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.
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.
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.
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.