FST BLOG

Levelling up innovation and research investment for prosperity across all UK nations and regions

• 5 October 2020
• Business, General
• Peter Halligan

UK’s longstanding economic place disparity 

The UK leaves the EU as the most regionally unbalanced country in the industrialised world. To put this in perspective, almost half of the UK population today live in places whose productivity is no better than the weaker parts of the former East Germany, lower than parts of Slovakia, Poland, Slovenia and the Czech Republic. Some of these regions have never fully recovered from de-industrialisation and remain trapped with poor infrastructure, low investment and skills.

The English, Northern Irish, Scottish and Welsh indices of multiple deprivation provide a quantifiable reminder of the persistence of variations between and within different places in the UK in terms of income, employment, education, health and levels of crime. In terms of productivity, household income and wealth, the persistence of these significant regional and national variations across the UK has been a focus of research and policy discussion for many years. 

According to the Industrial Strategy Commission, the future performance of the UK economy will be held back by this high degree of regional imbalance. The performance of all UK regions is crucial to the future success of the UK. These regional and national differences matter for economic and social reasons, as improvements in productivity are among the main means of achieving improvements in income, health and wealth. When considered alongside powerful commitments to fair work these can all help achieve a stronger, modernised and more inclusive economy.

According to the spatial economic geographer, Philip McCann the geographical realities of the UK economy do not correspond to the governance system we have, and remains ill-suited to a large internally heterogeneous county like the UK. These regional disparities in the conditions of people in different places within the UK were also key drivers behind the results of the Brexit referendum in 2016, as well as the UK general elections in 2017and 2019.

As R&D intensity correlates well with regional GDP, it is not surprising that regional imbalances in R&D spending impact on economic regional performance imbalances. 

Levelling up the UK’s regional R&D disparity  

UK Government investment in R&D is highly geographically concentrated. Public spending on R&D is heavily skewed towards London, the East of England and the South East of England, accounting for 52% of UK R&D spend, despite having only 37% of the population.  According to Forth and Jones – the authors of a recent influential NESTA report, this longstanding spatially focused concentration of public funding has meant that large parts of the UK, including North England, the English Midlands, South West of England, Wales and Northern Ireland, have missed out on some £4 billion a year. As the private sector tends to invest on average twice as much as public spending, these regions also miss out on the predicted significant private sector multiplier.

In January 2020, the Prime Minister announced the Government’s intention to develop an ambitious new UK R&D Place Strategy. In March 2020, the Chancellor announced a record increase in public investment in R&D by almost a half, from £12.8 billion in 2018 to £22 billion a year by 2025.  The UK Government wants total (public and private) R&D spending to hit 2.4% of GDP by 2027, up from 1.7% now (£35bn), to match OECD average.

In July, the UK Government launched the R&D Roadmap which marked the start of a very short window to come up with a R&D Place Strategy before Christmas to inform the Comprehensive Spending Review. Critically, the Roadmap makes a strong commitment to address regional imbalances in R&D intensity “as part of our levelling up ambition”, and promises a new UK R&D Place Strategy “to unlock local growth and societal benefit from R&D across the UK.” This spending commitment provides a rare but important opportunity to make R&D spending more balanced across the country without compromising competitive UKRI funding.

In their Nesta paper (2020), Forth and Jones argue that the UK’s funding system for R&D currently exacerbates regional imbalance and misses the opportunity to use public spending to help ‘level up’ areas with weaker economies and achieve greater economic convergence.  Previous attempts to correct these regional imbalances, have failed because they were not addressed at sufficient scale to make a difference.  

Although ‘levelling up’ is a UK Government commitment following independent commissions and academic analyses of the economic and social challenges facing the UK, there is still little clarity as to what the UK Government actually means by ‘levelling up’.  The Nesta report provided some options arguing for a greater role for the UK’s nations, cities and regions, by providing them with the resources and capacity to build and develop their own innovation priorities in partnership with UK bodies.  To remedy regional imbalance in government R&D spending, Nesta recommend at least 25% of the uplift in the new public R&D funding should be devolved to nations, regions and cities outside the south-east of England. 

Central to the Nesta proposal for ‘levelling up’ is the need to grow place based capacity to do more and better research and innovation. This needs institutions where research can be carried out, well-equipped research facilities and a supply of skilled people, technicians, researchers and support staff. Currently ‘this capacity remains highly regionally concentrated’. Without a deliberate, strategic effort to create new R&D capacity in regions that currently have low R&D intensity, then they predict that ‘extra funding will simply be absorbed by existing institutions, further perpetuating the current geographical imbalances in R&D spending. 

Successful levelling up will of course take time, and increased regional R&D will also need to be complemented by wider government investments in infrastructure, transport, education and skills, to increase regional economic growth – as the Welsh Government has pointed out previously in its publication Wales: Protecting research and innovation after EU exit .

The view from Wales 

There is a lot to applaud in the ‘levelling up’ pledge in the R&D Roadmap and commitment to a significant boost to R&D investment designed to support the levelling place agenda.  If genuine, this commitment to ‘levelling up’ on place, provides a unique opportunity for BEIS and UKRI to demonstrate their corporate responsibility to ensure greater and more equitable geographical distribution of R&D investment across the UK and in particular to those places that require more support.

Welsh Government Ministers have been clear of their concern about the potential loss of regional investment funding after Brexit and the impact this could have on the Welsh economy. They have called for both a devolved funding stream to replace the funding it has effectively controlled in respect of ERDF for R&D as well as the ability to bid into wider UKRI funds. ‘Not a penny less, not a power lost’ has been the clear view of the Welsh Government.

Despite receiving only 2% of total UK R&D investment, the research and innovation ecosystem in Wales has been shown by independent reports to be both productive and efficient. The challenge as highlighted in the Reid Review, is that the Welsh research and innovation base does not have the scale needed to deliver its full potential. Ensuring that Wales has the future research capacity to win greater competitive funding to build a strong and sustainable science base will require a significant long-term investment. 

Such investment will need to grow capacity across the whole R&D spectrum which incorporates, targeting of people, skills and essential infrastructure. There is also a need to address the UK ‘dual support system’ of public funding for research (Funding Councils & Research Councils) to ensure the fullest contribution to the levelling up agenda by innovating new competitive ways that secures greater investment in the  nations, regions and cities outside the south-east of England.

A new approach is needed to levelling up. Given past unsuccessful attempts to address the UK’s longstanding regional economic and research differences, the UK Government could establish an independent Place Levelling-Up Commission (PLUC), designed to track geographical improvements in R&D and productivity between the nations and regions of the UK. Such a commission could be accountable to all four nations, and could be key to monitoring how the levelling up place strategy delivers economic and social outcomes across the UK.

If you enjoyed this blog post and would like to learn more about levelling up research and innovation investment across the UK, register for our event on Wednesday 7th October, "The R&D Roadmap - Levelling up across the UK".

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