The 2.4% target: challenging or unambitious?

The 2.4% target: challenging or unambitious?

By Andrew Basu-McGowan, Policy Lead for Innovation and Place, The National Centre for Universities and Business (NCUB)

 

2point4percent‘2.4%’ is a frequently-referenced number in the State of the Relationship report. Government’s target to increase R&D spending to this figure as a percentage of GDP by 2027 has taken on considerable weight – and right now, everything is seen in the context of this commitment.

As the present OECD average, 2.4% is a serviceable aim. The UK sat on 1.7% in 2016, with South Korea surging ahead well past 4%; the EU28 average was 1.9%. Dependent on your point of view, 2.4% is either a challenging target requiring concerted effort to achieve, or in a global context, the unambitious treading of water. It seems fair to say that whilst the UK economy may not be optimised to create and absorb R&D in the same way as South Korea’s, we can certainly do more than we are.

The scale of the challenge – and opportunity – is considerable. Around a third of R&D is publicly funded with two-thirds funded by domestic and overseas business. We’ve already seen increases in public sector spending in recent years alongside the Industrial Strategy; most models anticipate that this will help crowd in private sector spending, alongside other ecosystem-related incentives which will encourage business to invest further.

The prize is potentially great. Investment in R&D activity, properly stimulated and allowed to flourish, brings with it increases in productivity – addressing an historic problem for the UK. And improving the diffusion and absorption of R&D across the country can help to address regional economic imbalances. This cannot be done without greater business investment.

That isn’t to say that businesses will blithely follow this ambition. Their own strategic drivers will take precedence over an abstract policy goal; Government has to do their part to create favourable conditions. Fortunately, the UK has some embedded advantages to leverage, and this needs to happen quickly to act against environmental deterrents such as Brexit uncertainty.

The excellence of our research base, and the rich rewards of university-business interaction, are a cornerstone. Mutual sharing of insights, processes and cultures which sharpen collaborative R&D and promote its diffusion are all indispensable parts of the national arsenal. The UK is already a magnet for foreign direct investment in R&D in part due to these structural comparative advantages.

We know Government and UK Research and Innovation (UKRI) are working on a roadmap to 2.4%. Instruments like the Industrial Strategy Challenge Fund will continue to move the dial and Sir Adrian Smith’s review of future frameworks for international collaboration in research and innovation will no doubt identify key opportunities to blend excellence with impact. But we also require a clear articulation of the role such investment can play in improving a private firm’s outlook and broadening its perspectives, and a sense of the potential which public and private funds and measures can unlock together for the innovation environment at large.

Government must also pull policy levers to maximise investment in R&D both from domestic high-growth innovative firms, and large-scale FDI. Creating an ecosystem favourable to each – encouraging a channel of public and private capital into domestic high-growth propositions, whilst being compellingly attractive to overseas investors – is the circle Government needs to square to sustain our reputation as an attractive and welcoming place for global ideas, people and capital.

R&D is changing and our definitions of it – and approach to it – need to keep pace. To do that, we have to think big. We need to take a progressive approach to improving our collective understanding of what modern R&D really is and where it takes place. Together, these measures can help to realise a new vision for the UK.

 


This article first appeared in the 2019 State of the Relationship report published 19 June 2019.

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