Steph Morris, YU Associate
Directing more research & innovation (R&I) funding into under-funded and economically under-performing parts of the UK, without making other related interventions and investments, is a flawed recipe to address regional inequalities
Public investment in R&I is designed to stimulate, unlock and drive innovation, leading to higher productivity and economic growth. There is robust evidence that investment in R&I leads to increased Gross Value Added (GVA), which is the value that businesses add to the economy as a result of creating products or delivering services. In the UK, £25.1 billion of public funding for R&I will be allocated by UKRI for the three financial years between 2022-23 and 2024-25. Historically, the majority of public R&I funding available to businesses has been allocated through competitive processes that operate at a national scale. However, the economic performance and industrial and sectoral composition of the UK nations and regions varies, and there are significant disparities in the allocation of R&I funding and research capacity across the UK. Research organisations and businesses in productive, R&I-intensive areas, such as London and the South East, have, to date, been more successful at securing funding. In 2022, UKRI adopted ‘place’ as one of the pillars of its new strategy, with the aim of using ‘targeted research and innovation investments as a significant lever for levelling up’. This increased emphasis on place is a welcome development as it signals UKRI’s recognition that different nations and regions of the UK do not compete on a level playing field when it comes to accessing R&I funding, and that spatial inequalities are damaging both for under-performing places themselves and for the UK overall.
But addressing imbalances in the regional allocation of R&I funding is not, by itself, a complete solution to tackling socio-economic disparities. In their November 2023 report on Innovate UK Grants and R&D Returns, the Innovation Caucus demonstrated that the rate of return to businesses of their own investment in R&D varies across the UK. While businesses in London experience a 100% internal return on R&D investment, the figure for businesses in Yorkshire & the Humber is 63%. This means that a London-based business investing £1 in R&D generates on average an additional £1 in GVA, whereas a business making the same R&D investment in Yorkshire only generates 63p in GVA.
So, what can be done to improve the effectiveness of R&I investment in less productive regions of the UK?
In a 2022 report for UKRI on R&I and Place, SQW identified a number of factors that influence a place’s ability to harness and maximise the socio-economic value from R&I investment effectively, including networks, collaborations and local leadership. They also found evidence that simply having ‘strong R&I assets’ – including research-intensive universities – does not always translate automatically into positive socio-economic outcomes for a local area.
Taken together, the findings from SQW and the Innovation Caucus suggest that simply redirecting R&I investment away from London and the South East, towards areas of the UK where investment is currently low, is unlikely to yield optimal economic benefits in the short-term. Alongside increased direct investment in R&I, we also need sustained additional investment in human capital, capacity-building and networks, particularly in places where innovation ecosystems are under-developed. In a 2019 paper for UKRI, Professor Philip McCann warned that a narrow focus on research excellence alone fails to provide a platform for addressing many of the UK’s systemic challenges, and urged that the focus of place-based R&I initiatives should instead be on ‘potential for improvement and the upgrading of the existing economic and institutional set-up’. Additionally, a 2020 paper by WM-REDI to inform the development of a UK place-based R&D strategy, recommended broader consideration of the socio-economic impacts of R&I investment in places, cautioning that a narrow focus on stimulating GVA uplift through highly-skilled, high-income employment ‘can work against rebalancing, levelling up or inclusivity’.
Using R&I funding in a targeted way to enable each region to fulfil its potential would be particularly valuable and impactful in Yorkshire & the Humber. The region has a wealth of R&I assets including twelve higher education institutions – working in partnership through Yorkshire Universities (YU) – and a community of innovative (typically smaller) business. However, Yorkshire still struggles with the legacies and consequences of previous economic changes and under-investment in public and private capital stock, which have led to significant challenges, including low levels of business investment in R&D, low productivity and limited external finance.
YU members already play a key role in supporting R&I collaboration, diffusion and adoption locally and regionally. Our universities work closely with policy makers, communities and businesses to translate R&I into inclusive and sustainable regional growth. Providing a relatively small amount of additional investment to enable all universities to strengthen capacity and to contribute to the development of the wider R&I ecosystem could deliver significant economic and societal benefits. By adopting a systems approach, this investment should also be combined with additional funding in other core infrastructure and economic development areas, thus generating positive impacts for innovative businesses, communities and individuals.
References:
Levelling up and Innovation, Institute for Government, July 2022
Geographical Distribution of UKRI Spend in 2019-20 and 2020-21, UKRI
Regional research capacity: what role in levelling up?, HEPI, Jan 2024
UKRI strategy 2022 to 2027, UKRI, 2022
Innovate UK Grants and R&D Returns, Innovation Caucus, 2023
Research and Innovation and Place, SQW, 2022
UK Research & Innovation: A Place-Based Shift, Professor Philip McCann, 2019
Informing Development of the UK Place-based R&D Strategy, WM REDI, Nov 2020
