3 December 2020

The UK must up its game on R&D

By Daniel Dyball & Tom Stephenson

We have always known that science and technology are essential to solving some of the grand challenges we face as a society, but this year has really driven the point home. And it increasingly looks like it is our scientists – through vaccines, enhanced medical treatments and innovative testing methods – who will help pave the way beyond the crisis.

Indeed, some of the greatest advances made over the last century have been made possible thanks to innovative and diverse R&D projects. Research is everywhere – its products are in every home and office, and its producers are found in towns, cities and field sites across the UK.

A key pillar of this advance in innovation has been private sector investment. About two-thirds of R&D investment in the UK comes from the private sector and technology companies play an outsized role in this investment.

How big is that in real terms? In 2019 the British government spent £12bn ($15bn) on R&D, about the same as Facebook globally. The French government spent €18bn ($20bn), about the same as Microsoft. The German government spent €30bn ($34bn), about the same as Amazon. Internet companies together spent more on R&D last year than all of the current EU’s governments combined, often in fields that you might not traditionally associate them with. The growth of AI, big data and the Internet of Things is increasingly blurring the fields of engineering and technology and bringing them together to create transformative research developments.

Right across the UK, you can see this manifested every day where technology companies are partnering in projects with leading engineering and service companies.

These are often projects that are good for both the environment and productivity, such as the work that Microsoft and Unilever have been doing with Cranfield University on improving the efficiency of tea production. Wherever you look, technology and engineering are combining to bring solutions to real world challenges in fields as diverse as agriculture, water science and aerospace.

Ultimately, however, policy needs to be backed by investment. The UK government’s commitment to hitting 2.4% of GDP on R&D by 2027 spending is promising, but the economic impact of Covid-19 could yet put this at risk. Within the tight financial circumstances, the announcement in the recent Spending Review for an additional £14.6 billion in R&D spending in 2021-22 was a step in the right direction. 

But given the ongoing financial constraints, the Government must now pull all the levers it has to make the UK an attractive and competitive place for businesses to continue investing in R&D – not least because it is the investment in new advances in science and technology now that will benefit us all in the future.

The benefits of increased R&D for both consumers and businesses is clear, and companies that consistently invest in R&D are 13% more productive than those that don’t.

Increasing private sector investment is key to meeting the challenge. In countries investing more than the OECD average, the private sector spends more than £3 for every £1 spent by the public sector. In the UK this is only £2 to every £1.

Most companies, including those established in the UK, naturally have to make global decisions about where to conduct their high value R&D activities. And with many countries both in Europe and beyond offering a competitive research, innovation and business environment, the UK must ensure it does not lag behind.

Unfortunately, though, investment into R&D from UK business sits behind the rate of Germany, Japan, the U.S. and France. So, as well as aiming to meet that 2.4% target, the Government should be aiming to hit 3% – to bring us closer in line with our friends and partners around the world. 

It should do so by encouraging private sector investment through every avenue – building a more attractive funding system and creating centres of excellence for research and innovation that will help make the UK the home of new ideas, technologies, products and services.

By supporting industries to invest in key technologies and creating world-leading incentives for research and innovation when resources are stretched, the government can ensure the UK becomes a first adopter of new technologies and make itself the place to develop new ideas, technologies, products and services.

Let’s give ourselves the best opportunity to ‘build back better’ by pressing on the policy accelerator and encouraging private investment wherever possible, to ensure we put R&D and innovation at the heart of the UK’s recovery.

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Daniel Dyball is UK Executive Director at the Internet Association.
Professor Tom Stephenson is Pro-Vice-Chancellorfor Research and Innovation at Cranfield University.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.