Select Committee on Innovation, Universities, Science and Skills Fourth Report


2  The Science Budget

Funding landscape

8. The largest slice of the Science Budget goes to the seven Research Councils. These are the Arts and Humanities Research Council (AHRC), the Biotechnology and Biosciences Research Council (BBSRC), the Economics and Social Research Council (ESRC), the Engineering and Physical Sciences Research Council (EPSRC), the Medical Research Council (MRC), the Natural Environment Research Council (NERC), and the newly formed Science and Technology Facilities Council (STFC).[4] Research Councils fund and coordinate research and researchers so as to, in the words of the Government, "deliver a world-class research base and through this create a higher level of economic impact and a better quality of life people in the UK".[5]

9. The next largest portion goes to the three National Academies, which bring together field leaders to promote excellence in their respective disciplines. The Royal Society promotes excellence in science, the Royal Academy of Engineering in engineering and the British Academy in the arts, humanities and social sciences.

10. The remaining elements of the allocation are:

  • the Large Facilities Capital Fund, which provides a source of capital funds for new or existing large facilities in which Research Councils have invested; and the University Research Capital Investment, which does the same for universities;[6]
  • the Higher Education Innovation Fund, which is joint-funded by the Science Budget and the Higher Education Council for England (HEFCE) to help universities with knowledge transfer; and the Public Sector Research Exploitation Fund (PSRE), which does the same for the Research Councils, NHS, Government Laboratories and museums and galleries;[7] and
  • various science & society and other programmes.[8]

11. Given the range of programmes and disciplines covered by the Science Budget, the name is somewhat misleading, especially since the transfer of AHRC into the budget in 2005. We recommend that DIUS change the name of the Science Budget to the Science and Research Budget to reflect the inclusion of arts, humanities and knowledge transfer, which we note matches the welcome change in title of the DIUS official in charge of the budget to the Director General for Science and Research (DGSR).


12. The increase in the Science Budget for CSR07 was first announced in March 2007 when the then Chancellor of the Exchequer stated that:

As part of our plan to double investment in science, I can announce that in the next four years public investment in science will rise from £5 billion this year to £6.3 billion by 2010—a 25 per cent. cash increase in the science budget of our country.[9]

13. This was confirmed in October 2007 with the announcement of the final CSR settlement for all departments.[10] The headline figure is a three-year increase in the Science Budget of 17.4%. This builds on an increase of 26.2% made over the last CSR period (the difference in spend between 2004/05 and 2007/08)[11] and meets the Government's ten-year framework commitment to increase the Science Budget by an annual average rate of 2.5% in real terms.[12] It is also significantly higher than the overall increase in DIUS's budget and the average departmental budgetary increases. We welcome the Government's decision to maintain its commitment in the ten-year framework to increase the Science Budget by 2.5% per annum in real terms.

14. The Treasury announcement on the Science Budget in CSR07 reflects a strategic shift of focus as a result of two recent reviews by Lord Sainsbury of Turville and by Sir David Cooksey. Sainsbury's The Race to the Top reviewed the UK's science and innovation system and the role that it will play in keeping the UK competitive in the global economy.[13] Cooksey's A review of UK health research funding looked specifically at institutional arrangements for health research.[14] These reviews emphasised the importance of innovation and knowledge transfer, and shed light on how the UK's strength in basic science can be more effectively translated into economic benefits for the UK and improvements in quality of life for its population. The Sainsbury and Cooksey vision is manifested in this CSR allocation through the commitment of funds to the new translation-focused institutions, the Office for Strategic Co-ordination of Health Research (OSCHR) and the Technology Strategy Board (TSB), and the knowledge transfer funds.[15] We welcome the evidence within the Science Budget Allocations of the Government's commitment to the Sainsbury and Cooksey agenda.

The Science Budget allocations process

15. Once the Treasury agrees on a total budget, it becomes the responsibility of DIUS to allocate the funding between the Research Councils and other headings. Professor Keith Mason, Chief Executive of the Science and Technology Facilities Council (STFC), described the procedure from the perspective of the Research Councils:

Late in 2006 each council was invited to set out priorities in the broadest sense for the then Office of Science and Innovation. These were discussed in a set of bilaterals in late 2006 and early 2007. In May or June of 2007 each research council received a formal letter with a template for a draft delivery plan and as part of that each council was invited by DIUS (or it may still have been DTI) to provide four scenarios, each of them after full economic costing: one, how you would manage a 5% cut after full economic costing; secondly, how you would manage flat cash; thirdly, what you would do with an increase of 5%; fourthly, what you would do with an increase of 10%. Each council provided those scenarios by early July. The allocations were then announced, as you know, in October and we were invited by the end of October to submit the final draft delivery plan on the basis of those allocations.[16]

