R&D grants provide UK £43bn economic boost

07 September 2017

  • Largest study shows R&D grants turbo-charge growth in high-tech industries
  • They created £43 billion additional turnover and 150,000 jobs
  • Employment is boosted by around a fifth, turnover by a quarter 
  • Job creation from grants strongest in London and the South East

Taxpayer support for high-tech innovation benefits the economy by significantly boosting jobs, turnover and productivity among the companies backed, new research has found.

Over a 13-year period, R&D grants spurred growth worth £43 billion to the British economy – more than five times the £8 billion invested – and created around 150,000 jobs.

But the study - the largest and most comprehensive of its kind, carried out by the Enterprise Research Centre, which is headed by Warwick Business School's Stephen Roper – also found big variations in the types of firms most likely to benefit from grants, as well as regional differences in the strength of the effects.

Professor Roper, Director of the Enterprise Research Centre, which was due to hold its annual conference at WBS London at The Shardon Thursday, said: "This is the largest and most detailed study yet of the impact public funding for science and innovation has on growth at the firm level.

"It shows very clearly that grants to support R&D have a positive impact, creating jobs and fuelling growth in the high-tech, high value-added sectors that the UK must encourage to remain competitive on the world stage."

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Scientific and technological innovation is seen by the Government as a key plank of its new industrial strategy.

But until now, our understanding of the effects of grants – largely distributed by research councils such as Innovate UK and the Engineering and Physical Sciences Research Council (EPSRC) and totalling some £1.7 billion per year – has been patchy.

ERC Innovation grant boosted economy by £43bn

The new research, which studied £8 billion worth of grants to nearly 15,000 firms from 2004 to 2016, shows the effects can be transformative for recipients.

The main findings show:

  • Across all recipients, employment grew by six per cent in the short term and 23 per cent in the longer term (after six years), compared to non-recipient firms.
  • Taken together, grant-receiving firms created an estimated 150,000 new jobs, many in highly-skilled, well-paid sectors such as biotechnology, medical equipment, engineering, life sciences and high-tech manufacturing.
  • Across all recipients, turnover grew by six per cent in the short term, and 28 per cent in the longer term, compared to non-recipient firms.
  • Productivity was unaffected in the short term, but grew six per cent compared to non-recipient firms in the longer term.

Professor Roper added: “It’s well established that innovation grants can help with commercialising new technology by providing firms with additional financial slack to undertake riskier research activity which might take time to deliver products or services that are market-ready.

“The greatest impact seems to be on smaller manufacturing businesses, which see the biggest boost to growth and productivity, helping them to catch up with more established firms.

“There’s also an uneven distribution of impact across the UK which we need to understand to ensure all regions can participate in a broad-based industrial strategy that harnesses regional strengths effectively.”

Within that overall picture, other trends were observed. The biggest growth in both employment and turnover occurred among manufacturing firms, which grew 24 per cent and 33 per cent respectively.

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And on even closer inspection, the impact seems to be particularly large for the least productive companies. Six years after the award of the research grant, these firms chalked up employment growth 23 per cent higher than their peers, with turnover growing by more than 50 per cent and productivity jumping 22 per cent on average.

There were also geographic variations in the impact on growth. While firms across all parts of the UK have received significant sums, the biggest investments occurred in the ‘Golden Triangle’ (London-Cambridge-Oxford), as well as knowledge industry clusters across the wider South East, West Midlands and Eastern Scotland.

Job creation was strongest in London (+31 per cent), the South East (+25 per cent) and the North West (+25 per cent), while the turnover of grant-receiving firms was boosted most in Scotland (+29 per cent), Yorkshire (+31 per cent) and London (+35 per cent).

In stark contrast, some regions saw no statistically significant improvement in the economic performance of recipients. In the South-West, Wales and Northern-Ireland, neither employment nor turnover growth was significantly different to non-recipient firms.

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Prime Minister Theresa May has stated her ambition is to transform Britain into the “global go-to place for scientists, innovators and tech investors”, backed by an extra £2 billion a year for R&D by the end of the current parliament, taking total spend to £4.7 billion.

This will be partly funnelled through the new Industrial Strategy Challenge Fund, which aims to support key growth sectors including medicines, robotics and artificial intelligence (AI), clean energy and driverless vehicles.

The researchers said their findings in Accessing the business performance effects of receiving publicly-funded science, research and innovation grants could help to inform how R&D funding is targeted, to generate the best return on investment for UK plc.




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