Author: Richard Jones

I did a webinar a couple of weeks ago, for the Society of Chemical Industry, about the role of the chemicals industry in addressing the UK’s problems of stagnant productivity and regional economic disparities. The recording of the talk should be on their website soon, but in the meantime here (5 MB PDF) are the slides I used. Here’s a summary of what I said.

I started by setting out the economic context the UK finds itself in. The very slow productivity growth since the 2007/8 global financial crisis has had the result that real wages have stagnated, while economic performance across the regions of the UK remains very uneven.

The most important contributor to productivity growth – and thus to rising living standards – is what economists call “total factor productivity” – the measure of how effectively an economy converts inputs, in the form of labour and capital, into valuable outputs. This includes, but is not limited to, the technological advances that allow us to produce existing products more efficiently and to create entirely new products and services.

We can thus map the different sectors of the UK’s economy on 2 dimensions – how big a share of the economy they take, and how much their total factor productivity increases. I argue that industrial strategy should focus on those areas that are both significant in scale relative to the economy as a whole, and that are dynamic in terms of showing long-term increases in total factor productivity. The three crucial sectors in the UK economy by these measures are knowledge intensive business services, information and communication technologies, and manufacturing. Within manufacturing, transport equipment – automotive and aerospace – stand out, but chemicals and pharmaceuticals are also highly significant.

Cumulative growth in total factor productivity in selected UK sectors and sub-sectors, indexed to 1995. Data from EU KLEMS Growth and Productivity Accounts database.”

Looking at the changes in total factor productivity over the last couple of decades offers an instructive window on the way the UK’s economy has changed.

Because normally manufacturing to grows productivity faster than services, we’d usually expect total factor productivity in the manufacturing sector to grow faster than the whole market economy. In the UK, that wasn’t so in the mid-1990’s – manufacturing lagged behind the economy as a whole. But from 1998 to the global financial crisis, manufacturing TFP grew faster than the economy as a whole; since the crisis both have stagnated.

Part of the explanation for this comes from the figures for the financial services industry. This showed very fast growth in the late 1990’s, booming right up to the financial crisis – since when it has fallen precipitately. It’s at least possible that some of the apparent boom was due to the way value is measured – or mismeasured – in financial services, but it’s clear that this sector, so influential politically, has been a drag on the whole economy over the last decade.

Focusing on manufacturing subsectors, transport equipment – including automotive and aerospace – stagnated in the late 90’s, began a recovery in the 00’s, which took off dramatically after the global financial crisis. It’s intriguing that the timing of this recovery almost exactly coincides with the UK government’s rediscovery of industrial policy – with an initial focus on automotive and aerospace industries. Pharmaceutical total factor productivity boomed from the late 90’s to the end of the 00’s, then collapsing, for reasons I’ve discussed extensively elsewhere.

But the surprise – to many, I suspect – is the performance of the chemicals sector. Written off in the late 90’s as the “old economy”, the chemicals industry has delivered the steadiest gains in total factor productivity, its cumulative performance exceeding both financial services and pharmaceuticals.

What’s more, if we look at where the chemicals industry takes place, in the context of regional economic inequality and the “levelling up” agenda of the government, we find that it is located outside the prosperous southeast, in Northwest England, the Humber and Teeside.

What sectors should industrial strategy focus on? My criteria would look at relative scale, the potential to produce significant and sustained gains in total factor productivity, and to contribute to economic growth in economically lagging parts of the UK. The chemicals industry qualifies on all counts.

What, though, of the future? Economic statistics don’t capture some of the costs of the chemicals industry, but these costs are borne by society more widely. The feedstocks it uses may be unsustainable and deplete the planet’s natural capital, pollution may damage local environments and ecosystems. Improper disposal of products – like plastic packaging – at their end of life causes yet more environmental damage.

Perhaps most importantly, the energy the industry uses produces carbon dioxide and thus accelerates climate change. 3% of the UK’s greenhouse gas emissions are directly associated with the chemicals industry, which accounts for about 20% of all emissions associated with manufacturing.

