Last week the CBI welcomed a speech from Science Minister Chris Skidmore outlining the role of business investment in achieving the government’s ambition to invest 2.4% of GDP in R&D by 2027, as well as a number of funding announcements.
The CBI has long been calling on government to target 3% of GDP investment in UK R&D. Raising investment to 3% would have countless benefits:
- For businesses, investment in R&D creates growth opportunities and production efficiencies leading to competitive advantage and commercial success.
- For the economy, R&D investment stimulates productivity improvements, driving up production and wages and delivering economic growth and improvements in living standards.
- And crucially, R&D benefits everyday lives by enabling new innovations - such as technologies to cut greenhouse gas emissions or treatments for heart disease.
However, action is needed to realise these benefits. UK investment in R&D has stagnated at 1.7% of GDP for the last 30 years. This is well below the OECD average of 2.4% of GDP, and compares to Germany which spends almost 3%.
Driving up business investment in R&D will be pivotal if the UK is to make progress towards government’s 2.4% target so it was welcome to see the Science Minister deliver a speech focused specifically on business investment.
So what did we learn?
- There was welcome recognition for the positive role that public funding can play in stimulating new business investment. This recognition is important. Public funding can be a critical driver of new private sector investment. Evidence suggest that for every extra £1 that government spends in R&D, business will invest an extra £1.36.
- The minister stressed the need to ensure that investment is better spread throughout the country. At present R&D investment varies considerably between the UK’s regions and nations. For that reason the minister stressed the need to ensure that the whole of the UK sees the benefit from efforts to grow national spend. That means better nurturing and supporting innovative businesses throughout the UK.
- There was a series of new funding announcements. Alongside the announcement of funding for a series of strategic R&D collaborations between universities and business, the minister announced £100m of additional funding for Innovate UK’s ‘Smart Grant’ scheme – a CBI win.
What more could government do?
These announcements are welcome steps on the journey to 2.4% and demonstrate how government can support businesses to do more. But to achieve government’s 2.4% target, public and private sector investment will need to increase to £70b – roughly double what it is today.
Government needs to go further with its vision of government as a market creator. Public procurement is an important lever for driving innovation. With government being such a powerful buyer in the UK economy, its actions can stimulate demand for new technologies, creating marketplaces that induce the development of innovative new products and services. Yet CBI surveys have shown that only 5% of businesses believe that public procurement processes in the UK incentivise innovation.
Over the coming months there are two things that we will be calling for government to do:
- First, continue momentum. Momentum cannot be lost under any future prime minister. As the minister stated in his speech: ‘It is essential that we keep a long-term sustained focus on this question’. That’s why the CBI is calling on both leadership candidates to immediately re-commit to the 2.4% agenda and adopt a more concrete time frame to increase this to 3%.
- Second, take bold and ambitious policy action. The minister’s speech set out a positive vision but there needs to be greater acknowledgment from government of the scale of the challenge at hand. Concerted policy action is needed if we are to start making real progress towards the goal of investing 2.4% of GDP in R&D. That’s why the CBI is calling on government to set out a bold and ambitious delivery roadmap and an uplift in funding support for business investment.
How to get involved
Throughout 2019 the CBI will be keeping up the drumbeat on raising R&D investment in the UK. The campaign aims to provide thought leadership by looking at the broad steps that government and business need to take to drive the UK’s progress towards 3%.