Category: Science policy

The way the UK government funds science is currently in the midst of a major transition, with the creation of a much more direct link between the priorities of the government of the day and the kind of research that it funds.  A few months ago I wrote about the likely prospect of a breakdown of a long period of consensus in UK science policy – UK Science in a post-liberal world.  I’m not sure whether the current changes are best thought of as the first manifestation of this breakdown of consensus, or as an attempt to make those changes in the system that are necessary to preserve it.  Here I make a first attempt to set these changes in context.  

Some history

UK governments have recognised the need for the State to fund scientific research since the late 19th century, and some of the principles underpinning that were articulated early in the 20th century. One innovation of that period was the Research Council – conceived as a body standing slightly apart from government, largely managed by expert scientists.  The first of these was the Medical Research Council, established in 1920 as a body incorporated by a Royal Charter.  Subsequently, other research councils, covering other fields of science – and social science and the humanities – were established on the same principles, and various reorganisations have taken place, but the basic model remained in place until 2017.

It is important, however, to understand that for most of this period the research supported by Research Councils amounted to only a small fraction of total government R&D.  Most of this took place with the direct support of government departments, such as those responsible for agriculture, for defence and military procurement, and for atomic energy, often in government research laboratories.  Going into the 1980’s, when the UK was one of the most R&D intensive countries in the world, less than 15% of government funded R&D was supported by the research councils.

I took part in a panel discussion at the Royal Society last Thursday 20th November, with the topic ‘The future role of the state in a changing R&D landscape’.  Here is a slightly expanded version of my opening remarks. My intention was to be provocative; other more optimistic views are available (and were presented by the other panel members).

The UK has seen a long period of consensus about the role of the state in the R&D landscape – and that consensus has actually been very positive for academic science.  I think it’s not improbable, even quite likely, that this consensus will come to an end in the next few years.  This will have huge consequences for the R&D landscape, potentially very negative, and I think it’s really important that we start to think this through.

The consensus

There’s been a great deal of continuity in UK science policy over the last twenty years.  The 2004 10 Year Science and Innovation Investment Framework set out the foundations of an approach that has persisted through governments of different flavours, overseen by a series of influential science ministers – from Lord Sainsbury, through Lords Willetts, to Lord Vallance.  

This is fundamentally a supply side science policy, with a focus on correcting market failure.  Government supports basic science, ensures a pipeline of skilled people (including through skilled migration), and supports commercialisation of university research.  There’s been some gradual change – a bumpy path to a more explicit industrial strategy since Mandelson’s return to government in 2008, to the current fully developed version.  But the basic assumptions remain the same.

The consequences have been significant real terms increases in government R&D budgets, and a system dominated by research in universities.

Auguries of a breakdown

Why might we think this consensus is at risk?  If we look internationally, we see the USA, often seen as the natural partners of the UK in science as in other areas, we see direct attacks on the autonomy of funding agencies, and on the position of leading research universities.

Universities in the UK at the moment are broke and unloved. In these circumstances, the temptation is going to be to withdraw to “core business” – teaching students, and for research intensives, doing the kind of research that pushes the institution up the international league tables, to attract the overseas students whose fees prop the whole system up. In a period of retrenchment, it might be tempting for managements to see supporting the role of universities in their communities as a dispensable luxury. I think this would be a profound mistake.

This isn’t to understate the difficulty UK universities find themselves in. Around three quarters of them are expected to be in deficit next year, and about a hundred are now actively restructuring or making staff redundant. This follows a 40% real terms erosion in fees for home students, and a business model, reliant on growing overseas student numbers, which has become both politically unpopular and exposed to geopolitical risk. The latest proposal – of a levy on international student fees – is both another financial blow, and a symbol of the way universities find themselves on the wrong side of culture war discourse. What’s quite clear is that, whatever recognition there might be in government of the university sector’s troubles, the sector is simply not a high priority for a government facing difficult issues on all sides. Continue reading “The civic university in hard times”

Most research and development (R&D) in the world is done not in universities or research institutes, but by businesses – big businesses can do more R&D than medium size countries. A useful snapshot of this world is provided by the 2024 EU Industrial R&D Investment Scoreboard, which came out in December. The scoreboard lists the top 2000 companies in the world by their annual R&D expenditure, classifying them by sector and nationality of headquarters. In total, this amounts to total R&D spend of €1257.7 billion (converted at market rates), which the authors believe accounts for 85% to 90% of worldwide R&D funded by the business enterprise sector.

