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United Kingdom - RIO Country Report

RIO Country Report United Kingdom 2015

The annual RIO Country Report offers an analysis of the R&I system in the United Kingdom, including relevant policies and funding, with a particular focus on topics critical for EU policies. The report identifies the main challenges of the UK research and innovation system and assesses the policy responses.

R&I Challenges
Increasing public and private sector investment in R&I
Challenge description: 

Investment in research and innovation is an important element for economic recovery, growth and societal well-being. However, the UK has experienced a sustained, long-term pattern of under-investment in public and private research and development (R&D). It ranks 18th on public expenditure and 14th for private expenditure, investment in non-R&D innovation is ranked 29th (IUS, 2015). The UK invests the least in R&D compared with similar advanced economies, and while UK foreign-owned firm R&D is high, UK-owned firm R&D is a concern. Although UK science is highly productive in some areas – it ranks 4th for exports in knowledge intensive services, has one of the highest shares of high-impact publications in the world, several universities at the forefront of global university league tables, and ranks 63.5 compared with Germany, (59) and France (58.1) on the EU research excellence indicator - it is uncertain that these R&I outputs can be sustained amidst stagnating or declining investment.

Policy Response: 

Successive governments have detailed the issue of weak investment over a number of years. Most policy attention is focused on boosting private sector R&D investment rather than increasing public sector expenditure. The decline in the latter is partly due to R&D budget cuts in ministries other than the Department for Business Innovation and Skills that did not ring-fence their R&D investments (CaSE, 2014). Although the budget for science and research did not suffer from cuts in nominal terms, it has declined for some time in real terms It is now steady at £4.7 billion and it will be protected in real terms over the Parliament. This will include a £1.5 billion new Global Challenges Fund. The Government aims to boost private sector funding largely through indirect measures such as the R&D tax credits for large companies and SMEs. There are also a smaller range of awareness promotion, prizes, and advisory service measures. In terms of direct measures, Innovate UK provides support funds for industry and SMEs, and runs the 10 Catapult centres set-up across the UK to enhance industry funding to public R&D along the lines of the Fraunhofer model. In 2012, the Innovation Vouchers programme was formally launched to enable start-ups and SMEs to access advice and expertise from universities, research organisations or other private-sector knowledge providers. The Launchpads scheme supports the development and strengthening of clusters of high-technology companies in specific technologies and geographical locations. Launchpads provide base funding through approved R&D projects and act as a catalyst to help the companies behind the projects to attract more investment. A new national development bank, the British Business Bank aims to increase the supply and diversity of finance available for UK SMEs.

Policy assessment: 

An evaluation of the tax credit scheme found that it had a positive impact, and provided additionality by leveraging private investment; however SMEs may not be benefiting as much as larger industry from the current measures. The total number of companies supported has risen from 1,780 in 2000/01 to 11,920 in 2011/12, and claims are estimated to cover around two-thirds of all spending by businesses on R&D. In terms of their appropriateness and impact, the focus on tax credits offers a demand-led flexible support according to the needs of each company. On the other hand, government has less flexibility to prioritise funding on certain sectors or technologies. More importantly, it is unclear from evaluations to date whether they have had any impact on stimulating overall business R&D investments, therefore a closer evaluation of the tax credit scheme could serve to clarify this issue. The funding impact of the recently established Catapult centres is not yet clear. An evaluation of the Business Bank's activities in 2014 showed that 10% supported science and technology, and while it is operating in all UK regions, 40% of activities were concentrated in the South. An evaluation of the overall effectiveness of direct and indirect schemes combined seems necessary. In terms of public funding, the plan to invest €8b (£5.9b) 2016-2021 is a positive development, since public research funding often supports increases in private R&D funding.

R&D specialisation and commercialising public R&D
Challenge description: 

As an increasing number of countries drive forward innovation and science, targeting resources on areas of national and regional R&D specialisation can optimise value from strong and/or emerging R&D areas. The UK increasingly competes on the basis of its innovation capacity, not least because its comparative advantage is disproportionately derived from R&D and innovation intensive sectors. There are strong R&D components in areas such as services, pharmaceuticals, ICT, transport, as well as financial and business services. At the same time, the UK shows weak investment in non-R&D innovation which may contribute to weaker productivity growth in the economy. A greater targeting of investments and prioritising key areas could increase economic growth and societal well-being.

