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Balance and effectiveness of research and innovation spending Contents

3UKRI and the R&D landscape

38.The creation of UKRI represents a significant change to the UK research and innovation landscape, one which has already been adapting to policies and strategy contained in the Government’s Industrial Strategy. In this Chapter we examine the complexity of the R&D landscape, and detail the additional funding streams created and administered through the Industrial Strategy and UKRI. We then outline the significant challenges for strategy and evaluation of policy that UKRI will face.

Complexity of the R&D landscape

39.In July 2015 the Government published the independent Dowling Review of Business-University Research Collaborations, to develop advice on how the Government can support relationships between UK businesses and UK university researchers.55 The review identified business research and development as the foundation of productivity and growth and made recommendations to better support relationships between business and university researchers. As part of its research the review attempted to map the UK research and innovation landscape, identifying the channels through which business and university interacted, as shown in figure 4 overleaf.

Figure 4: Dowling Review (2015)—Research and Innovations landscape

40.The review noted that “due to the complexity of the landscape there will inevitably be some information missing”. Consequently the review summarised the challenges of a complex innovation ecosystem:

Business-university collaboration is an important component of the innovation ecosystem. Innovation is a complex, non-linear process, so the complexity of the UK’s innovation ecosystem is not surprising and may be to a degree inevitable. However, the complexity of the policy support mechanisms for research and innovation poses a barrier to business engagement in collaborative activities, especially for small businesses. It also makes it difficult for government to take a systems view of its support mechanisms for research and innovation.56

41.As established in the previous Chapter, achieving a 2.4% target for R&D as a proportion of GDP will require a significant increase in public and private investment. This will require the Government to create an effective policy mix across the entire R&D landscape in order to effectively leverage public spending. Changes to the research and innovation ecosystem since the Dowling Review, in particular the Industrial Strategy and creation of UKRI, represent “considerable changes” in the UK R&D landscape.57 However, these changes created new policies and funding streams which could potentially add complexity. The sections below examine some of these policy developments and identify the challenges they have created.

42.The complexity of the R&D ecosystem has been well documented and means that understanding the interaction of organisation, funding and policies is difficult. Some complexity may be inevitable given the diversity of policy goals and actors. UKRI and BEIS should ensure that their roadmaps on how the UK will reach the 2.4% target detail key areas of potential conflict or policy overlap resulting from their choice of policy mix in this complex environment. Unnecessary complexities should be identified and removed as part of the mapping process. In order to aid public understanding they should update the Dowling Review schematic, including details of the main R&D funding streams available through the Industrial Strategy and UKRI.

The Government’s Industrial Strategy

43.The Government’s Industrial Strategy stated that its central objective was to improve living standards and economic growth across the country. The 2.4% R&D target was a fundamental pillar of its approach. The strategy incorporated the National Productivity Investment Fund (NPIF), a £37 billion fund for capital investment between 2017–18 and 2023–24. The Fund covers housing, transport and digital infrastructure as well as R&D funding, for which £7 billion was allocated from 2017–18 to 2021–22.58 Relatedly the Government has created ‘Sector Deals’ outlining partnerships between Government and industry in areas such as construction and rail, aiming to ‘transform’ the sector’s productivity through innovative new technologies.59

44.The Industrial Strategy set out a series of Grand Challenges to “put the UK at the forefront of the industries of the future, ensuring that the UK takes advantage of major global changes, improving people’s lives and the country’s productivity”.60 The first four ‘grand challenges’ were: artificial intelligence and data; ageing society; clean growth; and the future of mobility.

45.Within each of these challenges were more specific missions, focusing on a specific problem in order to bring together Government, businesses and other organisations. For example the AI and data mission was to “use data, artificial intelligence and innovation to transform the prevention, early diagnosis and treatment of chronic diseases by 2030.”61

46.These challenges have informed one of the major R&D policies introduced by the Government, namely the UKRI-operated Industrial Strategy Challenge Fund (ICSF). We discuss this further in the section below, alongside other funds operated by UKRI.

