Supercharging R&D investment critical to boosting British business

The Government should take immediate action to ‘supercharge’ private and public sector investment if it is to keep UK industries globally competitive, a new report by the Office for Health Economics warns.

Ambitious targets to increase UK R&D investment to the OECD average of 2.4 per cent of GDP by 2027 require public and private investment to increase by more than 50 per cent over the next seven years. This means following through on the Government’s promise to double public R&D investment, but also ensuring the incentives are right for business to invest more too.

The Chancellor's Summer Statement, Autumn Budget and Comprehensive Spending Review offer a once in a generation moment for decisive action. By acting now, the UK could attract global investment, which might otherwise head to the attractive business environment of countries like France or the high-tech manufacturing capabilities of countries like Germany.

The UK currently invests well below the OECD average at 1.7 per cent. Depending on GDP growth-assumptions, the analysis shows that investment must increase by between £14.6 billion and £22.5 billion over the next ten years – or by more than 50% from the £34.8 billion spent in 2017.

Increasing private sector investment is key to meeting the challenge. In countries investing more than the OECD average, the private sector spends more than £3 for every £1 spent by the public sector. In the UK this is only £2 to every £1.

The analysis also uses data from the US, South Korea, Germany, Japan, Belgium and Austria – all of which have boosted R&D spending up to or beyond the level needed by the UK – to look at policies the UK could adopt to emulate this success.

While the US and South Korea have both demonstrated how greater R&D investment can lead to greater innovation, Austria – which has rapidly increased R&D to levels way above OECD average in a short time frame – has struggled to turn the investment into innovation.

Therefore, whatever policies the Government adopts must be tailored to the UK’s strengths to support sustainable innovation.  They should include: 

• Growing investment in experimental and commercial research and development which offer the largest private-to-public funding ratios in all countries, ranging from 7-1 to 20-1.
• Strengthening fiscal incentives and bringing global investment to the UK by bringing UK tax credits in line with leading countries while futureproofing areas where industry needs to invest, e.g. big data and data science.
• Mission-orientated innovation policy with direct funding and public procurement towards finding solutions for specific challenges. For example, the UK has already identified AI and data; aging population; clean growth; and future mobility as the focus areas.
• Collaboration with the pharmaceutical industry is key as the industry spends more than half of its annual budget on experimental development. In particular, clinical trials provide an opportunity for public-private collaboration.
• Strengthening the entrepreneurial role of the academic sector by incentivising academics to commercialise basic and applied research results and by ensuring an availability of public funding and venture capital for early stage projects.
• Commitment to the UK’s gold standard intellectual property system to foster and reward innovation: effective intellectual property protection and enforcement is essential to develop new medicines for patients who need them and is crucial to avoid undermining the value of UK innovation and reduce incentives for UK innovators to develop new medicines.
• Ensuring the supply of world class talent by strengthening the attractiveness of UK universities to national and international students.

Collaborating with high-tech industries like the pharmaceutical industry will be crucial if the Government is to meet the challenge. The industry is the UK’s biggest investor in R&D at £4.5 billion a year, ¾ billion more than the next largest industry – the motor industry.

The report comes at a time when R&D investment in the pharmaceutical industry is flatlining and declining in other industries across the UK.

In an uncertain economic environment as the UK works to define its future relationship with the EU and the rest of the world, increasing investment could not be more critical to the future success of the British economy, and for the creation and preservation of jobs.

Chief Executive of the ABPI, Dr Richard Torbett, said:

“This is timely reminder about the importance of research and development to the UK economy.

“If we want to be attractive to global investors and compete with the leading high-tech nations of the world, the Government must commit to increasing private and public investment, on a par with countries like Germany and emerging powerhouses in Asia.

“The pharmaceutical industry is fundamental to achieving this success. Supporting British business and jobs by supercharging investment at a time when we are negotiating our future relationship with the rest of the word is critical.” 

Chief Executive, Office of Health Economics, Professor Graham Cookson, said:

“We have an opportunity to implement policies which will drive investment in research and development across all sectors. But, evidence from around the world shows that Government cannot do this alone.

"It should partner with leading industries - including life-sciences - to ensure we have the most attractive environment for R&D investment, and that this investment leads to innovative goods and services that will fuel economic growth and prosperity across Britain.”