While the UK's basic science is strong in a number of areas, commercialisation of publicly funded research into commercial products, process and services remains an important focus for improvement. Concerns over the translation of the results of publicly supported R&D into commercial products, processes and services – “smart, co-ordinated, dynamic and fluid partnerships” are required to enable “the institutions which create knowledge and the organisations which draw upon these developments to work together seamlessly”.

Policy Response: 

While UK science funding is mostly allocated through a bottom-up approach, assessed for excellence, targeting priority areas is gaining importance with limited resources allocated towards strategic fields of economic, environmental and societal importance. The Industrial Strategy put forward by the Government sets out 11 sectors in which to develop strategic partnerships with industry. They are the UK's leading sectors (or with lead potential) and which may have the potential to stimulate growth throughout the economy. Significant initiatives in these areas include the co-funded Aerospace Technology Institute, Automotive Advanced Propulsion Centre, and the Centres for Agricultural Innovation and an Agri-Tech Catalyst. These initiatives may help to improve the comparative advantages of R&D in these key sectors. The Industrial Strategy also frames government investment in eight cross-platform emerging technologies in which the UK has the depth of research expertise and business capability to develop its potential, with a budget of some €810m (£600m) in 2012. At regional level, the Local Enterprise Partnerships (LEPs), under the Government's 2014 innovation strategy, could play a stronger facilitating role in processes for the definition of R&I priorities through the prominence of the concept of 'place' and new regional innovation plans. The devolved administrations are in the lead of developing smart specialisation plans as a way to boost investment across regions, notably by R&D industries. To improve commercialization an extensive range of measures have evolved. Recent additions to this range include new cluster-type measures (such as ‘Catapults’, Knowledge and Innovation Centres and Research and Innovation Campuses), alongside incentives that address a range of actors, through different modalities to sustain collaboration for innovation. The longevity of much of this comprehensive and complementary set of measures strongly suggests its success (based on an extensive process of review and evaluation). Moreover, the Research Councils support substantial translational activity including follow-on funding and research and innovation campuses, together with support for university-business collaboration to help ensure the future uptake of research outputs: for example, the launch of the Gateway to Research in 2013 is aimed at the encouragement of university-business connections.

Policy assessment: 

According to the 2014 evaluation of the Industrial Strategy, there is confidence in the approach to working with industry on priority fields, although impact may only be seen in a decade. It cites initial successes in terms of funding allocated to the plan despite fiscal constraints and funding from industry which matches this investment. In the medium term, in important industry sectors like ICT and services with a high degree of R&D capacity, the benefits from the EU's recent Digital Single Market strategy could be significant. It is too early to assess the innovation strategy and impact of the LEPs. R&I is a key element of the 'Fixing the Foundations' plan, centring policy efforts on increasing productivity in the UK economy. While the UK has developed smart specialization plans, coordination and engagement in the processes could be improved and the national action plan’s R&I components need to be developed to meet the objectives. More generally for the UK, a longer term public R&D investment plan would support the UK's goal of raising productivity levels and competitiveness. Longstanding knowledge exchange measures have received positive evaluations. The newer Catapult centres received a positive review in 2010, and again in 2014, the latter recommending investments based on thorough reviews. Further impetus for this area comes with the Dowling review of university-business collaborations in July 2015, which pointed out weaknesses between sectors, institutions and companies despite a generally positive record on this measure.