The creation of UKRI

47.UK Research and Innovation (UKRI) is a non-departmental public body that was formally established in April 2018 through the Higher Education and Research Act 2017,62 following Sir Paul Nurse’s Review of UK Research Councils in 2015.63 The creation of UKRI united the most significant elements of public sector R&D funding, bringing together the seven sectoral research councils64 with Innovate UK and Research England (whilst the devolved administration equivalents of Research England remain in place). The current funding allocation for these councils is shown below.65

Figure 5: UKRI funding allocation 2018–19, UKRI Strategic Prospectus (2018)

48.In its case for the creation of UKRI the Government highlighted a range of benefits stemming from integrating these research and innovation functions within a single body.66 These included:

49.Within UKRI the research councils are responsible for funding and co-ordinating academic research within their field, as well as funding postgraduate study. Council funding is project-orientated, representing one pillar of the ‘dual support’ system.67 Similar to the Grand Challenges of the Industrial Strategy, individual research councils have their own themes, with, for example, the Engineering and Physical Sciences Research Council (EPSRC) listing 12 themes including digital economy, energy and engineering.68

50.In addition to these seven research councils UKRI incorporates the new council ‘Research England’. This takes forward the England-only research responsibilities of the Higher Education Funding Council for England (HEFCE), responsible for the block grant funding element of the dual support system.69 Although UKRI incorporates Research England, there are separate HEFCs for devolved administrations—the Scottish Funding Council, the Higher Education Funding Council for Wales, and the Department for the Economy in Northern Ireland, which maintain powers to work jointly with Research England and UKRI.

51.The final organisation incorporated into UKRI was Innovate UK. It works with people, companies and partner organisations to drive science and technology innovations, for example through the Knowledge Transfer Network (KTN).70 Innovate UK is also responsible for the Catapult network of R&D centres which connect businesses with research and academic communities.71 It also delivers the Small Business Research Initiative, a programme aimed at delivering improved public services through harnessing innovative solutions from business to challenges faced by Government.72 The Innovate UK model is significantly younger than the research council model and the scale and scope of activity has grown rapidly from a small base.

52.The aim of increasing capacity to deliver on cross-cutting issues is demonstrated through UKRI’s administration of a number of cross-cutting funds, created in line with the priorities of the Industrial Strategy and funded through the National Productivity Investment Fund. The list below details those outlined in BEIS’s allocation documentation:

53.The UKRI Strategic Prospectus (figure 6 below) illustrated how this funding was distributed:81

Figure 6: UKRI Funding through National Productivity Investment Fund, UKRI Strategic Prospectus (2018)

54.In addition, UKRI also administers the UK-wide Global Challenges Research Fund (GCRF), aimed at supporting research that addresses challenges faced by developing countries across three challenge areas (equitable access to sustainable development; sustainable economies and societies; and human rights, good governance and social justice).82 This forms part of the UK’s Overseas Development Assistance (ODA) and aims to tackle the UN’s Sustainable Development Goals. UKRI also administers the Newton Fund,83 another part of UK ODA that supports economic development with partner countries. GCRF and Newton Funding thus count both towards the Government’s 2.4% R&D target and towards the Government’s 0.7% overseas aid target.

Challenges for UKRI

55.The significant majority of evidence we received expressed support for the creation of UKRI, its aims, and for the opportunities it represented. This included universities, professional organisations, business and charities.84 But as with any newly established organisation there are also inherent risks.85 The main challenges identified in our inquiry predominantly related to strategy and evaluation.

Strategy

56.Sir Paul Nurse argued that the previous research council structure created a “lack of decision making”, and that the formation of UKRI meant there was an opportunity to take on strategy discussions that “are both exceptionally important and quite difficult to do well.”86 The innovation Foundation Nesta suggested that the creation of UKRI was a “huge opportunity to do things better, and not just to remake the existing system on a grander scale”.87 The Campaign for Science and Engineering suggested that such a strategy required a “clear vision of the purpose of increasing the R&D intensity of the UK”.88 We discuss later in this Report the balance between the different dimensions of research and innovation in the development of this strategy.

57.The UKRI strategy has continued to progress during the course of our inquiry. The Strategic Prospectus published in May 2018 set out the initial vision, mission and values that would inform this development of UKRI, and focused on “pushing the frontiers of human knowledge and understanding”, with the aim of “delivering economic impact” and “creating social and cultural impact by supporting our society to become enriched, healthier, more resilient and sustainable”.89 However, this only represented the “beginning of a process to develop a detailed Research and Innovation Strategy” in order to answer a “series of big questions”.90 The prospectus contained various commitments, such as to the Haldane principle,91 support for a balanced dual support funding system, building a culture of evaluation, and support for growth across the UK. It also set out several pieces of ongoing work that would help to refine the UKRI strategy:92

i)“We will develop a longer-term Research and Innovation Talent Strategy in 2018” (p.15);

ii)“In its first year, UKRI will engage with its stakeholders to develop a strategy and action plan for equality, diversity and inclusion” (p.16);

iii)“We will scope a new UKRI Ethics Policy and Framework” (p.17);

iv)“We will review our open access [data] policies to assess their effectiveness and make recommendations in 2019” (p.19);

v)“We will develop effective data and metrics to understand the research and innovation landscape in different sectors, technology domains and places” (p.28); and

vi)“We will review our public engagement programmes and develop a new public engagement vision and strategy by March 2019” (p.39).

