If our government invests, private companies will follow

It’s a simple equation – if government invests then so do private companies. That way growth and jobs lie, thinks Chris Blackhurst

Sunak has issued platitudes but the time has come for No 10 to act (PA)

For too long the feeling has persisted that senior Conservatives at Westminster are bigging Britain up but doing little about it in practice. Boosterism has become the order of the day.

You hear it all the time, in interviews with ministers, when they trot out phrases that sound good and they speak airily about boosting this or that. Yet, there is precious sign of improvement.

It’s as if, too, that as well as assuming we’re stupid and that we’ll believe anything they say, they suppose that Britain operates in splendid isolation, that the rest of the world does not count. So, it does not matter that their promises and boasts are empty because other countries are similarly lackadaisical and Britain has a glorious heritage to fall back upon. Our glorious heritage and history tell us we will get there.

Well, there is news for this negligent bunch: they may not realise it but this is an age of globalisation and while we’re fiddling, our international competitors are quietly getting on with it.

Proof comes from some startling and depressing figures from the Institute for Public Policy Research or IPPR. They show that the UK’s share of research and development investment fell from 4.2 per cent eight years ago to 3.4 per cent immediately prior to the pandemic striking.

That was at the end of 2019. Since then, with everything going on and political and economic turmoil in the UK it is a fair assumption that our share has fallen still further.

This was when we were assured that post-Brexit Britain was destined to become a “science and technology superpower”. Not according to this research.

The UK is 11th in the Organisation for Economic Cooperation and Development group of wealthy nations for total R&D investment as a percentage of GDP, behind the likes of the US, Austria and Switzerland.

This is despite successive Tory prime ministers talking expansively about investment in R&D being central to the country’s growth prospects. David Cameron hailed “life sciences” (included in the IPPR study) as the “jewel in the crown” of the British economy; Boris Johnson proclaimed Britain was heading towards becoming a “science superpower”.

Rishi Sunak, the latest premier, has also issued platitudes, saying as chancellor that he would lift public and private sector investment in R&D as a central way to increase the productivity of the British economy.

The private sector looks to government for a lead. If those in charge are not putting money where their mouths are, then companies are unlikely to follow suit

If we wanted to match the proportion of its GDP devoted to R&D by the global leader, we would have to spend an additional £62bn this year to equal Israel, says the IPPR.

It’s against a backdrop also, of a fall in investment by companies in Britain. The Brexit vote provoked uncertainty, then not long after came Covid. It remains 8 per cent below where it was pre-pandemic. Attempts by government to use a lower corporation tax rate as an incentive to back Britain have so far made little impact.

We now face a situation, thanks to the disastrous mini-Budget, in which the government is said to be contemplating trimming its R&D budget to try and find savings. Its target for total R&D investment, public and private, was 2.4 per cent of GDP by 2027. The total spending, by state and companies, on R&D in Britain was £38.5bn in 2019, or 1.7 per cent of GDP.

The private sector looks to government for a lead. If those in charge are not putting money where their mouths are, then companies are unlikely to follow suit. The IPPR says that state investment fuels private sector investment. For every extra £1bn invested by the government in R&D, private sector investors would more than match it, contributing an additional £1.4bn over 10 years.

Rather than reducing corporation tax, the government should be seen to be investing in life sciences (the biggest sector for R&D spend worldwide). Shreya Nanda, an IPPR economist and the report’s author, said: “There has been a managed decline in the UK over the past decade – a decline in our economy, our health and our resilience.

“R&D innovation is a vital lever in responding to this decline. We urge the government to increase R&D funding to restore the UK’s leading global position, encourage private sector investment and ultimately deliver economic growth.”

This is the problem, that ministers imagine that somehow good things will occur, that Britain will be a world leader in science and technology, as if by magic. They’re anxious to bask in the national success of discovering the Covid vaccine but they do not seem to realise that failing to invest not only reduces the likelihood of that happening again but pushes us backwards in other vital areas – areas that if we got them right could be engines for growth.

It’s a very simple equation. If they want the UK to enjoy the prosperity and jobs that come with being a global economic powerhouse, they must invest and encourage others to invest, accordingly. The chances of it being Austria, Switzerland, US, Israel and all those other countries ahead of us in the OECD ranking that makes a breakthrough, which they can exploit, are bound to be greater than ours.

If Sunak is serious about achieving growth, he must increase spending on R&D. Standing still or worse, cutting, is not the answer.