Boosting support to scale-ups, including high-growth innovative enterprises
Challenge description: 

While the UK performs well overall in many composite innovation rankings, the efficiency of UK R&D inputs to outputs puts it in 10th place, despite a strong improvement since 2014 (placed 18th) (Edquist & Zabala-Iturriagagoitia, 2015). It registers weaker performance on SMEs and innovation, with average-to-low levels of new-to-market innovations, and low numbers of innovative SMEs, ranking 23rd for SMEs introducing product or process innovations (Innovation Union Scoreboard 2015). Supporting the scale-up of high growth enterprises, including SMEs is gaining attention in the UK, along with improving innovation in the public sector through procurement, as part of policy efforts to address the broader problem of weak productivity. At the same time, the UK has a relatively strong share of exports of medium and high-tech products and in services and a high share of exports in knowledge intensive services.

Policy Response: 

Besides tax incentives for SMEs, a number of measures aimed at the creation of start-ups and spin-offs also exist under the broad challenge of increasing the transfer of research results into economic outputs. Various initiatives also make specific provisions to attract SMEs into research consortia involving a range of knowledge sector and private sector actors and also into cluster-type initiatives. Overall, SME support is delivered through a multimodal and flexible range of support measures addressing the spectrum of SME needs at both national and targeted regional/local levels, and with a recent focus on reducing the bureaucratic barriers faced by small companies in accessing such support. Schemes include the UK Innovation Investment Fund (IIF); Enterprise Finance Guarantee: extended Autumn 2014 to provide c. €625m of new funding by 2015/16; Venture Capital Trusts; Business Angel Co-Investment Fund (€58m); Enterprise Investment Scheme and Seed Enterprise Investment Scheme; Bank-led Business Growth Fund of €2.9b to fund high growth companies. To increase innovation in companies and support SMEs, the Government's 2013 Budget announced an expansion of the Small Business Research Initiative (SBRI), which seeks to drive innovation through public procurement. This expansion involved setting specific targets for key departments with the expectation that the value of procurement contracts via SBRI would increase from €54m (£40 million) in 2012-13 to over €270m (£200 million) in 2014-15. Furthermore, the assessment of weak labour productivity outlined by the new Government through its summer 2015 plan 'Fixing the Foundations' included a commitment to supporting the scale-up of high growth companies. UK SMEs perform particularly well in bidding for the EU R&I programme SME instrument which supports European collaboration and market access.

Policy assessment: 

A 2012 review of the Business Growth Fund suggests a slight increase in uptake annually. The IIF also received a positive review in 2012. The SBRI is appropriate to the goal of investigating potential demand-led innovation from Government. An evaluation has been recently completed but there are already some successes - since 2009 it has delivered 215 competitions from 70 public bodies and resulted in 1,850 contracts. The recent productivity plan seems to represent a major part of the Government’s priorities, having been delivered by the Chancellor and the Minister for Business, Innovation and Skills. A robust overall monitoring and evaluation framework, along with a robust data and evidence base is needed to support policy implementation.

Ensuring future supply of human resources in S&T
Challenge description: 

Addressing the future skill needs of industry, particularly in regard to high-end and complementary skills sets is a challenge for the UK. Recent analysis indicates that demand for high-level skills will rise in coming years with an additional 2 million jobs projected by 2022 (further exacerbated by an increasingly ageing workforce), and the share of employment in almost all occupations shifting in favour of higher level qualifications.

Policy Response: 

Policies aimed at ensuring the future supply of human resources in S&T (HRST) include continuing support for research training (through the Research Councils) although universities have seen modest cutbacks in their funding for teaching activities - the government will reduce the teaching grant by £120m in cash terms by 2019 to 2020, but allow funding for high cost subjects to be protected in real terms. The shortfall, to be addressed by the increase (and the removal, in 2014, of the cap on student fees that Higher Education Institutions could charge) appears to have been less than initially feared and student enrolments appear to be increasing after a slight decline. Furthermore, in 2015, the Government removed the ‘cap’ on student numbers which had previously limited the numbers of students that universities were able to recruit. In terms of skills provision for industry, it could be argued that further structural change is required and that the emphasis placed on the Higher Education sector as the leading supplier of skilled workers is inappropriate, since the lack of a strong vocational/technical training sector remains an issue. However, the Government has announced additional resources for Science Technology, Engineering and Maths (STEM) education, the expansion of the Higher Apprenticeships scheme and the setting up of National Colleges in key STEM sectors such as Digital Skills, Wind Energy, and Advanced Manufacturing. There are a number of schemes to respond to the skills gap, e.g. an existing range of research training through Research Councils (including CASE awards), teaching/research clusters and centres of excellence; continuing review of training and teaching needs addressed by HE funding bodies and research councils; support for early career post-doctoral research and career development fellowships through Royal Societies, Research Councils and British Academy; increased support for Apprenticeships schemes in 2011  – with further expansion announced in the 2014 Plan for Growth.