58.UKRI has subsequently published its 2019–20 Delivery Plans, highlighting the “areas of focus and key activities of UKRI’s nine constituent councils and its cross-cutting themes.”93 However, progress on many of the other commitments is less clear. We address the issue of evaluation in the next section.

59.Regarding public engagement, Sir Paul Nurse emphasised the importance of scientists earning their “licence to operate”, “by engaging the public and getting them on board”,94 a sentiment supported by Professor Sir Mark Walport, Chief Executive of UKRI.95 However, the evidence for UKRI’s work in fostering this licence to operate, as published on the UKRI website, appears largely based on investments made by research councils over the last decade,96 rather than through a new public engagement strategy as committed to in the prospectus. The review of open access to data appears to be ongoing, and due to launch in March 2020, although there will be no change to the Research Excellence Framework (REF) 2021 open access policy.97

60.The main area which appears to be lacking in the UKRI strategy is the review of balance that this Report addresses. The prospectus commits to continuing “to champion both responsive and strategic modes of funding to enable discovery-led research to flourish in the UK and drive impact from new knowledge and breakthroughs”, whilst the delivery plan states that UKRI is:

undertaking a programme of evidence gathering and analysis on the dual support system [ … ] to better understand the pressures facing the higher education sector, the impact of different funding scenarios, and to provide advice to ministers on the most appropriate balance of funding.98

61.Whilst there is additional detail regarding funding allocations for the ICSF, Strength in Places Fund and Strategic Priorities Fund, there is no detail regarding how these decisions were made, or their impact on balance of funding across the dimensions that we address in this Report.

62.The creation of UKRI created a significant opportunity for improving the strategy and coordination of research funding. However, there remain significant risks in introducing a new strategic oversight, and in gaining the support of the wide range of stakeholders, including the public, with whom UKRI will interact. The overall success of UKRI is dependent on overcoming these challenges at an early stage.

63.We recognise the complexity of addressing the balance of funding of the dual support system and that this is a fundamental remit of UKRI. Creating a robust evidence base for this assessment will be crucial, and we recognise that UKRI strategy is to approach the task cautiously and without any sudden shifts in funding.

64.In line with the approach taken in this Report, UKRI should also assess and report on other dimensions of balance such as the regional concentration of funding, the balance between research and innovation, and the balance between capital and current spending, in a similar manner to its analysis of the dual support system. We believe more immediate changes to funding are appropriate to influence the current balance in these areas. There are many possible ‘balances’ or policy mixes, and this political choice should be transparently set out.

Evaluation

65.The UKRI Strategic Prospectus outlined the ambition to build a culture of evaluation at UKRI.99 The creation of UKRI is intended to build on “existing strengths” in order to use data “in new ways to look across the research and innovation landscape to understand the impact of our investments and maximise the return we get”.100 This also recognised that evaluation of the return on investment was “notoriously difficult”, due to “long lags, difficulties in obtaining a true baseline, and difficulties in correctly attributing benefits”. Evaluation is both internal, through a “framework for tracking and reporting UKRI performance” that will also have a focus on “specific areas of strategic importance such as Place, Talent, and Infrastructure”; and also outward-facing where to measure performance against long-term ambitions UKRI will “monitor a broad set of outcomes with a wide range of quantitative and qualitative indicators”.101 These include:

66.UKRI reiterated its commitment to undertaking this robust monitoring and evaluation,102 drawing attention to previous evaluations of Knowledge Transfer Partnerships103 and the Small Business Research Initiative.104

67.In evidence the innovation foundation Nesta suggested that there was limited evidence on the effectiveness of innovation and growth policy, and without good evidence it was impossible to allocate limited resources to the programmes that have the greatest impact, whilst also suggesting there was insufficient innovation in these policies to allow better analysis.105 This was supported by the Academy of Social Sciences submission, highlighting the need for a specific strand of research (“diagnostic, experimental and evaluative”) to find out what worked in improving productivity.106

