FST JOURNAL

Looking at international comparisons, the UK economy is flatlining in terms of productivity. That presents a real challenge. One of the results of the revisions to the ONS figures is that, while previously there was an argument that low public sector investment was the cause of our poor productivity, that is not a convincing argument anymore.

So, we have to revisit the reasons behind that flatlining productivity. There has been significant work undertaken in Government, driven by the Government Office for Science under Sir Patrick Vallance. This resulted in the Science and Technology Framework, which has effectively become the manifesto for the Department for Science, Innovation and Technology (DSIT).

Science and Technology Framework

The Framework sets out 10 systems interventions that are needed in order to deliver the high-productivity, high-growth economy that we are seeking. Importantly, these 10 interventions in the research and innovation system are not standalone actions but must be aligned in order to deliver the high-growth economy that the country needs.

I picture this as a triangle. The three points are: high-productivity, innovative, high growth, businesses with high-quality jobs; high-quality, high-productivity, innovative and affordable public services (including, for example, the National Health Service, but also national security and so on). Then the third point of the triangle comprises highly-skilled, healthy, prospering people.

Those three elements are deeply interconnected. The highly-skilled, healthy, prospering people do jobs in businesses and the public services, but working in innovative businesses supports the wellbeing of these people. Evidently, the public services support health, education and skills.

As a country, we need to connect those three corners properly so that they support each other and help to drive up productivity and growth. Unfortunately, the thinking is not always joined up in the most effective way. Take the way that public money, such as tax revenues, is invested. We get tax income from our high-productivity, innovative businesses and the jobs that they create. This money is used to support public services. However, take too much money out of businesses in order to support the public services and there is a danger of becoming trapped in a debt spiral, which results in insufficient investment in both areas.

We need to think much more imaginatively, using the 10 elements of the Science and Technology Framework to shape the way we invest those tax pounds. For example, and perhaps most obviously, if we think about using public procurement really wisely, one would invest in the procurement of products for public services in a way that actually supports high-productivity, innovative businesses. By procuring products and services from these businesses for public services, the tax income spend through public procurement would flow back from public services to businesses, rather than just being taken from businesses to give to public services.

Public investment

Public investment in research and innovation is another crucial way in which tax spend can be invested wisely to support the three corners of the innovation triangle. R&D investment supports so many different elements of the Science and Technology Framework.

It supports skills. UKRI invests in research projects in universities or public sector research establishments, wherever they are. There are skilled people learning through the research and innovation that they conduct. If they can move freely through the economy, through businesses and the public sector, then we can drive the adoption and diffusion of new technologies, for example, across the system. Investment in skills is necessary therefore, but there must also be additional aligned incentives to carry these people across the system rather than locking them in to specific places and programmes.

That is the difference that UKRI can make. We account for nearly half of all public sector spend on research and innovation. As we span all disciplines and all sectors, UKRI has the opportunity to build a fully aligned portfolio of investment across the many elements needed by the Science and Technology Framework: skills; infrastructure; discoveries and new ideas; and innovation. This investment can be used to target particular priorities and technologies where we have a comparative advantage, such as AI.

Our portfolio of investments can move this process forward in a balanced way, aligning them with incentives that connect up the three corners of the triangle and drive the shifts in the economy that we want to see. Through these actions, we build confidence and the stability in the system which stimulates and leverages private sector investment. And that, after all, is where the vast majority of investment will continue to come from.

The Science and Technology Framework, with its 10 core elements, is essential if we are to build that stable platform. Infrastructure, regulations and standards, with clear long term signalling about tech prioritisation, deep international engagement, skills and innovative public services – all these have to be linked together in order to build the foundation upon which private sector investment can flow with confidence. That is the goal.