusted to receiving them and are doing valuable work. The bottom line though is that the UK needs to raise its R&D (and innovation) spend and that government must lead the way.

Luke Georghiou is Deputy President and Deputy Vice-Chancellor of the University of Manchester (and a former member of the CaSE Executive). He writes in a personal capacity.


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