The Future of Research and Development Spending 3

DEBATE PACK Number 2021/0035, 15 March 2021 The future of research By Louise Smith, Matthew and development Ward spending Contents 1. Background 2 Summary 1.1 What is R&D funding and spending? 2 There will be a Westminster Hall debate on the future of research and 1.2 Statistics on R&D 2 development spending on Wednesday 17th March at 2:30 pm. 1.3 Government investment The debate has been initiated by Daniel Zeichner MP. in R&D 8 1.4 A new funding body 13 1.5 Horizon Europe 14 1.6 UKRI Official Development Assistance cuts 16 2. Press Articles 19 3. Parliamentary material 21 3.1 Written questions 21 3.2 Oral questions 26 4. Further reading 27 The House of Commons Library prepares a briefing in hard copy and/or online for most non-legislative debates in the Chamber and Westminster Hall other than half-hour debates. Debate Packs are produced quickly after the announcement of parliamentary business. They are intended to provide a summary or overview of the issue being debated and identify relevant briefings and useful documents, including press and parliamentary material. More detailed briefing can be prepared for Members on request to the Library. www.parliament.uk/commons-library | intranet.parliament.uk/commons-library | [email protected] | @commonslibrary 2 Number 2021/0035, 15 March 2021 1. Background 1.1 What is R&D funding and spending? Broadly, research and development funding covers expenditure on research, predominantly in science and technology, that results in new products, processes and understanding. It includes research undertaken in, and funded by, the public and private sectors (for example universities and businesses). R&D is measured by the amount spent performing R&D by an organisation, or the funding provided to perform R&D. These are not always the same – for example, the higher education sector in the UK performs R&D worth around £8.7 billion, but the sector only provides direct funding for R&D worth £211 million. These two ways of measuring R&D spending are different ways of analysing the same overall total expenditure for R&D, known as Gross Expenditure on R&D (GERD). GERD is the preferred way of measuring R&D spending in the UK, and for comparing R&D spending in different countries. 1.2 Statistics on R&D Total R&D funding In the UK in 2018, total R&D (gross expenditure on research and development) was £37.1 billion, the equivalent of 1.7% of GDP. This was £558 per head.1 1 Unless otherwise stated, the data in this briefing paper is from ONS, Gross expenditure on Research and Development, 2019 The future of research and development spending 3 Total Research & Development spending in the UK £ billion £ billion (2018 % of GDP £ per head (current) prices) 2000 17.6 25.1 1.6% 298.6 2001 18.4 25.9 1.6% 310.8 2002 19.0 26.3 1.6% 320.9 2003 19.5 26.4 1.5% 327.4 2004 20.0 26.3 1.5% 334.1 2005 21.9 28.0 1.5% 361.9 2006 22.7 28.4 1.5% 373.7 2007 24.4 29.7 1.6% 398.5 2008 25.1 29.7 1.6% 405.5 2009 25.3 29.5 1.6% 407.0 2010 25.9 29.7 1.6% 412.4 2011 27.2 30.7 1.6% 429.2 2012 27.0 29.8 1.6% 423.5 2013 28.8 31.2 1.6% 448.8 2014 30.3 32.4 1.6% 468.8 2015 31.5 33.4 1.6% 483.4 2016 33.2 34.4 1.6% 505.4 2017 34.8 35.4 1.7% 526.6 2018 37.1 37.1 1.7% 558.0 Source: ONS, GERD statistics, 2019; Series GLBA, GLBD, GLBD; Gross expenditure on research and development per head data uses ONS population estimates and current price data R&D investment in the UK has risen steadily over the past thirty years, from £19.1 billion in 1985 to the current total of £37.1 billion (in 2018 prices). This is a real terms increase of 94% over the period. Gross expenditure on research and development, 1985 to 2018 UK, £ billion, 2018 constant prices 40 35 30 25 20 15 10 5 0 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Source: ONS, Series GLBD However, over the same period, R&D expenditure has fallen slightly as a proportion of GDP. R&D expenditure was the equivalent of 1.9% of GDP in 1986, compared to the 2018 figure of 1.8% of GDP. R&D expenditure as a % of GDP has risen slightly in each year since 2012. 4 Number 2021/0035, 15 March 2021 Gross expenditure on research and development, 1985 to 2018 UK, as a % of GDP 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Source: ONS, Series GLBH In its Industrial Strategy (published in November 2017), the Government set a target to “…raise total R&D investment to 2.4% of GDP by 2027”.2 For further information about this target see section 1.3 below. Increasing expenditure on R&D to the equivalent of 2.4% of GDP would lead to a record level of R&D investment in the UK. At 2.4% of GDP, R&D expenditure in the UK would match the current OECD average (2.4% of GDP). R&D performance and funding The following table shows the sectors funding and performing R&D in 2018. Total public funding of R&D, including research councils and devolved higher education funding councils, was £9.6 billion. The business/enterprise sector performed £25.0 billion of R&D in 2018. £19.8 billion of this was funded by the business/enterprise sector, whilst £6.0 billion was funded by overseas sources, and £1.2 billion was funded by the government. 