68.Nesta also suggested that traditional data sources, such as business surveys and academic publications and patents, were ill-suited for analysis in new industries, failed to capture networks of collaboration, and might involve substantial time lags.107 Kirsten Bound of Nesta suggested that more should be done to capture the “power and possibility” of ‘big data’, for example:

we should look at scraping millions of job ads, to see which technologies people are hiring for. We should look at the information in thousands of websites and millions of open datasets, draw it together and visualise it in new ways, so that policy makers can have much more granular and real-time access to data for decision making.108

69.In our session with UKRI, Professor Sir Mark Walport agreed that evaluation and measurement of success was an “absolutely critical” part of their work, but conceded that this was also “very hard”, suggesting that the “initial focus” must look at “what outputs from our funding are, both at the level of discoveries and at the level of innovation.”109 The then UKRI Director of Strategy, Rebecca Endean, elaborated on the evaluation that UKRI had undertaken to date:

As a starting point, UKRI has gathered together all our grant-funding data [ … ] on a coherent and consistent basis, so we know which grants are funded. We can then collect outputs from those grants, from the monitoring that IUK [Innovate UK] does and from how people report on them, through their grants and with Researchfish.110 [In order to understand outcomes] we need to link that grant data to a range of outcomes in firms. We can look at spin-outs, patents and business growth in firms. That allows you to do the evaluation consistently at a microeconomic level. You look at what you are spending the money on and what that actually leads to.111

70.This approach was replicated in the recently published UKRI delivery plan, where it stated that as a near term action UKRI would “continue to develop our data reform programme, bringing together key datasets and enhancing our analysis tools and capabilities to better capture UKRI’s wider impact.”112 In supplementary evidence UKRI highlighted its commitment to “research on research”, such as through the Economic and Social Research Council investment in What Works Centres, which aim to improve the way Government and other organisations create, share and use high-quality evidence for decision-making.113

71.We support UKRI’s commitment to evaluation, and understand the inherent difficulties in analysing the impact of research and innovation and attributing it to wider outcomes, which may occur after a significant time-lag. We recognise that in some cases evaluation will be impossible and UKRI should be explicit that this is the case and explain why. Unfortunately the current focus appears too strongly to follow traditional metrics, measuring outputs such as publications and patents that should only be one element of evaluation.

72.Research on research is an increasingly important field, and we recommend that UKRI consider a dedicated approach to supporting it, including how this research is incorporated into UKRI strategy and its assessment of the balance of R&D funding. Relatedly, UKRI should attempt to analyse the benefit gained by its creation through its enhanced ability to capture data across research councils and through cross-cutting funds.

73.We recommend that UKRI also develops a ‘big data’ focus for evaluation. It should publish a plan for creating and investing in new data sources and analysis techniques beyond traditional measures of patents and publications.

Government influence on research and innovation beyond UKRI

74.Whilst the establishment of UKRI is clearly viewed as an opportunity for increased coordination and coherence in R&D spending, albeit with inherent risks, we must also be aware of the limitations of its influence. The combined budget of UKRI is around £7 billion, but as the Campaign for Science and Engineering, a non-profit advocacy body, noted “30% of public R&D spend and a disproportionate amount of benefit from research and innovation fall outside UKRI and outside BEIS”, meaning that other organisations are important too:

Many of the levers that will be needed to improve the environment and achieve the R&D target sit in other departments, including Treasury, HMRC, International Trade, Home Office, Health, DCMS amongst others. Members (of the Campaign for Science and Engineering) have raised with us their experience of government actions competing against other parts of government creating hinderances and frustrations for businesses and diminishing effectiveness of positive government policies, funding and initiatives.114

75.The frustrations mentioned demonstrate the complexity of the R&D landscape (see paragraph 42), and the difficulty in leveraging private sector R&D which will be crucial in reaching the 2.4% R&D target. Whilst there are a multitude of other Government actors responsible for both Government spending and control of the policy levers that influence private spending, BEIS has a responsibility for coordinating these levers and developing the policy mix. Professor Sir Mark Walport suggested that the overall landscape “is perhaps more joined up than it appears to be at first sight” but it is “necessarily a complex landscape, and I think we could do more”.115

76.These areas form the basis of our analysis in Chapter 5, and include:

77.We recognise that there are many other important policy contributions that will influence R&D. For example, as Professor Sir Mark Walport stated, “education policy is absolutely key”,116 as are place, infrastructure and industry support, which we expect to be included in the UKRI and BEIS roadmaps to give a better “holistic sense”117 of these other important drivers. Due to the breadth of possible areas we have not addressed all of these in this Report and instead have focused on areas where more direct intervention was highlighted.

