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Sharp increase in R&D investment by government needed to meet Labour and Conservative targets, think tank warns

The UK government needs to sharply step up public investment in research and development (R&D) to reach the levels across the economy advocated by either of the two main parties, according to new analysis by IPPR.

It also needs to focus that investment on key “missions” such as decarbonising the economy or tackling the challenges of an ageing population, to ensure the greatest impact and leverage in the maximum R&D investment from the private sector, the think tank argues.

Planned public R&D spending would need to increase by 45 per cent above current projections by 2027 to meet the Conservative Party’s most recently stated target, the think tank calculates, and to more than double by 2030 to fulfill Labour’s goal.

Both parties set out in 2017 their aims to solve the long-standing problem of UK under-investment in R&D – which inhibits innovation and productivity growth, contributing to low wages, poor job satisfaction and the UK’s generally poor performance compared with other developed economies.

Between the government and the private sector, the UK committed a total of just 1.7 per cent of the economy’s output (GDP) to R&D in 2017. This is below the 2.4 per cent average among developed (OECD) economies and even further behind leading global competitors such as the US (2.8%), Germany (3%) and Japan (3.1%).

Labour’s 2017 manifesto said the UK should raise total R&D spending to 3 per cent of GDP by 2030, while the Conservatives declared that their aim was to raise it to 2.4 per cent by 2027, with an aim of reaching 3 per cent in the longer term

However, even after allowing for currently planned growth in government R&D spending, and forecasting increases in private spending over the decade, IPPR calculates that there would be large “gaps” with each of the parties’ targets:

To reach Labour’s target, an increase in total R&D investment of £34 billion over the current baseline would be needed in 2030-31, of which at least £15 billion would need to be additional government investment.
To deliver the Conservatives’ target would mean an extra £14 billion a year in total R&D in 2027-28, of which at least £6 billion would need to be in additional government investment.
In both cases, IPPR recommends gradually increasing R&D investment over the decade to reach these levels. The remainder would then be made up by boosted private sector investment, which could be “crowded-in” by increasing public R&D spend.

Henry Parkes, IPPR Senior Economist, said:

“Both main parties have previously acknowledged that the UK needs to step up its research and development spending if we are to be more prosperous, compete better globally, and deliver higher rewards and better quality jobs for people across the economy. IPPR’s new analysis shows just how big an increase that needs to be – beginning with the government’s own R&D spending.

"Although the government has committed to increase R&D spending to £12.5bn by 2021-22, further substantial increases will be needed beyond that."

Carys Roberts, head of IPPR’s Centre for Economic Justice, said:

“Industrial strategy is about using government policy to steer the economy in the direction we want, rather than just accepting where it’s leading. We can’t just leave things to chance and hope that they work out. That must include investment in research and development.

“Whoever is in power after the election, public spending on R&D should be greatly stepped up, and to have the greatest impact, be focussed on the ‘grand challenges’ we face - such as reducing carbon emissions to net zero or solving the problems of an ageing society.”

ENDS

NOTES TO EDITORS

1. The IPPR paper, The R&D Investment Challenge: Moving towards a more research-intensive economy by Henry Parkes, will be published at 0001 on Friday November 8, 2019. It will be available for download at: www.ippr.org/publication/The-RD-investment-challenge

2. Advance copies of the paper are available under embargo on request

3. An IPPR video on the subject is available for embed from www.ippr.org/media-item/The-RD-investment-challenge - please contact IPPR if you wish to do so, following the same embargo

4. The IPPR Commission on Economic Justice had previously recommended scrapping R&D tax credits, with analysis suggesting that a large proportion of associated spending would have happened anyway in the absence of the policy. This would save more than £3bn a year which could be redirected to direct R&D funding.

5. IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence. www.ippr.org