16. The Delivery Plan for each Research Council set out how the funding would be spent in their area of responsibility. The final allocations were made by the Director General for Science and Innovation, Professor Sir Keith O'Nions, following representations by the Research Councils and bilateral discussions between the Research Councils and DIUS. The Royal Society has suggested that:

a new structure is needed to ensure that Ministers and their officials know the likely effects of [Research Council] allocations or any funding rearrangements. We believe the [Director General of Science and Innovation] should be advised by an independent group of experts from all disciplines and from a range of institutions, who can identify any potential negative consequences of decisions and ensure they are drawn to the attention of all concerned.[17]

17. However, when we put this suggestion to Professor Ian Diamond, Chairman of Research Councils UK, he was unconvinced: "that is a return to the position in the late 1980s and early 1990s. I have to say that my own sense is that this allocation has been undertaken extremely professionally and […] used the budget in a reasonable way".[18] Professor Keith Mason, Chief Executive of STFC added: "I do not see evidence that the outcome would have been any different [under such a system]".[19] The Minister was equally unsure regarding this suggestion:

we are in a situation where, once this overall science budget is decided upon, we reach a stage of negotiations with the individual research councils and there are lots of vested interests out there. I suppose the question I put back to you is, if we did have a committee of the great and the good advising the Government, would it produce a different decision overall or would it just produce a decision where the people who were not inside the room giving advice to Government were critical of those who were inside the room giving advice to Government?[20]

18. We are concerned that a structure of independent expertise such as suggested by the Royal Society may be too bureaucratic. However, it is clear that more and better information needs to be passed from the Research Councils to the DGSR on the potential implications of projected allocations from the Science Budget in order that Ministers can be made fully aware of the consequences of those decisions. We note that the documents prepared by STFC for use in the bilaterals with DIUS have been made available through the Freedom of Information process and we recommend that the Director General of Science and Research and the Research Councils publish such documents as a matter of course to increase transparency and accountability.

The Science Budget Allocations

19. The headline figure of a 17.4% increase in the Science Budget disguises a great deal of variation (see Table 1). For example, the Research Councils received an 18% increase, but within that, AHRC received only a 12.4% increase, while MRC received a 30.1% increase. We discuss both of these examples in later chapters. The Academies had a particularly good settlement: a 21.6% increase overall, with the Royal Academy of Engineering seeing the biggest budgetary increase. The Large Facilities Capital Fund, which will be used by Research Councils to invest in new and replacement large-scale scientific research facilities both in the UK and internationally, has received a particularly large increase.[21]

Table 1: Science Budget Allocations[22]
£'000 2007-08  2008-09  2009-10  2010-11  CSR07Total  End CSR07 Increase 
Research Councils  
Arts & Humanities Research Council  96,792  103,492  104,397  108,827  316,716  12.4%  
Biotechnology & Biosciences Research Council  386,854  427,000  452,563  471,057  1,350,620  21.8%  
Economics & Social Research Council  149,881  164,924  170,614  177,574  513,112  18.5%  
Engineering & Physical Sciences Research Council  711,112  795,057  814,528  843,465  2,453,050  18.6%  
Medical Research Council  543,399  605,538  658,472  707,025  1,971,035  30.1%  
Natural Environment Research Council  372,398  392,150  408,162  436,000  1,236,312  17.1%  
Science & Technology Facilities Council  573,464  623,641  630,337  651,636  1,905,614  13.6%  
Sub Total Research Councils  2,833,900  3,111,802  3,239,073  3,395,584  9,746,459  19.8%  
Less Depreciation & Impairments  -85,748  -124,748  -141,748  -153,748  -420,244  79.3%  
Total Research Councils *  2,748,152  2,987,054  3,097,325  3,241,836  9,326,215  18.0%  
National Academies  
Royal Society 41,072  43,360  45,823  48,558  137,741 18.2%  
Royal Academy of Engineering  9,752 10,279  12,138  12,826  35,243 31.5%  
British Academy 21,385  22,540  25,062  26,448  74,050 23.7%  
Total Academies  72,209  76,179  83,023  87,832  247,034  21.6% 
Capital Funding  
Large Facilities Capital Funding  104,681  104,681  138,428  265,285  508,394  153.4% 
University Capital  300,000  266,711  258,149  214,851  739,711  -28.4% 
Knowledge Transfer  
Higher Education Innovation Fund  85,000 85,000  99,000  113,000  297,000 32.9%  
Public Sector Research Establishments  14,000 12,500  12,500  12,500  37,500 -10.7%  
Science & Society  
Science & Society  11,441  13,441  15,441  17,441  46,323  52.4% 
Other Programmes  46,940  8,857  11,557  17,678  38,092  -62.3% 
Total Science Budget  3,382,423  3,554,423  3,715,423  3,970,423  11,240,269  17.4% 

* The Research Council allocations shown are the total budgetary amounts. A deduction for depreciation and impairments is made to eliminate double counting with capital.

