The Prime Minister has begun to set out his levelling up plans. The challenge is now to rebalance growth and jobs across the regions within this parliament. The health sector, emerging growth-ready from the pandemic, can be an engine for this.
The key to unlocking levelling up is business investment in research and development – linking directly to another of the PM’s goals: building “a global science superpower”. He wishes to build on the UK’s vaccine success, with its model of rapid development of innovative science for practical purposes. He sees that linking this to innovation more widely can spur growth. The government can be commended on the recent publication of its Life Sciences Vision, bold implementation of which can underpin this agenda.
The PM is right to link the mission of improving health to the task of rebuilding our economy. If we get this right, the benefits could be huge, but there is a major hurdle to get over. It comes down to the fact that even with the combined efforts of government and the private sector, we still invest too little in the R&D that drives new technologies: just 1.7% of national income, well below the OECD average of 2.4% and most of our key competitors.
This shortfall has been highlighted by eight of the country’s leading trade groups, including the CBI, Tech UK, and my organisation, the Association of the British Pharmaceutical Industry, in a recent report which concluded there is simply too little incentive for businesses and investors to make the UK their R&D base.
To turn that around, we are all calling on the Chancellor to make a simple change to allow better treatment of R&D capital expenditure, including assets like research sites, factories, laboratories, and machinery. Tax credits are available to provide tax relief for other R&D costs, but the cost of the actual facilities to conduct the work are excluded. This discriminates against capital-hungry sectors like manufacturing, and the parts of the country that host them, a stark contrast with the approach of France, Spain, and Japan among others. It is a simple but powerful barrier to doing R&D in the UK.
The reality is that we cannot be a global innovation leader if our R&D incentives lag those of our rivals. Better treatment of capital in R&D tax credits would bring the UK into line with key competitors and if enacted, at last provide a real incentive for investors to make the UK their R&D base.
This would have a serious benefit for our regions. Our analysis shows the policy shift would have a concrete levelling up benefit by unlocking £4bn a year of new growth and over 12,000 new jobs, including direct and spill over employment. These jobs would mainly be in high-skilled manufacturing, providing good wages and secure employment.
In the North of England, the policy would generate more than £750m of new growth and almost 4,000 new jobs. In the Midlands, more than £500m growth and 4,800 jobs. In the East of England, more than £300m and 6,200 new jobs. In the South of England, there would be more than £850m of new growth and over 8,300 new jobs. And in London, more than £900m and 4,200 new jobs.
The aim of the new Office for Science and Technology Strategy is to push forward the government’s research priorities. One such priority should be ensuring that our R&D investment incentives do not lag those of our competitors and can catalyse levelling up.
If the Prime Minister really wants the UK to be a global leader in science and innovation, he should act now to put UK firms on the same footing as those in other countries. In doing so, he can kill two birds with one stone: advancing his levelling up agenda and making the UK a genuine science superpower.
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