This guest blog was written by Sarah Stevens, Director of Policy at the Russell Group.
As we look ahead to the Spending Review later this month, it is clear the Government faces a range of challenging decisions. How best to revitalise the UK economy, level up communities across the country and deliver on long-term priorities like achieving net zero, all within an exceedingly tight fiscal envelope?
Alongside investment in hard-hit public services, the Chancellor of the Exchequer, Rishi Sunak, has indicated that cementing the UK’s position as a scientific superpower will be a key priority.
The UK already has one of the best research systems in the world, with long-term patient investment in basic research delivering impressive real-world results. In responding to the pandemic, the UK’s research-intensive universities have been critical to developing vaccines, virus treatments, ventilator technologies and outbreak simulation models at speed. Their efforts have saved thousands of lives – both in the UK and around the world – and helped to bring the virus under control, enabling the Government to pursue its roadmap out of lockdown and providing protection against future outbreaks.
There is now an opportunity to capitalise further on the UK’s R&D strengths. The pandemic has meant we face a challenging picture in terms of the public finances but increasing investment in R&D will help deliver a rapid and sustained economic recovery.
Generating new scientific discoveries and novel technologies would boost economic growth and productivity, creating high-value jobs and attracting much needed external investment into towns and cities across the country. In his speech at the Conservative Party Conference, the Chancellor highlighted the returns that could be gained from our leadership in artificial intelligence as one clear example. Investing more in science and innovation now will help to jumpstart the economy, ensure the UK is well-placed to respond to the next big disruptive challenge and deliver resilience in the face of climate change.
Securing the UK’s status as a science superpower will need significant public and private investment. The Government has recognised this with its pledge to back UK science by increasing public funding for R&D to £22 billion a year by 2024/25. If the Government wants to build a strong, sustainable recovery, it must now provide a clear plan to deliver on this pledge giving certainty for businesses to unlock crucial investment. Primarily additional public investment in R&D should be overseen by the Department for Business, Energy and Industrial Strategy (BEIS) through UKRI, but would also include other priorities like the National Institute for Health Research (NIHR) funding and research commissioned by other Government Departments. As part of our submission to the Spending Review, we have set out a proposal that would help maximise the return on that investment.
The Russell Group has modelled two possible scenarios for delivering on the Government’s commitment to invest £22 billion in R&D by 2024/25. The first we term a ’linear’ model which involves building the additional investment needed above the £14.9 billion baseline in a consistent way over the period covered by the Spending Review (2022/23 to 2024/25). The second is a ‘hockey stick’ model. This would involve less additional investment in the early years and more at the end of the Spending Review period.
Our modelling uses figures from BEIS on the ‘leveraging effect’ of public investment to crowd in more private investment over time. We found that the distribution of public spending has a dramatic effect on the extra private R&D investment which can be leveraged in from industry. Graphs A and B below illustrate the point.
Graph A – a ‘linear’ model: additional investment over the baseline needed to reach £22 billion by 2024/25. It shows the amount leveraged in private investment over a three-year period (£5 billion) and a 6-year period (£29 billion).
The linear investment model would leverage more than double the amount of private investment over a three-year period compared to the ’hockey stick’ model (£5 billion vs. £2.1 billion) and the effects would continue even after 2024/25 when public spending would equalise. Indeed, the linear model would leverage more private investment right up to 2027/28. While a ‘hockey stick’ model would deliver £24 billion in additional private investment over the six years to 2027/28, a linear model would deliver almost £29 billion.
For the purposes of illustrating the impact of additional spending up to 2024/25, we have presented public investment from 2025/26 to 2027/28 as tailing off significantly. This makes it easier to identify the effects of the earlier investment. Of course, if public spending continued to increase, the leverage effect in delivering even more private investment would be greater still.
Graph B – a ‘hockey stick’ model: additional investment over the baseline to reach £22 billion by 2024/25. It shows the amount leveraged in private investment over a three-year period (£2.1 billion) and a 6-year period (£24 billion).
The linear model would also set the UK on a course to meet its target to invest 2.4% of GDP in R&D early and put it on track to better compete with other research-intensive countries including the US, South Korea, France and Germany. Improving our competitiveness on R&D investment will be critical to maintaining strategic advantage in science and technology and achieving the Government’s aims for a Global Britain. It would also represent a global signal to business and other investors that the UK is open for business.
Ultimately though, it is the real-world impact of these investments which really matters. By boosting public spending in the coming years, the Government can ensure research and innovation is translated into tangible benefits for citizens across the country and for the economy, helping to create a fairer, greener, healthier and more prosperous Britain. If the Government chooses to follow a linear investment model to reach its £22 billion commitment by 2024/25, these benefits will be felt more quickly as public spending leverages in private investment more rapidly.
There will of course be decisions taken about how additional spending on R&D should be allocated and without knowing where investments will be made it is difficult to estimate the scale of the impact. However, as an illustration, London Economics estimated that for every £1 of public research funding they secure, Russell Group universities deliver an average return of £9 to the UK economy. So, if around a third of the projected £22 billion public investment per year (just over £7 billion) was made in research and innovation at Russell Group universities, we might expect this to deliver a return of over £60 billion to the UK’s economy and society every year. For comparison, this equates to over four times the total value of UK goods exported to the whole of the EU in 2020 (worth around £14 billion).
In a challenging economic climate, the UK’s future will depend more than ever on ideas and talent to deliver sustainable growth. Investing in research and innovation – and in particular with UK universities – would be a smart choice for the Spending Review, creating jobs and boosting opportunity and delivering an excellent return on investment for the Government and for taxpayers.