Within the allocations as given in Table 1, are a series of smaller allocations. These include a commitment to covering around 90% of the full economic costs of research, three new institutions and a number of cross-council research programmes. Details of the funding allocated in these areas are given in the next section.

The Haldane Principle and financial flexibility

20. The cornerstone of science funding in the UK is the Haldane Principle, which asserts that detailed decisions on how to spend the Science Budget should be made by scientists rather than politicians.[23] But in the 2007 allocations process the Government has had a significant influence on how this Science Budget will be spent. There are three strands to this. First, there is the continuing drive towards Research Councils funding their university-based research at full economic cost (FEC).[24] Previously, universities had to subsidise a greater proportion of Research Council-funded research, which was a significant financial burden. FEC is a Government-led agenda that has received broad support from the Research Councils, universities, the wider scientific community and this Committee. The Research Councils are able to commit to FEC because DIUS has provided commensurate additional funding to cover around 90% of FEC. Of the approximately £1 billion increase in funding over the CSR period compared with the 2007/08 baseline figure, £748 million has been allocated to FEC uplift.[25] In view of the importance of attaining sustainability and transparency for ongoing and future research in the UK, we welcome the Government's commitment to FEC.

21. Second, there are a number of new bodies that have been set up to meet Government objectives in the fields of innovation, knowledge transfer and energy. These are:

a)  the Technology Strategy Board (TSB), which was created as an executive non-departmental public body in July 2007 to promote, through funding and relationship brokering, technology-based innovation across the UK;[26]

b)  the Energy Technologies Institute (ETI), which was created in December 2007 to promote industrial collaboration and focus on the development of new and sustainable energy technologies;[27] and

c)  the Office for Strategic Co-ordination of Health Research (OSCHR), which will coordinate funding of health research between the Medical Research Council (MRC) and the National Institute for Health Research (NIHR) and promote the translation of this research into health and economic benefits for the UK.[28]

22. The Research Councils have committed £120 million to TSB over the CSR period, EPSRC has earmarked £60 million for ETI (although its projected expenditure is £21 million), and MRC has committed £132 million to OSCHR.

23. It is noteworthy that when the budgets set aside for FEC and the new institutions are combined (£1,060 million), the sum is higher than the total increase in near cash (that is, money that can be spent[29]) over the CSR period (£945 million).

24. Third, the Research Councils have come together to commit to six cross-council programmes, which are:

  • energy: to address international issues of climate change and security of energy supply (£319 million over the CSR period);
  • living with environmental change: to address the associated pressures on natural resources, ecosystem services, economic growth and social progress (£363 million);
  • global threats to security: to address causes of threats to security, their detection, and possible interventions to prevent harm (£113 million);
  • ageing: to address life long health and wellbeing in an ageing population (£485 million);
  • digital economy: to get the most out of information and communications technology (£58 million); and
  • nanoscience through engineering to application: to get the most out of nanoscience technologies (£50 million).[30]Table 2. Funding for cross-council research programmes[31]
£ million  AHRC  BBSRC  EPSRC  ESRC  MRC  NERC  STFC  Total  
Energy  23  240 20  22  14 319  
Environ. change  16  26 20  57 237  363  
Security  21 5  17 23  45 1  114  
Ageing  41  31 30  370 1  12 486  
Digital economy  -  39 3  11 -  58  
Nanoscience  15  16 1  2  51  
Totals  32 100  369 97  492 263  38 1391  

25. We note that these six areas of research are very similar to a list of policy challenges produced by HM Treasury in July 2005:

  • a rapid increase in the old age dependency ratio as the "baby boom" generation reaches retirement age;
  • the intensification of cross-border economic competition as the balance of international economic activity shifts toward rapidly growing emerging markets such as China and India;
  • an acceleration in the pace of innovation and technological diffusion and a continued increase in the knowledge-intensity of goods and services;
  • continued global uncertainty with ongoing threats of international terrorism and global conflict; and
  • increasing pressures on our natural resources and global climate from rapid economic and population growth in the developing world and sustained demand for fossil fuels in advanced economies.[32]

26. The combined effect of these expenditures—FEC, the new bodies, and the cross-council programmes—will lead to a reduction in the volume of research that the Research Councils can fund and a shift in their priorities. For example, the Engineering and Physical Sciences Research Council (EPSRC) has announced that the amount of research it funds will drop by between 3% and 5% because of FEC,[33] and that its investigator-led funding will reduce by 12-15%[34] with much of this money instead being "channelled into funding research in specific government-defined areas".[35]

27. The increase in the Science Budget does not fully cover increased expenditure on FEC and the new bodies (OSCHR, ETI and TSB), which means that Research Councils will have to redirect money previously earmarked for research grants. Additionally, large parts of the budget are tied to cross-council programmes that largely follow a Government agenda. It is of course acceptable for the Government to set priorities for UK research but not for it to micromanage individual Research Council budgets. We recommend that the Government make a statement on its application of the Haldane Principle.