Policy assessment: 

The policies and schemes address both generic and more specific employee skills needs, although there is still demand from employers for additional skills sets. Reviews and evaluations ensure delivery of appropriately trained researchers into the research base and business. The Royal Society support schemes for excellent researchers addresses the need to maintain quality as a lynchpin of research support. Support for apprenticeships addresses the absence of adequate pathways for lower level technical skills provision with skills addressed at several levels. The responses to the Richard Review of Apprenticeships published in November 2012 appear to be working well; the Government adopted a number of recommendations in spring 2013, and plans to introduce further Higher Apprenticeships.

 

Chapters
1. Overview of the R&I system

The UK economy is recovering from the effects of the 2008 financial crisis. There are signs of annual GDP growth, and employment continues to rise and unemployment fall - a general trend since late 2011. However, two important, long-standing concerns in the wider economy are weak productivity growth (notably labour) and low business investment.

The UK spends 1.7% of GDP on R&D, representing a gross expenditure on R&D (GERD) of €34b (around 12% of total EU-28 GERD). Of this, 28% is from public sources, 21% from abroad and 51% from the private sector. Although there is no current official R&D target, the Government's ten-year Strategic Innovation and Investment Framework, 2004-2014 set an ambition to reach a ratio of GERD to GDP of 2.5% by 2014. An important limiting factor in achieving this target is the effect of the economic recession and ongoing recovery.

UK R&D policy-making is centralised, although devolution in Northern Ireland, Scotland and Wales, extends some decision-making relating to the innovation system. Overall, the UK is a R&D leader, both among the EU28 and globally, on many measures. It has a significant number of world-class and highly innovative sectors such as pharmaceuticals, aerospace and automotive, as well as new sectors like digital design.

2. Recent developments in research and innovation policy and systems

Key developments in the R&I system in 2015 include:

  • Formation of a majority Conservative government following the General Election
  • Comprehensive Spending Review undertaken
3. Public and private funding of R&I and expenditure

Evidence of smart fiscal consolidation – balancing government budgets while safeguarding research and development (R&D) investments – is not strong enough to conclude whether the UK post-crisis fiscal adjustment process has come at the expense of public support to UK R&D. While the share of GDP for public R&D has declined since the 2008 crisis, the process of fiscal consolidation has so far led to mixed results, with some improvements both nominally and structurally, although the government debt and deficit are still far from pre-crisis levels. A system of tax incentives to stimulate R&D spending has produced noticeable results, yet these appear to have been insufficient to reverse the trend mentioned above. Cuts to the government support of R&D have affected the public sector more than the business sectors, in which the latter saw an increase in funding from government in recent years.

4. Quality of science base and priorities of the European Research Area

The UK R&I system is addressing ERA priorities, building on its generally strong performance, notably in research infrastructures, open access, international cooperation and researcher mobility. There is some scope to improve on this in order to boost R&I performance and economic and societal wellbeing.

5. Framework conditions for R&I and science-business cooperation

The UK's R&I system has demonstrated successes in knowledge exchange with extensive collaboration between the public, private and not-for-profit sectors through formal programmes, ad hoc activities, as well as in the large numbers of science parks, incubators and similar ventures.

6. Conclusions

The challenges put forward in the executive summary are summarised in the conclusions. The section lists relevant policy actions, assesses their appropriateness, efficiency and effectiveness, and provides links to relevant evidence (based on evaluations or empirical analyses).

Geo coverage
Report year
2015
Country Report file
Official publication date
Monday, 4 July, 2016
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