FINAL REPORT The Case for Space 2015 The impact of space on the UK economy FULL REPORT A study for the Satellite Applications Catapult, Innovate UK, UKspace and the UK Space Agency July 2015 About London Economics London Economics (LE) is a leading independent economic consultancy, headquartered in London, with a dedicated team of professional economists specialised in the application of best practice economic and financial analysis to the space sector. As a firm, our reputation for independent analysis and client‐driven, world‐class and academically robust economic research has been built up over 25 years. Drawing on our solid understanding of the economics of space, expertise in economic analysis and best practice industry knowledge, our space team has extensive experience of providing independent analysis and innovative solutions to advise clients in the public, private and third sectors on the economic fundamentals, commercial potential of existing, developing and speculative market opportunities to reduce uncertainty and guide decision‐makers in this most challenging of operating environments. All consultants of our space team are highly‐qualified economists with extensive experience in applying a wide variety of analytical techniques to the space sector, including: Insightful and accurate market analysis and demand forecasting; Analysis of industrial structure, strategy and competitive forces; New technology adoption modelling; Estimation of public utility benefits; Opportunity prioritisation and targeting to maximise exploitation of investment; Sophisticated statistical analysis (econometrics, regression); Economic and financial modelling, including: Cost‐Benefit Analysis (CBA), cost effectiveness analysis, Value for Money (VfM), impact assessment, policy evaluation, business case development, cash flow and sustainability modelling. Head Office: Somerset House, New Wing, Strand, London WC2R 1LA, United Kingdom. w: londoneconomics.co.uk/aerospace e: [email protected] t: +44 (0)20 3701 7700 : @LE_Aerospace Acknowledgements We would like to acknowledge the useful guidance and feedback provided by the Satellite Applications Catapult, Innovate UK, UKspace and the UK Space Agency throughout this research. We would also like to thank all of the stakeholders consulted for their time and informative response. Responsibility for the contents of this report remains with London Economics. Authors Greg Sadlier, Associate Director, +44 (0)20 3701 7707, [email protected] Rasmus Flytkjær, Senior Economic Consultant, +44 (0)20 3701 7717, [email protected] Maike Halterbeck, Economic Consultant, +44 (0)20 3701 7724, [email protected] Viktoriya Peycheva, Economic Consultant, +44 (0)20 3701 7719, [email protected] Laura Koch, Economic Analyst, +44 (0)20 3701 7718, [email protected] Wherever possible London Economics uses paper sourced from sustainably managed forests using production processes that meet the EU eco‐label requirements. Copyright © 2015 London Economics. Except for the quotation of short passages for the purposes of criticism or review, no part of this document may be reproduced without permission. London Economics Ltd is a Limited Company registered in England and Wales with registered number 04083204 and registered offices at Somerset House, New Wing, Strand, London WC2R 1LA. London Economics Ltd's registration number for Value Added Tax in the United Kingdom is GB769529863. Table of Contents Page 1 Introduction and context 1 1.1 Research objectives 1 1.2 Overall approach 2 1.3 Differences compared to the ‘Size and Health’ study 3 1.4 Caveats and limitations 3 1.5 Structure of the report 4 2 Defining the UK space economy 6 2.1 Defining ‘space economy’ 6 2.2 Challenges of measuring the space economy 7 2.3 Segmentation of the space economy 8 3 UK space economy in perspective 10 3.1 Turnover 10 3.2 Composition 20 3.3 Skills and qualifications 21 3.4 Customer mix 23 3.5 Export intensity and markets 24 3.6 R&D investment 27 4 Government engagement in the space economy 31 4.1 Rationale for government intervention in space 31 4.2 UK Government support to the space economy 35 5 Economic impact of the UK space economy: Direct, indirect and induced effects 41 5.1 Typology of impacts 41 5.2 Value‐Added 42 5.3 Employment 47 5.4 Productivity 55 5.5 Foreign Direct Investment (FDI) 57 5.6 Harwell Oxford campus 60 6 Economic impact of the UK space economy: Catalytic effects 63 6.1 Space applications as ‘General Purpose Technologies’ 63 6.2 Span of influence of space‐enabled applications 64 6.3 Typology of catalytic effects 67 7 Catalytic effects: End‐user benefits 70 7.1 Introduction 70 7.2 Security, safety & resilience 71 7.3 Game‐changing services 77 7.4 Climate and environmental services 79 7.5 More efficient public sector services 83 London Economics The Case for Space 2015 i Table of Contents Page 7.6 e‐connectivity 86 8 Catalytic effects: R&D and knowledge spillovers 92 8.1 R&D and knowledge spillovers 92 9 Catalytic effects: Education, exploration and space