Spring Statement must renew commitment to blue skies research

Despite the gloomy commentary around Brexit, it is time to think innovatively about the UK’s future after March 2019.

Most pressing is the need to stimulate the economic growth and productivity gains required to raise the living standards of ordinary households. These have remained stubbornly low, growing by just 0.2 per cent a year in the past decade according to the latest research, with real consequences for people’s disposable income and working lives.

The answer to the UK’s productivity puzzle has been obvious to our competitors: research. China, the US, South Korea, Germany and Japan invest significant amounts in research and development to drive national prosperity.

All spend more than the UK as a proportion of GDP. In fact, the UK has gone from being leader of the pack in the 1980s, to today investing just 1.7 per cent of its income into R&D – well below the 2.4 per cent average across the OECD. The government has committed to catching up with this average within the next decade.

Our inability to keep pace has had consequences: economists calculate that around half of US growth is due to the creation and application of innovation in the economy. This means that it is not only the quantum of R&D investment that should be of concern, it’s whether this spending supports the kind of innovation which can secure long-term growth.

It may come as a surprise, but the main source of funding for blue skies research in the UK (so-called quality-related or “QR” funding) drives much of the innovation taking place in our universities.

This is because decisions on how these competitively won funds are deployed is up to the universities that win them. Universities have used this rare instance of funding autonomy to invest strategically in areas of high risk and reward, including in research deemed too speculative to yet attract government or business support.

This means that QR inhabits a unique space in the R&D landscape that is unlikely to be filled by any other source. Major breakthroughs in areas such as graphene and genome sequencing technology have come off the back of this uninspiringly named funding mechanism.

So too have well-known university spin-outs such as Natural Motion and Quethera – spin-outs being a typical example of an investment that business deems promising but high-risk. While Quethera sold for £85 million last year, more importantly for many will be the fact it is a new type of treatment for glaucoma, one with potential for tackling Alzheimer’s as well.

Trusting universities to invest the QR funding that they win as they see fit has allowed institutions to think creatively about their place in their local areas, too.

Newcastle University, for example, has used the money to kick-start a new partnership with business and the local city council, turning a disused plot marked by an abandoned brewery into an innovation hub consisting of residential, business incubator and state-of-the-art research space. Set to bring 4,000 new jobs to the city, the work is the result of 10 years of planning and investment – seven years longer than the lifespan of the average research council grant.

Far from being a gamble then, our approach to funding blue skies research is a safe bet for ministers looking for growth, allowing “top-down” government initiatives to be balanced by “bottom-up” university-led opportunities.

This balance however is shifting. While overall state support for research is increasing, albeit slowly, the real-terms value of QR is in decline, falling by 13 per cent since 2010.

Private rumblings in the research community convey a fear that this year’s Spending Review could take this further, with Government becoming even more interventionist in how research budgets are deployed, and with QR a likely first victim to this tendency towards control.

Such a decision would have the opposite impact to the one intended. Those in Whitehall aren’t always best placed to know where the next big breakthrough will come from; nor is government machinery good at responding at the speed that business requires when a commercialisation opportunity appears.

A renewed commitment between government and universities will be required to protect QR from future raids. Politicians will need to trust that universities pursue research for the benefit of the economy and society and universities will need to continue to show accountability for this support.

From the development of fibre lasers (used in everything from 3D printers to endoscopes), to the use of quantum physics in risk management and financial markets, researchers continually make discoveries that transform the way that we live our lives. Equally, the onus is on institutions to be clearer than ever on the social and economic benefits of their work.

We have seen the chancellor back R&D before, the last time being in the 2017 Autumn Statement. But figures from the Campaign for Science and Engineering show that Government will need to go further to meet its commitments to invest 2.4 per cent of GDP in R&D.

This week’s Spring Statement and the eventual Spending Review are a chance to support the UK’s knowledge economy and put innovation at the heart of the UK’s growth plan. Let’s hope that the chancellor sees that blue skies research can help deliver us from the doom and gloom.

Stephanie Smith is a senior policy analyst at the Russell Group.