There is another side of the ledger, too. The products of the chemicals industry – like batteries and fuel cells – will be crucial in decarbonising the economy. In the future we might see the widespread use of hydrogen as an energy vector, direct capture of carbon dioxide from the air, and the synthesis of hydrocarbons from green hydrogen and captured carbon dioxide for zero-carbon aviation. Much of the net zero agenda is in fact a chemical industry agenda.

We need an industrial strategy for the UK chemicals industry, justified by its scale and its record of steady total factor productivity improvement. It’s a pity that the government hasn’t responded to the Chemistry Council’s proposed Sector Deal, which would provide a good start. In addition to a focus on productivity growth, that strategy should have a regional element, building on the existing chemical industry clusters in the North West and North East with further interventions to promote innovation and skills and all levels. Above all, it should emphasise the important role and responsibility of the chemicals industry as part of the wider economic transformation that needs to take place to achieve the government’s 2050 Net Zero emissions target.

The good news from the latest release of the UK government’s energy statistics is that the fraction of electrical power generated from renewable sources in 2019 reached a record high of 37.1%, driven largely by an increase in offshore wind of 20%, to a new high of 32 TWh a year. The bad news is how little difference this makes to the UK’s overall energy consumption – of the 2300 TWh used, 78.3% was obtained from burning fossil fuels. This is a decrease from last year’s fraction – 79.4% – but progress remains much too slow.

It’s tempting to focus on the progress we are making in decarbonising the electricity supply, and this isn’t insignificant. But while the UK used 346 TWh of electricity in 2019, the country directly burnt gas to provide 512 TWh heat for domestic and industrial purposes (not counting here the gas converted to electricity in power stations), and 152 TWh of petrol and 301 TWh of diesel to power vehicles. We’ve no chance of reaching net zero greenhouse gas emissions by 2050 without displacing this directly burnt fossil fuel contribution. And given the longevity of energy infrastructures, we haven’t got long to start building out the technologies to do this at scale.

Can hydrogen help? This technology – or more accurately, group of potential technologies – is having a moment of attention, not for the first time. I think it could well make a significant contribution, but there are some awkward choices to make. Implementing any use of hydrogen in our energy system at scale will involve massive, long-term investments, and making the right choices involve difficult economic judgements, not just about the technologies as they currently exist, but as they may evolve under the pressures of energy markets across the world. Of course that evolution can be steered by incentives, regulation, and targeted support for research and development.

To begin with the basics, because there aren’t any reserves of molecular hydrogen lying around, it isn’t a source of energy, but a way of storing, transmitting and using energy. When burnt, or combined with oxygen in a fuel cell, it produces nothing but water. So the issue is how you make it without producing carbon dioxide in its manufacture. There are three broad options:

Currently, most hydrogen is made from natural gas through a process called steam methane reformation. By adding heat to water and methane, with suitable catalysts, one can obtain hydrogen and carbon dioxide. The carbon dioxide produced in the reaction, and any that results from generating the heat needed to make the reaction run, would need to be captured and stored underground in old gas fields. This process, including separating the carbon dioxide, are mature technologies, used for example at scale to produce ammonia for fertiliser.

If zero-carbon energy is available cheaply, from wind, solar or nuclear, intrinsically zero carbon hydrogen can be produced by electrolysis of water. The most effective current technology uses a proton exchange membrane to separate anode and cathode.

If zero-carbon process heat is available cheaply, from high temperature nuclear reactors or solar concentrators, hydrogen can be made by the thermochemical splitting of water. (As a combination of the last two ideas, given both process heat and electricity, high temperature electrolysis is another option).

How then might the hydrogen be used to attack the carbon dioxide currently produced by the nearly 1000 TWh of energy we derive from burning gas, petrol and diesel for heating and transport?

Right now we could add some hydrogen to natural gas – perhaps up to 20% – making a significant lowering of its carbon intensity without substantial changes in our existing systems.

The complete replacement of natural gas by zero-carbon hydrogen for domestic heating and many industrial processes is probably technically feasible, but quite a lot more expensive. Some changes will need to be made to the gas distribution system (e.g. replacement of iron/steel pipes with thermoplastic pipes), and boilers and appliances would probably have to be replaced too.

Hydrogen can be used for transport, as fuel for internal combustion engines, or more likely, converted to electricity via fuel cells to power cars and trucks.

