Research, development, and super massive fiscal holes

In the higher education sector our interests are not confined to one departmental budget line.

As the steady crisis across the NHS grows, training the future healthcare workforce becomes more difficult. If nine out of ten schools in England are already expected to be in deficit next academic year, universities will need to do even more to support students getting in to and getting on in higher education. Add to these issues inflationary pressure on fees, increases in employer pension contributions, and wider sector unrest, and universities face a perfect storm of declining resources and increased demands.

Dear Jeremy

The government looks set to tackle the UK’s financial pressures through sweeping tax rises and budget cuts. It would be a strategic error if this included research and innovation funding.

A coalition of businesses, sector bodies and universities, including Siemens, Universities UK and the Russell Group have joined University Alliance in an open letter calling on the Chancellor to protect existing commitments on R&D spending to 2024-25. This is done in the belief that growing the size of the research economy is one of the best means to grow the economy overall.

This call has echoed in all corners of the research community in recent weeks, as you would expect, but it has also come from IPPR and Policy Exchange – two think-tanks on different parts of the political spectrum. IPPR has urged the government to increase R&D funding as a vital lever in responding to the UK’s declining economy, health, and resilience. Policy Exchange has emphasised the importance of R&D investment to economic growth and productivity.

Elsewhere, Nick Hillman points out that when there is a fiscal crisis, the Treasury is tempted to pull any policy lever already in its hands that can deliver quick savings. Stabilising the economy now without an eye on the future risks an ongoing managed decline. Turning the tap off on R&D spending would jeopardise what the government itself has called an investment that will “drive economic growth and create the jobs of the future”.

The economic case for increasing public R&D investment is clear. It increases productivity and creates high-value jobs - innovation accounted for 63 per cent of labour productivity growth between 2000- 2008 and UK business directly employed 263,000 in R&D roles in 2019. It also crowds in public investment - £1 of public R&D eventually stimulates between £1.96 and £2.34 of private R&D and the programmes delivered by Innovate UK create £7 of economic benefit for every £1 of public investment.

#InnovateforGrowth

It is no surprise that so many SME’s have signed our open letter. If small businesses cannot grow, neither can the economy. Universities partner with businesses to help them survive and thrive in competitive markets through ‘new to firm’ innovations. Businesses will need to reduce costs in these difficult economic times, but new and efficient products and ways of working can help shield them from decline.

As a long-standing, stable presence in their regions, Alliance universities utilise their close relationships with businesses and networks of graduates to act as hubs of innovation activity. In England, one way this work is supported through public funding is the Higher Education Innovation Fund (HEIF), which provides a strong return on investment with £8.30 generated for every £1 of funding. Turnover and employment grew at least 22 per cent faster in firms partaking in research projects funded by UKRI compared to non-supported firms in the six years following investment.

Levelling-up

Public investment in R&D is highly geographically imbalanced. In 2020, the CBI and 70 businesses and organisations joined University Alliance in writing to the government, to warn about the risk of a gap in regional innovation programmes in the transition to the UK Shared Prosperity Fund (UKSPF). Universities UK and GuildHE wrote to the Secretary of State for DLUHC last month outlining how uncertainties about the implementation of the UKSPF and lower levels of investment mean this is indeed coming to pass.

Add on rampant inflation and uncertainty about Horizon Europe association, and even if the government recommit to increasing public investment, growing R&D intensity across the UK will be a significant challenge. Sustained, multi-year investment is vital for helping the research community to capitalise on existing infrastructure and make longer-term investments that will deliver value for money.

Going further and faster

At the COP Summit earlier this week, Rishi Sunak committed to working with international allies to go further and faster to transition to renewable energy. The net zero strategy is an innovation strategy and increased R&D spending is one of the key investments required to meet net-zero commitments and achieve sustainable growth. The UK should waste no time in joining Germany, the United States and China in going further and faster on R&D.

To keep the promise to invest in R&D is to invest in the future of the UK. To do otherwise would harm not only universities but businesses, communities and the whole economy.