Unsurprisingly, the top companies are US tech firms – Alphabet, Meta, Apple and Microsoft – which between them spend €127 billion. Number 5 is the German auto firm Volkswagen, Asia provides numbers 6 and 7 in the shape of China’s Huawei and Korea’s Samsung.

Taking the world as a whole, the top sectors are Software, accounting for 19% of the total, Pharma at 18%, Automobiles at 15%. Tech hardware accounts for 16% and Electronic & Electrical hardware another 7%. These last two categories do have some overlap – the former includes Apple, Huawei, Intel, Qualcomm, Nvidia, Cisco and TSMC, while the latter includes Samsung, Siemens and Hon Hai (aka Foxconn).

How does the UK do? The share of world business R&D done by UK domiciled firms is 2.8%, and there are just two UK companies in the top 100 – the pharmaceutical companies AstraZeneca and GSK.

Of course, where a company is domiciled and where it does its R&D aren’t necessarily the same. Roughly half of UK business R&D is done by overseas owned companies – for example, the significant R&D carried out in the UK by the auto company Jaguar LandRover is ascribed in these statistics to its Indian parent, Tata Motors. This is a very high fraction of R&D done by overseas firms, by comparison with other countries of a similar size. The positive interpretation of this is that it is a testament to the attractiveness of the UK as a place to do R&D. But control matters, and this exposes the UK to the risk that this R&D may be more footloose than R&D done my domestically owned firms.

We can get a sense of the sectors that the UK focuses on by comparing the UK shares with the global fraction.

Pharmaceuticals is a clear leader for the UK – it accounts for 49% of the UK owned business R&D, which amounts to 7.5% of the world total. There is an interesting aspect to this, however – it is completely dominated by the two giants, AstraZeneca and GSK. This is in contrast to the USA, where there is a significant tier of relatively recently founded companies that have emerged from the biotech revolution – such as Gilead, Amgen, Moderna, Regeneron and Vertex, all with € multibillion R&D spend. UK pharma scale-ups – like Bicycle Therapeutics and Immunocore – are still an order of magnitude smaller.

The other area of specialism for the UK is Banking – this accounts for 17% of the UK’s R&D; this represents 41% of the world R&D in this sector. Of course, there may be issues of what is classified as R&D in different companies.

Where UK firms are largely absent is in Software, Tech hardware and Electronic & Electrical hardware. Between them, these sectors dominate global business R&D, accounting for 42% of all business R&D. But the UK accounts for just 0.6% of world Software R&D, 0.45% in Electronic & Electrical hardware, and a tiny 0.046% of world R&D in Tech hardware. Once again, this doesn’t take into account of R&D carried out in the UK by overseas firms – for example, DeepMind’s work will be ascribed to its US owner, Alphabet. But it does suggest that the UK has largely missed out on innovation in the fastest moving areas of new technology in its domestically owned firms.

Finally, one might ask how effective markets are at allocating resources to the areas where the need for innovation is greatest. Given the urgency of climate change, and the need for innovation to drive down the costs of low carbon energy, it’s depressing to see that business R&D in the Alternative Energy sector accounts for just 0.23% of the world total, with Oil and Gas still accounting for 1.05%.

There will be a general election in the UK this year, and it is not impossible (to say the least) that the Labour opposition will form the next government. What might such a government’s policies imply for science and innovation policy? There are some important clues in a recent, lengthy speech – the 2024 Mais Lecture – given by the Shadow Chancellor of the Exchequer, Rachel Reeves, in which she sets out her economic priors.