Finally, hydrogen might make possible the very large scale seasonal storage of energy (potentially on the scale of 10’s or even 100’s or TWh) generated by intermittent renewables, by storing it underground in rock salt formations.

All of these ways of making hydrogen and using it are technically possible. They’re also all potentially enormously expensive, with the potential for locking the country into solutions which turn out to be inappropriate or made redundant by rival technologies. Some experimentation is necessary, and some blind alleys are probably inevitable, but what needs to be taken into account as we make our choices?

To start with the basic physics and chemistry, hydrogen is a light gas which burns completely and cleanly to yield only water vapour. Perceptions of hydrogen are inevitably shaped by the Hindenburg disaster – but all flammable gases are potentially dangerous, and these are risks of the kind that industrial societies have got used to managing. Hydrogen is more easily set aflame than methane and it burns hotter, but on the other hand at atmospheric pressure burning a given volume of hydrogen produces less energy than the equivalent volume of methane, and much less than petrol vapour. In fact it’s this low volumetric energy density of hydrogen that poses the biggest problem. Even compressed to 70 MPa (as it would be in typical compressed gas tanks) its energy density is only 1.3 MWh per cubic meter, compared to petrol or aviation spirit eat about 10 MWh per cubic meter. Even liquified its energy density is still only 2 MWh per cubic meter, and this needs a temperature of -250 °C, considerably colder than liquid nitrogen.

Moving on to economics, how can we find the most cost-effective solutions? The problem is that technologies don’t stand still – indeed, it’s essential that costs come down, and substantial research efforts are needed to make sure that happens. Where can we hope to see the biggest cost reductions? Existing technologies – like steam reforming of natural gas with carbon capture – are probably the cheapest options with current technology, but being mature further improvements are likely to be more difficult to find than with newer technologies like proton exchange membrane or high temperature electrolysis.

It’s important to remember that the UK accounted for just 1.4% of the world’s energy consumption in 2018, and this fraction will inevitably (and desirably) fall over the next few decades. The choices we make must take into account what the rest of the world is likely to do; while the UK might hope to influence that path, perhaps by helping develop new technologies cheap enough for wide adoption, the UK isn’t a big enough market to be able to make unilateral decisions about technology directions. If battery electric vehicles win the race for zero-carbon personal transport, it would be pointless for the UK to develop a hydrogen network for fuel cell cars. Likewise, if the UK is the only country to back hydrogen boilers for domestic heating while the rest of the world chooses electric heat pumps, it won’t be a big enough market to justify the development of hydrogen domestic boilers by itself, so its plans would be left high and dry.

We have well developed existing energy distribution systems, so the question for any new energy vector is whether these systems can be incrementally adapted, or do new ones need to be built out entirely from scratch? We currently have a well developed electricity distribution system. Distributed PEM electrolysis plants could take zero-carbon from the grid, and produce hydrogen locally. We also have systems for distributing natural gas: it’s likely that the core high pressure network would have to be entirely rebuilt for hydrogen, but the low pressure local distribution system could be adapted. We don’t have a cryogenic liquid distribution system at scale, and this is likely to limit global trade in hydrogen.

Finally, we have to consider our plans for low carbon electricity. Whatever we do, we need to replace the 512 TWh of gas we use for heating, and the 453 TWh of petrol and diesel we use for transport, with zero carbon alternatives. If this involves electrification – either directly or through the production of hydrogen from zero-carbon electricity – this will need a huge expansion of power generation capacity from the current 346 TWh/yr. I find it difficult to see how this can happen without both a massive increase in offshore wind – possibly including floating offshore wind – and new nuclear build, possibly next generation nuclear able to produce high temperature process heat for production of additional hydrogen.

These are difficult choices, but we haven’t got much time. Let’s get on with it!

Some references:

Current UK energy statistics from DUKES 2020.
Hydrogen supply chain evidence base.
On hydrogen storage (US Dept of Energy PDF) –
Royal Society Policy Brief Options for producing low-carbon hydrogen at scale.

The UK government published a “Research and Development Roadmap” last week, setting out “the UK’s vision and ambition for science, research and innovation”. It’s not by itself a strategy; instead it’s a document that sets out the issues that a subsequent strategy will need to address. The goals of the government here are very ambitious, and need to be thought of as part of a wider plan to remake the UK state as a global centre for science and innovation, after its departure from the European Union. In the recent words of the Prime Minister, “though we are no longer a military superpower we can be a science superpower”. Does this Roadmap give us a realistic route for translating this aspiration into policy?

