R&D funding must be protected from cuts
When you're trying to save £50bn, it's good to keep all options on the table. Over the next couple of weeks the Chancellor will pour over spreadsheets and scrutinise departmental plans in an attempt to restore fiscal discipline.
Some sensible savings will emerge. Sacred pots will be protected. But amid the frenzy, one budget must remain intact – our investment in R&D.
We've spent the last few decades setting and missing targets for innovation investment. Theresa May and Boris Johnson never met the commitment to invest 2.4 per cent of GDP first set by David Cameron, which was itself downgraded from the 2.5 per cent target set by Gordon Brown. And that unachievable goal was only equivalent to the previous OECD average, which has now gone up to 2.7 per cent. We haven't even made it to the middle of the pack.
The UK has for too long been a decidedly average R&D Clarke Kent
But a few months ago, a statistical quirk made the picture more rosy. The Office for National Statistics (ONS) revealed that it had been systematically undercounting business R&D, and retroactively uplifted their estimates by more than 60 per cent. The boosted figures from the ONS suggest we actually reached our 2.4 per cent target back in 2019: representing a staggering £15bn of hidden economic value.
Many are dubious about the reality of this sudden methodological uplift. But even if the numbers are correct and we've been more innovative than we realised, we can't rest on our laurels. We are still only investing the same amount in R&D that an average OECD nation invested in 2018. The 2.4 per cent target always lacked ambition – if we want to be a science superpower, or just catch up to our peers, we need a more ambitious goal. Advanced nations like Germany and the United States spend more than 3 per cent of GDP, whilst technology trailblazers South Korea and Israel spend over 4 per cent and 5 per cent respectively.
The Chancellor, keen to close the fiscal black hole, may nonetheless take the achievement of the 2.4 per cent target as a policy win – a scarce commodity in these trying times. If he does, the 2020 budget commitment to raise government R&D investment to £22bn by 2026-27 might be on the table and for the chop. This would be a mistake.
The new figures suggest that the policies supporting innovation have been working. Government schemes such as the Small Business Research Initiative (SBRI), which boost procurement-driven research, and public support through R&D tax credits is boosting private spending – a key driver of productivity. This is much needed. The latest figures have United Kingdom labour productivity shrinking by 1.8 per cent while it’s growing among many of our global competitors. If the Chancellor pulls the plug now, we will threaten the benefits of our so-far modest progress.
Brown, Cameron, May and Johnson all realised that investment in innovation was vital to the future of our economy. But like most investments, they take time to mature, with some academics suggesting a lag time of ten years from R&D spend to productivity bounce.
So when evaluating the £22bn target for public R&D investment by 2024, the Treasury must not be penny rich but pound poor. The UK has for too long been a decidedly average R&D Clarke Kent. We need to set our sights higher to become a science Superman.
Matt Burnett, head of science and technology at Onward.
Get the inside track on what MPs and Peers are talking about. Sign up to The House's morning email for the latest insight and reaction from Parliamentarians, policy-makers and organisations.