In the speech, Reeves sets out in her view, the underlying problems of the UK economy – slow productivity growth leading to wage stagnation, low investment levels, poor skills (especially intermediate and technical) and “vast regional disparities, with all of England’s biggest cities outside London having productivity levels below the national average”. I think this analysis is now approaching being a consensus view – see, for example, this recent publication – The Productivity Agenda – from The Productivity Institute.

Interestingly, Reeves resists the temptation to blame everything on the current government, stressing that this situation reflects long-standing weaknesses, which began in the early 1990’s, which were not sufficiently challenged by the Labour governments of the late 90’s and 00’s, and then were made much worse in the 2010’s by Austerity, Brexit, and post-pandemic policy instability. Singling out Conservative Chancellor of the Exchequer Nigel Lawson as the author of policies that were both wrong in principle and badly executed, she identifies this period as the root of “an unprecedented surge in inequality between places and people which endures today. The decline or disappearance of whole industries, leaving enduring social and economic costs and hollowing out our industrial strength. And – crucially – diminishing returns for growth and productivity.”

To add to our problems, Reeves stresses that the external environment the UK now faces is much more challenging than in previous decades, with geopolitical instability reviving the basic question of national security, uncertainties from new technologies like AI, and the challenges of climate instability and the net zero energy transition. She is blunt in saying “globalisation, as we once knew it, is dead” – “a growth model reliant on geopolitical stability is a growth model resting on increasingly shallow foundations.”

What comes next? For Reeves, the new questions are “how Britain can pay its way in the world; of our productive capacity; of how to drive innovation and diffusion throughout our economy; of the regional distribution of work and opportunity; of how to mobilise investment, develop skills and tackle inefficiencies to modernise a sclerotic economy; and of energy security”, and the answers are to be found what economist Dani Rodrik calls “productivism”.

In practise, this means an industrial strategy which, recognising the limits of central government’s information and capacity to act, works in partnership. This needs to have both a sector focus – building on the UK’s existing areas of comparative advantage and its strategic needs – and a regional focus, working with local and regional government to support the development of clusters and the realisation of agglomeration benefits.

In terms of the mechanics of the approach, Reeves anticipates that this central mission of government – restoring economic growth – will be driven from the Treasury, through a a beefed up “Enterprise and Growth” unit. To realise these ambitions, she identifies three areas of focus – recreating macroeconomic stability, investment – particularly in partnership with the private sector, and reform – of the planning system, housing, skills, the labour market and regional governance.

Innovation is a central part of Reeves’s vision for increased investment, partly through the familiar call for more capital to flow to university spin-outs. But there is also a call for more focus on the diffusion of new technologies across the whole economy, including what Reeves has long called the “everyday economy”. In my view, this is correct, but will need new institutions, or the adaptation of existing ones (as I argued, with Eoin O’Sullivan: “What’s missing in the UK’s R&D landscape – institutions to build innovation capacity”). There is a very sensible commitment to a ten year funding cycle for R&D institutions, essential not least because some confidence in the longevity of programmes is essential to give the private sector the confidence to co-invest.

This was quite a dense speech, and the commentary around it – including the pre-briefing from Labour – was particularly misleading. I think it would be a mistake to underestimate how much of a break it represents from the conventional economic wisdom of the past three decades, though the details of the policy programme remain to be filled in, and, as many have commented, its implementation in a very tough fiscal environment is going to be challenging. Our current R&D landscape isn’t ideally configured to support these aspirations and the UK’s current challenges (as I argue in my long piece “Science and innovation policy for hard times: an overview of the UK’s Research and Development landscape”); I’d anticipate some reshaping to support the “missions” that are intended to give some structure to the Labour programme. And, as Reeves says unequivocally, of these missions, the goal of restoring productivity and economic growth is foundational.

On the 22nd November, the Government published its Autumn Statement. This piece, published in Research Professional under the title Economic clouds cast gloom over the UK’s ambitions for R&D, offers my somewhat gloomy perspective on the implications of the statement for science and innovation.