What’s at stake?

The context for the roadmap is the commitment to raise the UK government’s R&D spend to £22 billion by 2024/25. The roadmap is important as a reassertion of this goal, set in the March 2020 budget, despite the strains that the pandemic have put on the public finances.

What does this mean in practise? Total government spending on R&D was £12.8 billion in 2018 (the most recent year for which full figures are available). The implication is that this must rise by £1.5 billion per year on average. This amounts to introducing new spending amounting to the total budget of two large research councils (e.g. EPSRC and BBSRC combined), every year. There is very little clarity of how this is planned to happen. Will the change be evolutionary – just increasing spending through existing institutions, or revolutionary – introducing entirely new, large scale institutions, agencies and mechanisms?

In very rough terms (rounded to the nearest half billion), Research Councils spend £4 billion a year, another £2.5 billion go to Universities through Research England and the devolved nations’ funding agencies, and InnovateUK gets a bit less than £1 billion. This is now bundled up in UKRI (except university funding in devolved nations). We’ve seen a £1.5 billion increase for UKRI in 2020/21, mostly in new funding instruments like the Industrial Strategy Challenge Fund.

But it’s important to remember that the Research Councils are not the only means by which the government spends money on R&D. £1 billion goes into health research, mostly through the Department of Health’s National Institute for Health Research, £1.5 billion is spend on defence R&D by MoD, and BEIS spends a bit less than £1 billion outside UKRI (e.g. for space, UKAEA for the fusion programme, the National Physical Laboratory, and various industry programmes). The other government departments spend about another £1 billion between them.

Finally, the UK Government spends money indirectly via its participation in the EU programmes. This amounts to another notional £1 billion.

What are the government’s current imperatives?

Where will the extra £1.5 billion a year go? Choices will be steered by the government’s current and emerging priorities. Here is a (no doubt) incomplete list, in no particular order:

Increasing business R&D. The £22 billion is the government’s contribution to a bigger target – to increase the UK economy’s total R&D intensity from its current proportion of 1.7% of GDP to 2.4%. But most R&D comes from the private sector, in a roughly 2:1 ratio. So to achieve the overall target, the public money must be deployed in a way that maximises the chance of the private sector increasing its own spending in that 2:1 ratio. What will best persuade businesses – both UK owned and overseas owned – to spend another £18 billion or so a year on R&D in the UK?

Translating R&D spending into economic outcomes. The current economic crisis makes this even more pressing, so there will be even more emphasis on interventions which will plausibly lead to productivity increases and new jobs, on timescales of years rather than decades.

“Levelling up.” The economic underperformance of the UK outside the greater Southeast – including the relative underperformance of core cities like Manchester, the difficulties of deindustrialised towns and urban fringes, and the economic and social problems of rural and coastal peripheries, have achieved real political salience as the electoral centre of gravity of the Conservative party has moved north. The concentration of public R&D resources in the prosperous Southeast – as Tom Forth and I recently highlighted in our NESTA “Missing £4 billion” report – is increasingly recognised as part of the problem.

Solving big societal problems. I believe the commitment of the government to net zero greenhouse gas emissions by 2050 is serious, but I don’t think policy makers yet realise the full scale of this economic transition. As this realisation takes hold the expectations on innovation and technology to deliver affordable solutions will only increase. Meanwhile the aftermath of the pandemic will prompt a reassessment of whether our “life sciences sector” has the optimal shape to support national health and well-being. The problems the UK is having in deploying a large-scale testing programme illustrate that strength in biotech and pharmaceutical research doesn’t automatically translate into diagnostic capacity. If and when vaccines and antibody therapeutics for COVID come on stream, there will be a tough test of the UK’s manufacturing capacity in the face of worldwide demand.

Perceived problems in the culture of research in the UK and internationally. There is a strong perception in parts of government that all is not well in the culture of research in the UK. There’s a view that research culture itself is unhealthy, with insufficient autonomy for younger researchers and problems in the career structure, while the culture of funding bodies is believed to be too risk averse and bureaucratic.

