Where the R&D money is spent

The R&D funding ecosystem just isn't designed to level up the country. James Coe takes a look at where the money gets spent.

James Coe is Associate Editor for research and innovation at Wonkhe, and a partner at Counterculture

Ever since his appearance at the Science and Technology Committee I have been unable to get a quote from Paul Nurse, author of the independent report on the research ecosystem, out of my head.

On research he said “it is not just about science it is about the country as a whole.”

If research policy tells us something about our priorities as a country then the inverse must also be true. The priorities of the country must tell us something about research policy.

There are lots of ways in which research policy dovetails with government policy. Research helps bring in foreign investment. Investment in facilities and technologies supports a highly skilled workforce. Investment in labs attracts new businesses and investors. Every government supports economic growth and there is no economic growth without a growing research ecosystem.

These ambitions are nice but that is all they are, ambitions. The real way governments express their priorities is not through policies, or strategy documents, or reviews, it is how they spend money.

Easy money

There is a specific definition of what R&D is. The OECD’s Frascati Manual defines it “ R&D comprise creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge.” Activity must also be “novel, creative, uncertain in its outcome, systematic and transferable and/or reproducible” In the UK, almost all spending can be accounted for by business, government including research councils, charities, or higher education institutions.

It is difficult to state the total spend on research as the ONS has been systematically undercounting the contributions of small businesses. This was estimated to be £61.8bn in 2020 but this is likely an underestimation. In a speech to think tank Onward George Freeman said he believed the UK is spending 2.8 per cent of GDP on research. This would be far above the UK’s target of 2.4 per cent and the 2019 estimate of 1.74 per cent. This increase does not necessarily represent new activity but a revision to accounting methods.

Businesses are the largest spenders on R&D by a significant margin.For the purpose of understanding government priorities let’s focus on public spending albeit public investment is key to crowding in private spending.

Money’s too tight (to mention)

The uniting philosophy of the Conservative party over the last few years has been levelling up. The idea is that distributing resources to places that have not had them will help improve them.

This idea flows through to research policy. The Levelling Up White Paper provides the clearest articulation of how devolving research funds, investment in infrastructure, public spending, and cluster development, will level up the country.

The problem is that the research funding ecosystem is designed in a way which often runs against the idea of levelling up.

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Let’s start with total funding received by region. This plot of HESA finance data includes everything from the research councils, industry, EU funds, and the like, but excludes QR (and devolved equivalent) funding. In 2015/16 London and the South East received 39.57 per cent of total UK funding. In 2021/22 this had reduced slightly to 38.32 per cent. Over this same time period it is striking just how stable the distribution of funding is. The biggest proportional gainers in this period is the south west that increased their share of funding by .85 per cent.

This is understandable. A number of funding programmes are multi-year. And the thing about universities is that they are pretty permanent so attract funding in reliable ways over consistent periods of time. Clearly, funding won’t redistribute itself. It would take the clunking fist of wholescale reform of the research ecosystem.

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Speaking of major reforms. Paul Nurse called for a reform of QR funding as it’s not clear how it is spent. QR is also an anti-levelling up funding machine. It funds excellence wherever it may be found and funding follows a predictable pattern of being heavily skewed toward the south east and London.

Of course, there might be lots of things done with this QR funding that is redistributive in its impact. There could be research partnerships, or investments outside the area, or employing staff remotely outside of the areas, or lots of things in between. The whole point of QR is that it can be spent as universities see fit.

It is only when breaking funding down by providers and by funding streams that changes across regions over time becomes more apparent. If we focus only on industrial partnerships the University of Sheffield attracted a proportionally massive £55m of funding in 2021/22. Sheffield is part of a northern/midlands arc including Manchester and Nottingham that successfully brings in decent levels of funding from industry. As the map below illustrates there is a much more even national funding distribution when it comes to industry funded university R&D activity.

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You never give me your money

It might be that these funding streams are the wrong mechanism to rebalance research concentration across the county. It might be that infrastructure investment and tax credits are a much more impactful way to crowd in investment. However, given the levelling up white paper pledges to redistribute more funding it is important to look at how it might be done

There is a clear link between funding streams. There is a strong link between a provider’s total research funding excluding QR and QR funding. This makes sense as QR follows excellence and funders understandably want to fund excellence. Unsurprisingly, in 2021/22 there was a strong correlation between QR funding and funding received from research councils. There is also a strong, but not as strong, link between QR funding and funding received through EU government bodies. There is less strong correlation between funding received directly from the central government, and funding received directly from industry, and QR.

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There is excellence everywhere but receiving funding is a distinct advantage in receiving more funding. If the aim is to level up through research funding it is doubtful this can be achieved through existing mechanisms. It will not only take something like the Strength in Places Fund but either a deliberate choice to provide additional weight to excellence outside of London and the south east. Even if the cost of that is to not fund excellence in those places. This would be bad for the UK’s overall research strength given that the country is only small.

The alternative is to invest more significantly into regional R&D funding. This might be more trailblazer deals to devolve R&D funding like those in Greater Manchester. It will also likely be more central funds that explicitly focus on regional investment.

2 responses to “Where the R&D money is spent

  1. Nice article. Is it too simplistic to say that business funds more R&D than government, the North/Midlands do well at attracting this, over the next three decades the UK needs to focus massively on delivery (ie the D end of R&D) so therefore it is the Golden Triangle that needs to worry about losing out, not the other way around?

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