55 Department for Business, Energy and Industrial Strategy, The Dowling Review of Business-University Research Collaborations, July 2015

56 Department for Business, Energy and Industrial Strategy, The Dowling Review of Business-University Research Collaborations, July 2015, p2

57 AIRTO Ltd (BER0013) p1

58 HM Treasury, Autumn Budget 2018, Nov 2018, p54

59 BEIS, Introduction to Sector Deals

60 BEIS, The Grand Challenges

61 BEIS, The Grand Challenges missions

62 Higher Education and Research Act 2017

63 Department for Business, Innovation and Skills, Ensuring a successful research endeavour: a review of the UK research councils by Sir Paul Nurse, Nov 2015

64 Arts and Humanities Research Council; Biotechnology and Biological Sciences Research Council; Engineering and Physical Sciences Research Council; Economic and Social Research Council; Medical Research Council; Natural Environment Research Council; and Science and Technology Facilities Council.

65 UKRI Strategic Prospectus, May 2018

66 BEIS Case for the creation of UK Research and Innovation, June 2016

67 The dual support represents the two main funding lines of UKRI, and can be thought of project-orientated elements and block grants. For more discussion see Chapter 5.

68 Engineering and Physical Science Research Council, Themes

69 The dual support system refers to the split in funding for institutions between the research councils project funding and the annual ‘block grant’ funding provided by Research England. This is discussed in detail in Chapter 4.

70 KTN is a network partner of Innovate UK that provides advice on funding, industry expertise and connections to other sectors through a network of businesses, universities, funders and investors.

71 There are ten Catapult centres, with a total budget of around £100 million; Cell and Gene Therapy, Digital, Future Cities, High Value Manufacturing (a network of another seven centres), Offshore Renewable Energy, Satellite Applications, Transport Systems, Medicines Discovery, Compound Semiconductor Applications, and Energy Systems

72 Innovate UK Small Business Research Initiative

73 Nesta (BER0072) para 2.3

74 UKRI Strength in Places Fund

75 UKRI Background to the Scheme

76 UKRI Background to the Scheme

77 UKRI Future Leaders Fellowship: Person Specification

78 UKRI Themes and Programmes

79 UKRI The Higher Education Innovation Fund (HEIF)

80 UKRI The Connecting Capability Fund (CCF)

81 BEIS, The allocation of funding for research an innovation, July 2018 p12

82 UKRI Global Challenges Research Fund

83 UKRI Newton Fund

84 Russell Group (BER0060); Academy of Medical Sciences (BER0069);The Confederation of British Industry (CBI) (BER0026)

85 Deloitte Managing the Execution Risks of Change Initiatives: Risks of organisational restructuring could be that a focus on establishing the organisation and processes may mean wider opportunities are missed, the creation of groupthink could harm the diversity of research funding, or potential ‘regulatory capture’ (such that Innovate UK is seen increasingly as the tech transfer arm of research councils, rather than equally reflecting private sector interests)

86 Q6

87 Nesta (BER0072) page 1

88 Campaign for Science and Engineering (BER0065) page 1

89 UKRI Strategic Prospectus p6

90 UKRI Strategic Prospectus p5

91 The Haldane principle states that whilst the government sets the overall strategic direction that research should take, decisions about which research projects to fund are taken by experts in the field through peer review.

92 UKRI Strategic Prospectus, as identified by WonkHE Seven things we have learned from the launch of UKRI’s strategy, May 2018

93 https://www.ukri.org/about-us/delivery-plans/

94 Q10

95 Q401

96 UKRI Embedding public engagement

97 UKRI Open Access Review

98 UKRI Delivery Plan 2019 p22

99 UKRI Strategic Prospectus p28

100 UKRI Strategic Prospectus p28

101 UKRI Strategic Prospectus p44

102 UK Research and Innovation (BER0063) para 25

103 Innovate UK, The Knowledge Transfer Partnership programme: an impact review, Oct 2015

104 BEIS, Leveraging public procurement to grow the innovation economy; an independent review of the Small Business Research Initiative by David Connell, Nov 2017

105 Nesta (BER0072) para 1.2

106 Academy of Social Sciences (BER0034) para 15

107 Nesta (BER0072) para 3.1

108 Q13

109 Q390

110 Researchfish is an impact assessment platform aimed at standardising, simplifying and enhancing impact assessment. For more detail see researchfish.net

111 Q393

112 UKRI Delivery Plan 2019 p46

113 UK Research and Innovation (BER0098) p1

114 Campaign for Science and Engineering (BER0065)

115 Q402

116 Q402

117 Q398



Published: 12 September 2019