Life after Brexit. The position of UK science in an international context is clearly in question in the aftermath of Brexit. The immediate problem is the nature of the UK’s relationship with the EU’s science programmes. It’s clear that there is a desire for the UK to associate with Horizon Europe, but this is a second order issue for the government so if negotiations falter for other reasons then this may not happen, in which case there will be a need to find replacement programmes (particularly for the ERC, which is highly prized by the science establishment). The longer term issues are the nature of scientific relationships with other existing and emerging and science powers, and ensuring an openness to scientific talent from the rest of the world.

Economic and technological sovereignty. Finally, the rapidly changing attitude of the government to China has raised questions of the degree to which the UK can be autonomous in key areas of strategic technology. The saga of Huawei’s involvement in the 5G network, questions about the involvement of China in the nuclear new build programme, and a realisation of the limitations of global supply chains in the pandemic, have led to talk of retaining or rebuilding some of the UK’s technological sovereign capability in key areas. I don’t think policy makers yet fully appreciate how much this capability has been run down over the last few decades.

Possible new policies suggested by the Roadmap

The roadmap reads as a rather open-ended document, but within it are some strong hints and indications of possible new policy directions. Here I’ve tried to extract some possible new policies that seem to be being suggested, expressing them in a more concrete way than the Roadmap does, where necessary reading between the lines, and possibly on occasion extrapolating somewhat. I’ve suggested some of the questions that these proposals might provoke. We need to keep in mind the scale of interventions implied by the £22 billion target – i.e. £1.5 billion additional spending each year, in considering these possible new policies.

Raising our research ambitions

New mechanisms for funding will be introduced, which involve less bureaucracy and taking bigger bets: more long-term, investigator-led funding. The new UK-ARPA like agency is already announced, but at £200m a year this is relatively small. It will sit outside UKRI. Will any other new mechanisms be left to the research councils, or can we expect more new agencies to be created?

Defense-related R&D could be substantially increased. This would address the funding gap for development relative to research, and it’s a sector in which there is existing capacity which could be expanded – in both the public and private sectors. But how can we avoid the waste that defense procurement is often accused of, and maximise spillovers to the civilian economy?

The government will fund large-scale “Moonshot” projects. Again, if done seriously this would lead to more development funding. What do we mean by a “moonshot”? To me, it needs to be an ambitious, engineering project that delivers a concrete outcome (i.e. at least a full scale prototype) on a defined timescale, but which is difficult enough that it drives a substantial associated R&D programme to solve the problems that arise on the way. The questions it prompts include – how would we select them, how can we be confident that the UK has the capacity to deliver, what scale of spending is involved? My first guess on the latter question is that if this isn’t measured in £ billions it’s either not a proper moonshot or we’re not serious about succeeding.

What are possible concrete examples?

An all electric long haul aeroplane, as mentioned in the Prime Minister’s recent speech. (I think this is technologically implausible – my guess now is that if we want long-haul flying in a zero carbon world we will do it by making synthetic hydrocarbon fuel from green hydrogen and carbon dioxide captured directly from air).

A generation 4 advanced modular fission reactor which is low waste, intrinsically fail-safe and generates enough process heat to produce hydrogen as well as electricity (I think the government should do this).

A working, scalable, quantum computer (In my view this would be an example of a bad choice because the UK is not competitive with existing major projects elsewhere in the world).

A commercial fusion reactor supplying significant, low cost electricity to the grid by 2040 (i.e. STEP – the Spherical Tokomak for Energy Production. I think the government will do this, and it probably should, in case it works.)

Inspiring and enabling talented people and teams

A big increase in R&D spending won’t deliver results if there aren’t the talented people – at all levels – to do the work. Much potential homegrown talent is currently missed, due to the underrepresentation of women and black and minority ethnic people in research. The roadmap announces the creation of an “Office of Talent” to make it easier for overseas researchers to work and settle in the UK.

The relationship between higher education and further education will be rethought, especially in the context of expanding intermediate level technical training. I believe that we need much more joined-up systems for further and higher education on a regional basis, with much easier routes between the different parts of the system, and much more cooperation to expand provision for adult and continuing education.

