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R&D funding across the UK: The launch of The Missing £4 Billion

What is The Missing £4 Billion?

‘We don’t think anyone set out to do down the North East’, Richard Jones explained in his talk at the launch of The Missing £4 Billion. However, as the report demonstrates, over successive years a supposedly ‘place blind’ approach to distributing R&D funding across the UK has left some regions, like the North East and others too, with little innovation spending. Other parts of the UK such as London and the greater South East do well by comparison.

Put simply, innovation improves productivity which leads to economic growth. Without it, the result is less productive and lower paid work, leading to reduced economic resilience at a local level. Nationally, the consequence at best is highly concentrated economic growth (the current situation being that only London, the East of England and the South East of England contribute more in tax than they receive in public spending); at worst, overall economic growth is lower than its potential.

In 2019, Nesta commissioned Richard Jones, Chair in Materials Physics and Innovation Policy at Manchester University, and Tom Forth, Head of Data at ODI Leeds, to examine the problem. Their report, The Missing £4 Billion, and its accompanying online datavis, argues that we need to spend more and we need to spend more wisely. To 'level up' those regions where little is currently spent on innovation, £4 billion of public money is needed. The government has already committed to increase overall R&D spending from 1.7 per cent of GDP today to 2.4 per cent by 2027, bringing our currently low expenditure up to the OECD average.

To spend that money well, Richard and Tom have three key recommendations: that some R&D funding should be devolved to regional governments; that new science and technology institutions should be created outside London, the South East and East of England; and UK Research and Innovation (UKRI, the body that holds the purse strings) should take a lead in driving regional R&D rebalancing.

Launching the report

We held a webinar where Richard and Tom spoke about their work with responses from panelists Liam Byrne (MP for Birmingham Hodge Hill and Labour candidate for West Midlands Metro Mayor), Neil O’Brien (MP for Harborough and co-founder of think tank Onward), Professor Dame Nancy Rothwell (President and Vice-Chancellor, University of Manchester), and Ravi Gurumurthy (CEO, Nesta). It was moderated by Jennifer Williams (Political Editor, Manchester Evening News).

From different industries and political persuasions, the panel were in close agreement with one another and several key themes emerged:

The COVID-19 crisis as a moment of change

Both speakers and panelists agreed that the present situation had endured for too long. While the past two decades have seen R&D investments by both business and government increase in most of our competitor countries, the UK’s have remained more or less stable. Similarly, national disparities in productivity and economic performance have been with us for some time.

Addressing this has been a policy priority of successive governments, with few concrete results. There is a risk that some places will not recover from huge scaling back of economic activity due to the Covid-19 pandemic, or as Liam Byrne put it they may just shift ‘from lockdown to meltdown’. But, as Nancy Rothwell observed, for universities the present crisis ‘has given us an opportunity to think about doing things differently’.

The need for evidence based approaches

That the arguments of the report are ‘based on data, analysis and evidence’ rather than ‘special pleading’ from regions was a particular highlight for Nancy Rothwell. But beyond that, as Ravi Gurumurthy observed, it is striking how little evidence guides approaches to the way that innovation budgets are spent. Like Neil O’Brien, he argued that there is a need to trial different ways of making investment to see what outcomes each generates, so that policy can be driven by understanding of what works in the real world.

The evidence we do have comes from overseas. As Tom Forth noted, citing evidence published in the report, the UK is unique in Europe in having regions where business spending on R&D is very high while little government money accompanies it. This suggests potential is going unused, and government money could support firms to be still more R&D intensive.

We can also look elsewhere in the world for successful examples of institutional approaches. According to Liam Byrne, South Korea, Germany and Israel are countries which have used government support to build effective innovation infrastructures. We need to learn from them.

The role of universities

The UK’s world leading universities are an asset to our innovation base. As Nancy Rothwell said, ‘the UK is brilliant at the R bit of R&D and without that we won’t have anything to D. We need to protect that research base’. We’ve long focused on academic definitions of excellence, like journal article publications, as a way of measuring the quality of research and the funding available to it. This has been productive, but has led to us neglecting other areas.

As Liam Byrne notes, ‘we spend a lot of money in universities and they are not doing much work for local communities’. Limitations in international travel as a result of the COVID-19 pandemic are likely to seriously dent university finances which rely heavily on international student fees. This, Ravi Gurumurthy argued, risks damaging research but it might also provide a time to rethink the relationship between universities, government and local communities. For Nancy Rothwell, this would be research with a regional benefit, with likely a translational element to it too.

No space for half measures

Place based approaches to innovation are not new to the UK. The Regional Development Agencies, abolished in 2012, are a recent example, as is the currently active Strength in Places fund from UKRI, but neither has generated widespread and lasting change. ‘The reason nothing we’ve tried has worked is because we’ve never tried it at scale’, Richard Jones argued. Aspirations need to be backed up by money.

We also need to be prepared to invest for the long term. Typically, the UK approach has been built on getting the highest return on investment in a fairly risk averse fashion, closing initiatives when they do not provide a quick result. For Ravi Gurumurthy, the report demonstrated the need to make choices and accept trade offs. If regional development is the priority for some of the money spent, we may need to accept lower overall returns in order to generate the desired social benefits.

Moving forward

Solving the supply side of innovation is vital, but the panel argued that we need an economy that demands innovation too. Particularly if we are to recover well from the COVID-19 crisis, that demand must come from all areas of the economy including the foundational economy. Panelists cited the care sector, edtech, and low carbon technologies as areas ripe for R&D, with innovation across needed all parts of their respective supply and delivery chains. We need to focus on businesses of all sizes, giving particular support to SMEs.

Assuming the UK’s R&D intensity does rise to 2.4 per cent, as this event demonstrated there are choices to be made about how and where we spend this new money in the innovation budget. The panel’s expertise is important, but there are other approaches too. The Missing £4 Billion report is accompanied by an online tool called Design the Future, where you can experiment with your priorities and see their effects on different regions of the UK.


Oliver Zanetti

Oliver Zanetti

Oliver Zanetti

Senior Mission Manager, sustainable future mission

Oliver Zanetti is mission manager for Nesta’s sustainable future mission, which focuses on home decarbonisation and economic recovery.

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