Impact of the Science Budget Allocations

28. The headline figure for the Science Budget was welcomed; our witnesses agreed that 17.4% is a good settlement for science.[36] However, problems emerged immediately because a large proportion of the Research Councils' expenditure had been predetermined. Once commitments to FEC and the new bodies are taken into account, the settlement is essentially flat cash and therefore a reduction in real terms. MRC is the exception: it has received sufficient money to cover FEC and the new body for which it is responsible (OSCHR). This means that the existing and planned programmes of research for the other six Research Councils are being carried out on a reduced and eroding budget. This is especially problematic when one considers that inflation for scientific research is typically higher than for the rest of the economy.[37] Consequently, it is likely that "across all research councils [we] will see reductions in success rates and reductions in volume [of research grants]".[38]

29. We are concerned that the Government has failed to protect both the existing and planned research base by allocating insufficient funds to cover FEC and the new bodies. The large increase in MRC's budget means that the effect of this near cash deficit is concentrated on the other Research Councils.

30. We turn now to the specific difficulties faced by three of the Research Councils.

4   STFC was formed following the merger of the Particle Physics and Astronomy Research Council (PPARC) and the Council for the Central Laboratory of the Research Councils (CCLRC). Back

5   The Allocations of the Science Budget 2008/09 to 2010/11, Department for Innovation, Universities and Skills, December 2007, p 31 Back

6   Ibid, pp 51-54 Back

7   Ibid, pp 55-57 Back

8   Ibid, p 59 Back

9   The Chancellor of the Exchequer (Mr Gordon Brown), 21 Mar 2007, Hansard Column 819. These figures include science funding channelled through HEFCE. Back

10   2007 Pre-Budget Report and Comprehensive Spending Review, HM Treasury, October 2007 Back

11   Science Budget Allocations 2005-06 to 2007-08, Department of Trade and Industry, May 2005, p 7 Back

12   This commitment was made in the so-called 'ten-year framework': Science & innovation investment framework 2004-2014, HM Treasury, July 2004. Back

13   The Race to the Top: A Review of Government's Science and Innovation Policies, Lord Sainsbury of Turville, October 2007, Back

14   A review of UK health research funding, Sir David Cooksey, December 2006,  

15   See Table 1. We note that there has been a reallocation of the knowledge transfer budget, with HEIF receiving a 32.9% increase and DSRE receiving a 10.7% reduction. Back

16   Q 106 Back

17   Ev 76 Back

18   Q 112 Back

19   Ibid. Back

20   Q 157 Back

21   The Allocations of the Science Budget 2008/09 to 2010/11, Department for Innovation, Universities and Skills, December 2007, pp 51-52 Back

22   The Allocations of the Science Budget 2008/09 to 2010/11, Department for Innovation, Universities and Skills, December 2007, p 29 Back

23   The Haldane Principle is named after Richard Burdon Haldane, the 1st Viscount of Haldane, who chaired a committee in 1918 which produced a report (known as the Haldane Report) that recommended that non-departmental-specific research should be managed by scientists through 'Research Councils'. Haldane RB, (1918) Ministry of Reconstruction, Report of the Machinery of Government Committee, Cd 9230  Back

24   The Allocations of the Science Budget 2008/09 to 2010/11, Department for Innovation, Universities and Skills, December 2007, p 13 Back

25   Ev 118 Back

26 Back

27 Back

28 Back

29   "Near-Cash is defined as accruals measures of transactions that normally turn into cash flows soon. So the main components of near-cash in resource budgets are: pay, current procurement, grants and subsidies to the private sector and subsidies to public corporations. Near-cash also covers amounts paid out that are covered in accounting terms-and at the level of the Resource Budget-by the release of provisions." Quote from Consolidated budgeting guidance from 2007-08, HM Treasury, 1 February 2008, Section 5.7 Back

30   The Allocations of the Science Budget 2008/09 to 2010/11, Department for Innovation, Universities and Skills, December 2007, pp 17-23 Back

31   The Allocations of the Science Budget 2008/09 to 2010/11, Department for Innovation, Universities and Skills, December 2007, pp 17-23; and RCUK Delivery Plan 2008/09 to 2010/11, Research Councils UK, December 2007, pp 4-6 Back

32   Written ministerial statements, Tuesday 19 July 2005, Column 55WS Back

33  Back

34   Ibid. Back

35   '£130-million cut to grants hits UK physical scientists', Nature, vol 454, pp 393-393 Back

36   Qq 1-3, 100, 152-153,  Back

37   Qq 101-102 Back

38   Q 102 [Professor Ian Diamond]; Qq 156, 231 Back


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