Catapult Centres could be given a more explicit mandate to embrace technical training in their missions. Again, this needs to be done in a regional context, working with existing HE and FE institutions.

There will be an expansion of postgraduate research training. Will responsibility for PGR training be left with the research councils? Do we think of PhD students as primarily researchers or as trainees? Currently, PhD students are funded at a level far below the actual cost of training them, so given the current financial difficulties of universities the appropriate funding level will need to be reconsidered.

Innovation and productivity

The proportion of public R&D funding devoted to translational and applied research will be increased, with a particular focus on new medicines and treatment, and on defense research. What agencies will this funding be pushed through? Will funding for NIHR be substantially increased? What will be the role of Innovate UK?

Universities will be further incentivised to carry out knowledge exchange activities: HEIF funding is being increased, and the Knowledge Exchange Framework introduced. Care will be needed to create the right incentives here – perhaps they could be structured to encourage more regional collaboration between institutions?

The Catapult Network of translational research institutes could be restructured “We will review whether they should all continue in their current form, exploring the potential to seize new opportunities.” There’s a broader question of whether the Catapult Network should continue to be run by InnovateUK, or developed as an independent translational research agency with greater central coordination?

New innovation zones and clusters should be created, based around existing and new innovation assets such as Catapult Centres, and the role of Catapult Centres in promoting local and regional economic growth made more explicit in their goals. What is the right balance between the regional and national missions of Catapult Centres?

Levelling up R&D across the UK

“We have already committed to developing a comprehensive and ambitious UK R&D Place Strategy together with the devolved administrations over the coming months.” Tom Forth and I have published a comprehensive set of suggestions for “levelling up” in our recent NESTA paper “The Missing £4 billion”.

Central government will support local leaders in co-creating effective innovation approaches for their local economies. Should this be made formal, with cities/regions coming forward with “innovation deals” in return for devolved funding, as Tom Forth and I suggested?

Some proportion of national R&D funding should be ring-fenced for particular regions, in order to make progress towards “levelling-up” R&D funding across the country, and/or devolved to those cities and regions that have demonstrated the capacity to create robust innovation strategies. How much of the “levelling up” agenda should be driven top-down as opposed to created bottom-up?

All future decisions on R&D infrastructure investments should include an explicit consideration of their impacts on local and regional economies. This commitment is explicitly made in the Roadmap, though the issue will be the weight that is in practise attached to these factors relative to national considerations.

There should be mechanisms for more local and regional voices in the advice given to central government agencies. The emphasis so far has been on UKRI, but what about NIHR, MoD, and any new agencies that emerge?

Being at the forefront of global collaboration

The immediate question here is what happens to the UK’s participation in EU science programs. The stated intention is to negotiate participation in Horizon Europe and the Euratom research programme – but there is an if: “It is our ambition to fully associate to both programmes if we can agree a fair and balanced deal”. So there is a plan B:

“If we do not formally associate to Horizon Europe or Euratom R&T, we will implement ambitious alternatives as quickly as possible from January 2021 and address the funding gap. As a first step we will launch an ambitious new Discovery Fund offering sizeable grants over long periods of time to talented early, mid and late-career researchers, whether already in the UK or coming here from anywhere in the world, to pursue discovery-led, ground- breaking research.” This is clearly intended as a substitute for the European Research Council. One shouldn’t underestimate the difficulty of rapidly establishing a single-nation programme that reproduces the rigour and credibility of the ERC.

More funding will be made for bilateral programmes with appropriate national partners across the world, in a way that is more responsive to new opportunities. This in part is a response to a long-standing complaint by Science Ministers that they don’t have any flexibility to assign such funds during overseas visits, but this raises the problem of how to make the choice of partner countries strategic rather than simply depending on the travel schedule of the Minister. European partners shouldn’t be neglected here.

Ensuring a healthy R&D system

Public sector research establishments (PSREs) will be strengthened and integrated into the wider system. They will be allowed to bid for funding from UKRI, which should come with full economic costs. What is the right division of labour between university-based research and R&D in PSREs? Is there a danger of the two parts of the system entering into sub-optimal competition?

The PSRE network will be integrated into a true network of national laboratories, strengthened where necessary, with new organisations being created to fill obvious gaps. This needs a very clear view of national strategic priorities. One answer to the previous question is to differentiate more clearly between strategic science in support of national priorities and discovery science, but then this needs clarity about how universities and PSREs can most effectively collaborate.

