Today’s Budget has confirmed the government’s target of increasing national spend on R&D to 2.4 per cent of GDP by 2027 at the latest. Indeed, the Budget suggests the government’s ambition is to get there even sooner with a bold move to increase public spend on R&D by 15 per cent next year alone.

Whilst the increase is to be welcomed the question is how we leverage public spending in order to boost private spending as well. My recent paper The Road to 2.4 per cent, published with the Policy Institute at King’s College London, looked at this very issue, and was subsequently discussed at a roundtable at King’s College attended by Chris Skidmore, the then minister for Universities, Science, Research & Innovation, and representatives of the research community.

The target of 2.4 per cent is unusual because it includes both public and private spending, and therefore is not directly under government control. One of the Treasury’s main objectives is to get as big a boost to private spending as it can, and is hoping to get a  three to one ratio of private to public.

R&D should indeed be one of the key areas where public spending crowds in private spend, but this is not straightforward. Sometimes this has to do with local factors. For example if you compare Oxford with Cambridge, tight planning rules and limited accommodation in Oxford mean that it is pretty much impossible for a private company to open a substantial research lab in the vicinity, such asAstra Zeneca’s investment in a new research HQ in Cambridge. So one of the arguments for the levelling up agenda is that there is much more space to grow next to public R&D facilities outside the South East, where councils can be quite opposed to business expansion.

Clean energy is a great way to level up because offshore wind and heavy plants suitable for carbon capture and storage (CCS) promote economic activity outside the South East. In his excellent announcement of funding for two or more new CCS Clusters, the Chancellor shamelessly hammered the point home by saying that they would be “in areas like Teesside, Humberside, Merseyside, or St Fergus in Scotland.”

The Budget also confirms the government’s plans for a British DARPA. Whilst setting up a UK-based Advanced Research Projects Agency is worth a try, it’s not clear how such a body would directly address the challenge of promoting private R&D spend.

There are a number of alternative policy options which could help us meet the challenge to maximise private spend from public money. I will set out  three which should be looked at as part of the Spending Review.

First, public spending to UKRI is allocated in many differently and tightly managed jam jars of funding. Each has to be spent on its own rightly defined purpose. This makes it hard for UKRI to have the flexibility needed to use public spending to promote specific big items of private R&D spending.

I was willing during my time as Science Minister to have conversations with major internationally mobile companies who said if we signalled that we gave priority to research in a specific area and put a bit of money behind it, they would in turn locate their global centre for that research in the UK. That public spend did of course have to pass scrutiny by the science funding bodies as genuine high quality spend. In fact, it was often a matter of picking from an a la carte list of Research Council proposed projects the one which was most likely to get matching private investment. But those conversations did happen and were much more feasible then than they are now under the much more highly controlled and rigid arrangements. We used to be able to do deals to promote internationally mobile private R&D investment, but nowadays it is hard to move so fast and so flexibly

Second, we need to rethink Challenge funding. Challenge funding is an important part of R&D funding, but it’s been so popular with the government that any increase in public spending over the past three years has gone into it. Whilst the Challenge and Mission funds are supposed to promote private spending alongside, there is often only scope for private companies to bid for funds during quite narrow bidding windows, and they receive no assurance of any future opportunities going forward. The criteria are also very tightly drawn around specific missions so companies have to adjust their behaviour to comply. Indeed this is the logic of Challenges – government has identified a problem and is trying to get business to shift its priorities to address it. This is particularly tough for smaller companies which cannot track specific funding rounds linked to unique missions – they find it much easier to deal with responsive well-known long-lasting public spending programmes.

This leads on to the third policy option. There are public spending programmes which directly promote private spending on R&D which have been cut – notably in the ill-judged attack on Innovate UK funding in 2015/16. These programmes often score very well on rigorous Treasury appraisal for promoting private spending. They should be restored as a matter of urgency. Smart awards, for example, were originally created by David Young in the 1980s and do very well at helping smaller companies with the cost of proof of concept and proof of market. They have about survived but at a very small scale and with a success rate for grant applicants of only five per cent. They need to be boosted from £100 million a year to more like £400 million. 

Another highly effective programme is the Catalyst fund, which supports projects all the way from lab to market. The biggest example is the Biomedical Catalyst which has a very high return and is now running out of funds.

This Budget shows that the Chancellor is committed to science and research and has some excellent new initiatives for boosting R&D. However, we now need, as part of the Spending Review, a focus on the measures to implement in order to promote the private spend vital to maximising the increase in public spend.

David Willetts is Visiting Professor at the King’s Policy Institute. He served as Minister for Universities and Science in David Cameron’s Cabinet 2010-2014.