Between 2015 and 2023, UK government direct spending on research and development increased by 22% in real terms, and the current government plans a further 12% increase by 2029. If one includes the subsidy for private sector R&D represented by the R&D tax credit (and one should) the total real terms increase in government support for R&D is even larger. From the low point of austerity, in 2011, to 2023, the real terms increase was 65%, a remarkable – and, perhaps, little appreciated – figure in the context of difficult fiscal circumstances faced by those governments. Underlying this increase is a broad consensus about the importance of R&D for economic growth, and the need for the state to invest in R&D, to correct the market failure that means that the private sector will invest less in R&D than is societally optimal.
Given this economic motivation for investing in R&D, it’s inevitable that people will ask whether the increase in government spending on R&D has resulted in a measurable increase in economic growth. So far, the answer seems to be that it hasn’t, with the UK’s economic stagnation continuing well into its second decade. This is an important context for the changes in science policy I discussed in my earlier post – UK science policy in transition. The question that’s going to be asked is, when is the UK’s big bet on science and technology going to pay off?

UK government spending on R&D since 1986, expressed in real (inflation corrected) terms. Sources: spending out-turns: UK government statistics, reduced to constant 2023 £s using GDP deflator. Plans: 2025 Comprehensive Spending Review, corrected for anticipated inflation using OBR inflation predictions.
My first plot shows my best attempt at merging different data series for total UK government R&D spending since 1986, annotated with some key political and science policy events. The late 1980’s and early 1990’s saw substantial real terms cuts in R&D spending; this was very much part of the Thatcher government’s drive to reduce the size of the state. The situation stabilised in the Major government; William Waldegrave’s “Realising our potential” White Paper marked the beginnings of a new consensus about the importance of government support for R&D.
The 1997 Labour government began a period of significant increases in R&D spending, with the HM Treasury document “Science and Innovation Investment Framework 2004 – 2014” setting out an economic rationale for this new policy direction. The Global Financial Crisis intervened before 2014 arrived, and R&D budgets were significantly cut in the resulting austerity. The period after 2015, however, saw substantial real terms increases in R&D spending, as a response to continuing productivity stagnation, and, especially after the 2020 general election, as an attempt to find a new post-Brexit economic model. The incoming Labour government of 2024 accepted the ambitious R&D spending plans put in place by the previous government, and pencilled in a further small real terms increase.

UK government spending on R&D since 1986, expressed in real (inflation corrected) terms, including the cost of R&D tax credit schemes. Source: as earlier plot, + HMRC R&D Tax Credit statistics, corrected for inflation using the GDP deflator.
A very important development of the 2010s was the increasing use of R&D tax credits as a way of incentivising increased R&D spending by businesses. As my second plot shows, the cost of this subsidy now adds up to a substantial fraction of the direct expenditure on R&D by the government, bringing the total expenditure on R&D by the government to nearly £25 billion in 2023.

UK government spending on R&D since 1986 by category, expressed in real (inflation corrected) terms. Sources: spending out-turns: UK government statistics, reduced to constant 2023 £s using GDP deflator.
As always, there’s a lot going on underneath the aggregate. My next plot breaks down spending by type of government department. It’s a busy plot, but I’d draw attention to three particular aspects. The first is the dramatic fall in defence R&D, both in the Thatcher years, and then after a short plateau, after the end of the Cold War.
A major beneficiary of this fall has been spending by the Research Councils, in support of university research. This was already rising in the Thatcher years, reflecting a view that the government should be supporting “curiosity driven research” rather than more applied or close to market R&D, but the increase in the New Labour years is very marked.
The third aspect is the growth of R&D supported by business departments in their various incarnations. I’ve included the business-focused funder InnovateUK in this total (so it is not included in my numbers for Research Councils, even after 2018, when it was formally included in UKRI). This reflects the growing acceptance of industrial strategy in the Coalition and post-2015 Conservative governments, and the adoption of support of R&D in industry as a key industrial strategy vehicle.

Real UK GDP per capita. Data: ONS 13/11/205 release.
This increase in government spending has not so far resulted in any change in the UK’s dismal recent record of economic stagnation, as I discussed in my December piece The UK’s continuing economic growth crisis . My plots of GDP per capita tell the story. Between 1955 and 2008, GDP per person in the UK grew at an overall rate of 2.3% a year. That changed in the 2008 global financial crisis, following which GDP per person fell by 11.4%. After this, in contrast to all previous recessions, growth never returned to the previous trend line, with GDP per person growing at the lower rate of 1.4% a year until the the shock of the Covid epidemic, after which the UK has not even returned to the lower post GFC growth rate. GDP per person is now £16,500 – 29% – lower than it would have been if the 1955-2008 trend had continued.
So, why hasn’t the big increase in government R&D spending produced any detectable effect on economic growth, as measured by GDP per capita? Some candidate explanations might include the following non-exclusive list:
- Increased R&D spending has had a beneficial effect on economic growth, but this has been outweighed and masked by other policy missteps and external shocks, such as austerity, Brexit, covid, and the energy price shock following Russia’s invasion of Ukraine.
- Diminishing returns on R&D, with increasing investments needed to achieve the same outcomes. At a basic level, merely correcting spending for inflation may not truly reflect the rising cost of R&D; a high proportion of R&D spending goes on the salaries of researchers, which have historically risen faster than the overall cost of living. More generally, there has been the suggestion that R&D globally suffers from diminishing returns – perhaps the low-hanging fruit has already been picked.
- Wider economic, financial and political conditions in the UK may be preventing it from fully benefitting from R&D, for example inhibiting the ability of R&D led start-ups growing to a scale where they can make a material difference to the economy.
- We have been supporting the wrong types of research, getting the balance between basic science, applied research and development wrong.
- R&D tax credits may be an inefficient way of supporting business R&D, due to their dead-weight costs, and potential for misclassification of other kinds of business spending as R&D in order to claim the subsidies.
- The UK has made bad choices (whether explicitly or unconsciously) about which sectors to support, missing out on high growth sectors like semiconductors, while focusing on sectors with lower productivity growth.
- The UK has chosen to put its R&D efforts in the wrong places, focusing on locations where growth is constrained by anti-growth local politics and poor infrastructure.
- The increase in R&D spending will be reflected in economic growth, but only after a longer lag-time than has yet elapsed.
My personal view is that economists do tend to underestimate the time-lags between starting R&D efforts and seeing their fruits in economic outcomes. I suspect that it took more than a decade for the run-down of UK R&D in the 1980s and 1990s to manifest itself in stalling productivity, so perhaps one should expect a similar lag before we see the benefits of increased R&D spending.
But we do need to make sure the balance of our R&D spending is as optimal as we can make it, and that we have the wider conditions in place to benefit from it – hence the importance of getting right the current changes in science policy that I discussed here – UK science policy in transition.
What’s going to happen if we don’t see the benefits of increased R&D spending in the next few years? I fear then we’ll see the end of the long period of consensus about science policy, with the risk of some very negative consequences. We may be heading for a much colder climate: science in a post-liberal age.


Minimum transistor footprint (product of metal pitch and contacted gate pitch) for successive semiconductor process nodes. Data: (1994 – 2014 inclusive) –