My concrete suggestion would be to create a new “Net Zero Delivery Agency” to take responsibility for the innovation that will be needed to reach the net zero greenhouse gas goal.

The Government Office for Science will be strengthened and its resources increased, so that it can coordinate better science advice government and act as an authoritative technology assessment agency. Increased funding for GO Science was announced in the March budget, which I welcome.

The Research Excellence Framework will be reformed to reduce its bureaucratic overhead and focus more on measuring change and development. How to do this without introducing perverse incentives?

University research will be funded at closer to full economic cost. Part of the reason that a larger proportion of the UK’s public research enterprise happens in universities than in other comparable countries is that this has seemed a cheaper way of doing research than carrying it out in free-standing research institutes. But, as we’re now about to find out, that’s been an illusion – in reality, universities have subsidised the cost of research using the surplus from teaching overseas students. This subsidy – amounting to about a couple of billion pounds a year across the system – has been dramatically exposed by the pandemic.

What’s next?

The last section of the document begins by saying: “This Roadmap is the start of a conversation”. This conversation needs to take place with some speed: over this summer and autumn, the government needs to put in place its future spending plans in a Comprehensive Spending Review. In normal times, we’d expect this to cover the next three years – 21/22, 22/23 and 23/24. It’s the year after that – 24/25 – that the commitment to £22 billion R&D spending has been made, so these three years need to see substantial progress towards reaching that target, with concrete plans for those £billion scale increases. But it takes time to build new institutions, to recruit suitable people, to make evidence-based decisions about what projects to support.

It’s natural to ask, how robust will this spending target, and the general priority being attached to R&D, be to the shifting winds of politics? While the commitment of the current Number 10 operation to R&D seems not to be in doubt, it’s not obvious that there’s a deep commitment to research throughout the Conservative Party. It’s not difficult to imagine circumstances – perhaps a change in leadership following the inevitable economic difficulties that we’ll encounter recovering from the pandemic – in which that commitment will be diluted.

Of course, the spending target isn’t the ultimate goal, it’s the means to an end. That end is a more prosperous, more productive nation, with prosperity spread more equally across the country, on track to rapidly move its energy economy to a sustainable, net zero greenhouse emissions, basis. It is these goals that should drive our emerging R&D strategy.

This essay was published yesterday as part of a collection called “Visions of ARPA”, by the think-tank Policy Exchange, in response to the commitment of the UK government to introduce a new science funding agency devoted to high risk, high return projects, modelled on the US agency DARPA (originally ARPA). All the essays are well worth reading; the other authors are William Bonvillian, Julia King (Baroness Brown), two former science ministers, David Willetts and Jo Johnson, Nancy Rothwell and Luke Georghiou, and Tim Bradshaw. My thanks to Iain Sinclair for editing.

The UK’s research and innovation funding agency – UKRI – currently spends £7 billion a year supporting R&D in universities, public sector research establishments and private industry [1]. The Queen’s Speech in December set out an intention to increase substantially public funding for R&D, with the goal of raising the R&D intensity of the UK economy – including public and private spending – from its current level of 1.7% of GDP to a target of 2.4%. It’s in this context that we should judge the Government’s intention to introduce a new approach, providing “long term funding to support visionary high-risk, high-pay off scientific, engineering, and technology ideas”. What might this new approach – inevitably described as a British version of the legendary US funding agency DARPA – look like?

If we want to support visionary research, whose applications may be 10-20 years away, we should be prepared to be innovative – even experimental – in the way we fund research. And just as we need to be prepared for research not to work out as planned, we should be prepared to take some risks in the way we support it, especially if the result is less bureaucracy. There are some lessons to take from the long (and, it needs to be stressed, not always successful) history of ARPA/DARPA. To start with its operating philosophy, an agency inspired by ARPA should be built around the vision of the programme managers. But the operating philosophy needs to be underpinned by as enduring mission and clarity about who the primary beneficiaries of the research should be. And finally, there needs to be a deep understanding of how the agency fits into a wider innovation landscape. Continue reading “UK ARPA: An experiment in science policy?”