2 Department for Business, Energy & Industrial Strategy, Industrial Strategy, 2017, p11 The future of research and development spending 5 Total expenditure on R&D, by performing and funding sectors £ million, 2018, UK Sector performing R&D UK Research Higher Business Private Government Total Overseas & Innovation Education Enterprise Non-Profit Sector funding R&D Government 1,296 150 380 1,190 113 3,129 649 Research Councils 51 626 2,600 530 189 3,996 84 HE Funding Councils - - 2,492 - - 2,492 0 Higher Education 4 18 - 179 10 211 0 Business Enterprise 16 54 389 19,832 25 20,315 5,955 Private Non-Profit 34 38 1,318 67 402 1,860 0 Overseas 97 75 1,562 3,250 84 5,069 0 Total 1,498 962 8,740 25,048 823 37,072 - of which: Civil 1,331 962 8,693 23,363 810 35,159 - Defence 168 - 47 1,685 14 1,913 - Source: ONS, Gross expenditure on R&D, Data table 1 R&D by sector Expenditure on R&D performed by businesses is available broken down by sector.3 In 2018, the pharmaceutical industry performed the most R&D in the UK – worth £4.8 billion. The automotive manufacturing industry performed the second most R&D, worth £3.4 billion. 3 ONS, Business enterprise R&D, 2020 6 Number 2021/0035, 15 March 2021 Expenditure on R&D performed by businesses, by sector, UK £ billion , 2019 Pharmaceuticals 4.8 Motor vehicles and parts 3.4 Miscellaneous business activities 2.0 Computer programming, info service 1.9 Aerospace 1.7 Software development 1.6 Research and development services 1.4 Machinery and equipment 1.1 Telecommunications 1.0 Chemicals and chemical products 0.9 Precision instruments & optical products 0.8 Consumer electronics 0.8 Electrical equipment 0.5 Computers and peripheral equipment 0.5 Food products and beverages 0.4 Construction 0.4 Shipbuilding 0.4 Wholesale and retail trade 0.3 Other manufactured goods 0.3 Fabricated metal products 0.2 Public administration 0.2 Rubber and plastic products 0.2 Extractive Industries 0.2 Agriculture, forestry, fishing 0.1 Electricity, gas and water supply 0.1 Refined petroleum products and coke… 0.1 Other transport equipment 0.1 Other non-metallic mineral products 0.1 Pulp, paper and paper products 0.1 Non-ferrous metals 0.1 Transport and storage 0.1 Casting of iron and steel 0.0 Textiles, clothing and leather products 0.0 0 1 2 3 4 5 6 Source: ONS, Business enterprise R&D, 2019, Data table 2 R&D: international comparisons The following chart shows total R&D investment as a proportion of GDP in each of the Organisation for Economic Co-operation and Development (OECD) member countries and several other major economies such as China.4 UK R&D investment equivalent to 1.7% of GDP in 2018 is below the EU28 average of 2.0%, and below the OECD average of 2.4%. UK has a lower level of R&D investment than competitor countries such as the France (with R&D investment equivalent to 2.2% of GDP), the US (2.8%) and Germany (3.1%). 4 OECD, Main science and technology indicators, Issue 2019, Volume 2 The future of research and development spending 7 Gross expenditure on R&D as % of GDP OECD and selected countries, 2018 Israel 4.9% South Korea 4.5% Chinese Taipei 3.5% Sweden 3.3% Switzerland* 3.3% Japan 3.3% Austria 3.1% Germany 3.1% Denmark 3.0% USA 2.8% Finland 2.8% Belgium 2.7% OECD-Total 2.4% France 2.2% Netherlands 2.2% China 2.1% Norway 2.1% Iceland 2.0% EU28 2.0% Slovenia 2.0% Czech Republic 1.9% Singapore 1.8% Australia* 1.8% UK 1.7% Canada 1.6% Hungary 1.5% Italy 1.4% Estonia 1.4% Portugal 1.4% New Zealand* 1.3% Spain 1.2% Luxembourg 1.2% Poland 1.2% Greece 1.2% Turkey 1.0% Ireland 1.0% Russian Federation 1.0% Lithuania 0.9% Slovak Republic 0.8% South Africa** 0.8% Latvia 0.6% Argentina 0.6% Romania 0.5% Chile 0.3% Mexico 0.3% Colombia 0.3% 0% 1% 2% 3% 4% 5% 6% *=2017; **=2016 Source: OECD, Main Science and Technology Indicators, Volume 2019, Issue 2 8 Number 2021/0035, 15 March 2021 1.3 Government investment in R&D Public funding for R&D (including government, research councils and the devolved higher education funding councils) was £9.6 billion in 2018, 26% of total R&D funding.5 How does the UK Government invest in R&D? The majority of public expenditure on R&D comes from the Department for Business, Energy and Industrial Strategy (BEIS).

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