This government has always placed a strong rhetorical emphasis on the centrality of science and innovation in its plans for the nation, though with three different Prime Ministers, there’ve been some changes in emphasis.

This continues in the Autumn Statement: a whole section is devoted to “Supporting the UK’s scientists and innovators”, building on the March 2023 publication of a “UK Science and Technology Framework”, which recommitted to increasing total public spending on research to £20 billion in FY 2024/25. But before going into detail on the new science-related announcements in the Autumn Statement, let’s step back to look at the wider economic context in which innovation strategy is being made.

There are two giant clouds in the economic backdrop the Autumn Statement. One is inflation; the other is economic growth – or, to be more precise, the lack of it.

Inflation, in some senses, is good for governments. It allows them to raise taxes without the need for embarrassing announcements, as people’s cost-of-living wage rises take them into higher tax brackets. And by simply failing to raise budgets in line with inflation, public spending cuts can be imposed by default. But if it’s good for governments, it’s bad for politicians, because people notice rising prices, and they don’t like it. And the real effect of stealth public spending cuts do, nonetheless, materialise.

The effect of the inflation we’ve seen since 2021 is a rise in price levels of around 20%; while the inflation rate peak has surely passed, prices will continue to rise. We can already see the effect on the science budget. Back in 2021, the Comprehensive Spending Review announced a significant increase in the overall government research budget, from £15 billion to £20 billion in 24/25. By next year, though, the effect of inflation will have been to erode that increase in real terms, from £5 billion to less than £2 billion in 2021 money. The effect on Core Research is even more dramatic; in effect inflation will have almost totally wiped out the increase promised in 2021.

Our other problem is persistent slow economic growth, as I discussed here. The underlying cause of this is the dramatic decrease in productivity growth since the financial crisis of 2008. The consequence is the prospect of two full decades without any real growth in wages, and, for the government, the need to simultaneously increase the tax burden and squeeze public services in an attempt to stabilise public debt.

The detailed causes of the productivity slowdown are much debated, but the root of it seems to be the UK’s persistent lack of investment, both public and private (see The Productivity Agenda for a broad discussion). Relatively low levels of R&D are part of this. The most significant policy change in the Autumn Statement does recognise this – it is a tax break allowing companies to set the full cost of new plant and machinery against corporation tax. On the government side, though, the plans are essentially for overall flat capital spending – i.e., taking into account inflation, a real terms cut. Government R&D spending falls in this overall envelope, so is likely to be under pressure.

Instead, the government is putting their hopes on the private sector stepping up to fill the gap, with a continuing emphasis on measures such as R&D tax credits to incentivise private sector R&D, and reforms to the pension system – including the “Long-term Investment for Technology and Science (LIFTS)” initiative – to bring more private money into the research system. The ambition for the UK to be a “Science Superpower” remains, but the government would prefer not to have to pay for it.

One significant set of announcements – on the “Advanced Manufacturing Plan” – marks the next phase in the Conservatives’ off-again, on-again relationship with industrial strategy. Commitments to support advanced manufacturing sectors such as aerospace, automobiles and pharmaceuticals, as well as the “Made Smarter” programme for innovation diffusion, are very welcome. The sums themselves perhaps shouldn’t be taken too seriously; the current government can’t bind its successor, whatever its colour, and anyway this money will have to be found within the overall spending envelope produced by the next Comprehensive Spending Review. But it is very welcome that, after the split-up of the Department of Business, Energy and Industrial Strategy, that the successor Department of Business and International Trade still maintains an interest in research and innovation in support of mainstream business sectors, rather than assuming that is all now to be left to its sister Department of Science, Innovation and Technology.

For all the efforts to create a tax-cutting headline, the economic backdrop for this Autumn statement is truly grim. There is no rosy scenario for the research community to benefit from; the question we face instead is how to fulfil the promises we have been making that R&D can indeed lead to productivity growth and economic benefit.