Commercial return on investment should count in UK R&D funding

We have heard much about how Brexit will allow the use of state aid to reindustrialise neglected regions, in line with the UK government’s levelling-up agenda. But what is beginning to be recognised is that R&D spending also forms a powerful stealth tool for regional development – and that its current uneven distribution could hold back national productivity and prevent the government from reaching its targets for national per-capita R&D spending.

This debate is now overlaid with added urgency as Covid-19 and emerging post-Brexit barriers to trade threaten to compound regional disparities. There is a growing case for shaking up the research funding model that sees the south east and the “golden triangle” of London, Oxford and Cambridge receive disproportionately generous allocations.

Some argue that universities in this region receive more funding because they have the greatest concentration of R&D activity, people and skills. However, this does not hold up. A report by Nesta, the innovation foundation, reveals that the “regions and subregions containing London, Oxford and Cambridge account for 46 per cent of public and charitable R&D in the UK, but just 31 per cent of business R&D and 21 per cent of the population”. And when, in 2019, the venture capitalists Octopus Ventures ranked UK universities on their effectiveness at commercialising research, most of the top 10 were outside the south east. Funding patterns, then, are failing to reflect the fairly even regional spread of research and business skills.

Moreover, if we allow existing regional economic productivity to dictate patterns of funding then it will create a ratchet effect whereby R&D funding cements existing inequalities and renders them irreversible. The UK is already one of the most regionally unbalanced countries in the industrialised world in terms of economic performance. Crucially, these disparities of performance closely mirror the disparities in R&D funding to the regions.

Instead of awarding money solely based on research excellence or concentration of skills, the government must also examine return on investment to the taxpayer. This means looking at where research is being most efficiently commercialised. Excellence in monetisation is not simply a function of absolute research capacity. Octopus Ventures’ recent entrepreneurial impact ranking, “Spinning out Success”, shows that universities in less affluent areas, such as Belfast, Dundee and Nottingham, are among the best at creating and commercialising companies.

A plausible explanation is that their meagre funding diet has made institutions outside the south east more efficient. For example, independent analysis by London Economics found that Queen’s University Belfast contributes £1.9 billion to the Northern Irish economy. Moreover, according to a Universities UK report published in September, the turnover generated by university spinouts in Northern Ireland is second only to those in Oxfordshire. Despite this, Northern Ireland receives a less generous allocation from the UK-wide Higher Education Innovation Fund than most other regions.

Of course, an increase in R&D funding alone is not enough to address the regional divide. It is equally important for universities in deprived regions to collaborate and create translational programmes to help them ensure their research meets market needs. A scheme that does just this, known as the Innovate UK ICURe programme, has been delivered by North by North West, a Queen’s-led consortium of seven universities across Northern Ireland, Scotland and the north of England dedicated to customer discovery and validating ideas by identifying market signals and evidence or proxies for product and market fit. This collaborative effort shows that the levelling-up agenda need not pit universities and regions against each other in competition for resources.

The government’s review of regional disparities in public investment should examine innovation funding. Levelling up should be an objective, but it can be achieved without heavy-handed redistributive interventions. All it needs is for public funding agencies to be instructed to place greater weight on universities’ effectiveness at commercialising as well as conducting research.

Awarding R&D funds in this way would also incentivise greater efficiency and productivity across the whole sector. Hence, far from harming the UK’s research and economic performance, a fairer approach to regional funding will increase its overall rate of research commercialisation and provide better value for taxpayers.

Brian McCaul is CEO of QUBIS, the commercialisation arm of Queen’s University Belfast.