We outline why the Spending Review needs to meet promised R&D investment target
In 2017, the UK Government set out its intention to raise the country’s research and development (R&D) intensity to the equivalent of 2.4% of GDP by 2027, attempting to match the (then) average across countries in the OECD. In 2020, the Government announced it would increase public investment in R&D to £22bn by 2024/25, which would set the UK on the path to meeting the 2.4% target. As a Comprehensive Spending Review is now only weeks away, it is crucial that the UK Government commits to this increase in public investment to ensure that the country does not fall further behind our international competitors and risk losing the talented people and private investment that make UK R&D thrive.
What can the £22bn investment target achieve?
As we emerge from the pandemic, the IMF have written about how important science is in promoting economic growth and improving productivity across the world, and particularly in developed nations. R&D is also a sector that brings high-value jobs to the UK, continuing to provide high-quality employment for people across the country, increasing prosperity and encouraging local regions to flourish.
Research and innovation also improve people’s lives across the UK and the world. The UK’s response to the Covid-19 pandemic underlined the importance of supporting and retaining world-class research and the UK’s response to any future crisis will also rely on having expertise in the UK. The challenge of achieving Net Zero by 2050 is one that will require significant and concerted coordination across science, engineering, technology and maths in order to create a sustainable world for ourselves and future generations.
These are the reasons why the UK Government set out to increase investment in R&D and these reasons need to be remembered in what is a tough financial climate. Meeting the investment target of £22bn by 2024/25 loses meaning if it is met by double counting, moving budget lines or including indirect costs as if they were equivalent to direct investment. The £22bn target has become perhaps one of the most significant milestones in recent history for the R&D sector and failing to meet this target in the right way will undermine the Government’s aim of a science superpower.
Delaying public spending commitments would see UK fall further behind
The UK’s R&D intensity has stagnated over the last 20 years and has grown by only 0.1%, far behind the average for developed countries across the world. Recent ONS figures have shown that increases in business investment have ensured that UK research intensity hasn’t dropped, which is why the public investment commitment is so significant in helping the UK to increase its research intensity.
Over the same period, Korea has doubled its research intensity, China has tripled its research intensity, and other competitors like Japan and the US have increased their respective research intensities by orders of 4 and 5 times more than the UK. The graph below shows how countries across the world have succeeded in growing their respective research intensities by significantly more than the UK over the last 20 years, with a table below outlining further plans for growth. As can be seen in the table, while the UK's target for research intensity remains an ambitious one, the UK would still find itself well below the ambitions made by other countries in the G7 and beyond.
Research and innovation are nothing without the talented people that possess the expertise, ideas and ingenuity to make an impact with their work. The research workforce is globally mobile and skilled people are not a commodity – you can’t just find immediate replacements when others move on. The UK is at serious risk of losing those talented people to those countries increasing their levels of investment, if it does not act now to reach the £22bn target. The CSR is the opportunity for the UK to secure the confidence of its people, its businesses and the R&D community and failure to do so will negatively impact the whole country in the long-term.
Public investment and its effect on private investment
Alongside having the power to enhance and develop science and research in the UK, public investment in R&D is an important tool in attracting private investment. I have already written recently about the impacts of delaying the £22bn target by 3 years could cost the UK over £11bn of private R&D investment between now and 2027. In 2019, private investment in R&D accounted for 73% of the UK’s total, alongside businesses directly employing 263,000 in R&D in the UK. Analysis carried out by Oxford Economics has shown that for every additional £1 of public investment in R&D, the UK leverages around £2 extra of private investment. As shown in the graph below, UK public investments are more effective at leveraging private investment than the average of OECD countries.
As noted above, not only is public investment in R&D a powerful way of leveraging private investment, but also breeds confidence for private firms to continue to invest in the UK. The ONS has estimated that there is £900bn of corporate cash reserves ready to be invested as the economy recovers from the Covid-19 pandemic and the UK Government must show the world that the country continues to be a great place for R&D.