UK dragging its feet in global research and development investment race

This afternoon the Chancellor stood up in front of 649 colleagues and delivered his Budget statement. Some of those colleagues will be friends who champion his deficit reduction plan. Many of them are less enamored with his performance over the last two years and have never been shy in publicly denouncing that his policies have sucked the life out of the economy, and that is just his own side.Days before, 53 of the UK’s leading scientists signed a letter to the Daily Telegraph calling on the Chancellor to raise spending on research and development (R&D) as a way of helping business, create jobs, attract and retain the best and brightest international talent and companies, and ultimately pulling the UK economy out of the quagmire of the past five years. The letter argues that spending on R&D should increase from 0.6% of gross domestic product (GDP) to at least 0.8%, the average spent by the G8 leading nations. It is worth therefore taking a look at the figures in greater depth.

According to the Office for National Statistics (ONS), the UK’s gross domestic expenditure on research and development (R&D) in 2010 was around £26.4 billion, seventh in the latest global R&D rankings. Private enterprise accounted for 61% of this; public investment (Government, Research Councils and Higher Education) accounted for 36%; and the rest came from private non-profit. Private investment in R&D spending in the UK over the last 30 years has been of an increasing trend. According to the ONS, in 1985 private business investment in R&D was £10.9bn. By the Millenium it was £15bn and in 2011 it had reached £17.4bn. In pure cash terms, 2010 represented an increase of 1.9% from 2009. Yet in real terms, there was a fall in investment of 0.8% from 2009 and a fall of 2.5% from 2007.

Looking at the total R&D expenditure as a percentage of GDP does not make for better reading. In 2011 it was 1.1% and has not risen above this since 2001 when total spending was 1.2% of GDP. Before blame is place at the feet of the current Government it is worth noting that since 1986 this has been a declining trend. Compared to other nations, according to the European Commission the UK spending on R&D in 2010 was 1.77% of GDP, below the Euro-Zone average of 2.06%, and behind our European and international competitors Germany (2.82%), France (2.26%), and Japan (3.45% at 2008 figures) and the United States (2.79% at 2008 figures). Indeed the UK spends a similar percentage of GDP on R&D as Ireland, Netherlands and Norway.

The 2004-14 Science & Innovation Investment Framework set a target to increase total UK R&D intensity to 2.5% of GDP by 2014. At the current rate the UK will also fail to meet the European Union’s target of 3% of GDP spending on R&D by 2020. The last Labour Government decided to set itself a target of 2.5% by 2014, while the coalition Government has decided not to adopt any national targets for R&D spending.

Successive governments have not been able to sustain investment in the basic research that has the capacity to deliver over time great and wide-ranging, often unforeseen advances, nor the provision of an attractive business environment for domestic and international companies to invest in R&D. These figures show that the UK faces a major challenge in trying to increase its R&D intensity towards the level of other major developed economies in Europe and beyond. Future governments will need to think deeper about long-term public spending plans and developing innovative regulatory and legislative infrastructures to drive up private R&D investment particularly from smaller and medium-sized businesses.

The Chancellor said today that research and development was central to Britain’s economic future, and it was positive to see the Chancellor George Osbourne pledged £1.6bn to support key industrial sectors; a £3bn boost for infrastructure spending in 2015/16; a fivefold increase in government procurement budgets spent through the Small Business Research Initiative; and taking forward recommendations from Lord Heseltine’s report to create a single funding pot for local enterprises. But investment like this will only get the UK so far.

The UK’s economic success has been predicated on the skills of the UK workforce and its ability to attract a highly skilled and talented global workforce, so it was pleasing to see the Chancellor endorse Doug Richards’s recent apprenticeship review. All governments and Chancellors (Ed Balls take note) must ensure that the country has a workforce with the knowledge, skills and experience to enable it to compete internationally, and create an environment which helps businesses to flourish. This means attracting more young people to study STEM subjects for longer and investing in STEM education and skills at all levels, including apprenticeships and vocational education. The scale and immediacy of the issues the world faces combined with the pace of change in science will require an increasingly multidisciplinary approach. Developing a greater understanding the different roles that scientists undertake, and the skills required across the economy is also essential.

It also requires a long term commitment and cooperation from all stakeholders to ensure that policies across schools and higher education, skills development, regional and local opportunities, planning and regulation, procurement and international activities are evidence-based in formulation, development and implementation.

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