science 95 9.1 Science, Technology, Engineering and Maths (STEM) education and careers 95 9.2 Space exploration beyond earth orbit 96 9.3 Space science 99 10 Future prospects of the UK space economy 101 10.1 Introduction 101 10.2 Strengths of the UK space economy 101 10.3 Potential growth path 102 10.4 Game‐changers/catalysts/wild cards 104 10.5 Applications and end‐users: Space IGS high growth markets 109 10.6 Summary 110 Glossary 112 References 113 Index of Tables, Figures and Boxes 114 ANNEXES 118 Annex 1 Steering Committee 119 A1.1 Steering Committee membership 119 Annex 2 Methodology 119 A2.1 Defining the space economy 119 A2.2 UK space economy in perspective 126 A2.3 Economic impact of the UK space economy: Direct, indirect and induced effects 128 A2.4 Foreign Direct Investment (FDI) 132 London Economics ii The Case for Space 2015 1 | Introduction and context 1 Introduction and context Space technology is already woven into the fabric of modern daily life in the UK. From weather forecasts consulted before leaving home, location‐based services on smartphones, live events broadcast to television screens, to broadband connectivity in rural ‘not‐spots’, space‐enabled technologies are an integral part, and enhancement, of the everyday lives of UK citizens. Space technologies also enable an increasingly diverse range of business applications for professionals (e.g. aviation, surveying, agriculture, fisheries), commercial organisations (e.g. geological exploration, infrastructure monitoring, communication connectivity), critical infrastructures (e.g. transport, power, energy, telecoms, financial and civil infrastructures), public safety and security (e.g. defence forces, police, emergency services), and public agency users (e.g. environmental monitoring and disaster response, criminal justice). With such a span of influence, the availability and continuity of space services is of significant economic importance. Looking to the future, the considerable potential for the continued development of applications will drive innovation, providing important spillovers of knowledge and skills to the wider economy. On the supply side, the UK has a long and distinguished history of involvement in space.1 Indeed, in 2012 the UK celebrated 50 years of UK space science. Since Ariel‐1, the world’s first international satellite, carried UK experiments to solar orbit and made the UK the world’s 3rd space‐faring nation in 1962, the UK’s involvement in space has grown substantially, both institutionally and commercially. The path hasn’t always run smooth, but with ambitious long‐term objectives set out to 2030, the future is promising. Following on from a successful role in the Rosetta (Philae) mission, the UK Space Agency’s first CubeSat mission (UKube‐1), record industry performance, and recently announced government investment that will see the UK will playing the lead role in Europe's 2018 ExoMars mission, this report comes at an exciting time for the UK in space. The supply and consumption of space technologies in the UK contributes to GDP, provides employment, boosts productivity in space and non‐space sectors (knowledge spillovers), and offers utility benefits for consumers, producers, and society (environment, policy‐making, defence, etc.). The aggregate of these effects is the gross impact of space on the UK economy. 1.1 Research objectives This report aims to draw together existing evidence and conduct new analysis to assess this impact and provide answers to the questions: How significant is the contribution of space to the UK economy?; and how important is UK government support for the space economy? Whilst an accurate answer (i.e. net impact) would require a much larger piece of research consisting of a meta‐analysis of economic studies to rigorously assess the additionality of each investment and activity, this study endeavours to provide an assessment of gross impact. London Economics were commissioned to undertake this study on behalf of Innovate UK, the Satellite Applications Catapult, UKspace trade association and the UK Space Agency (represented by, and hereafter referred to as, ‘the Steering Committee’). This study complements and satisfies an Action (4.3) in the IGS Space Growth Action Plan 2014‐2030 for stakeholders to undertake a number of studies, including updating the economic impact study of the benefits of space for private business, UK citizens and government itself. 1 Please see Section 4.2 for a more detailed overview of the history of UK space involvement and government support. London Economics The Case for Space 2015 1 1 | Introduction and context This study, The Case for Space 2015, represents an update and extension of research originally undertaken in 2006, and updated in 2009, to assess the impact of space on the UK economy. This updated study has a base year of the 2012/13 financial year.2 This report is targeted towards a two‐part audience: 1) governmental economists and policymakers; and 2) industry, users and the general public.