One size doesn’t fit all in terms of R&D and innovation
While some of us have been able to work at home during the Covid-19 crisis – and may have actually improved our productivity – this has not been the case for most of those involved in research and development (R&D). Lock-down has meant no access to laboratories or the specialist kit needed, so many R&D projects in universities and companies came to a dead stop with others put on hold. R&D projects may also have been cut back for other reasons too of course as firms have needed to address more immediate financial and operational issues.
We undertook some research recently for Innovate UK to explore the challenges that innovating firms face due to Covid-19 and how Innovate UK could help. The results from Innovate UK Grant Holders suggest that around 1:9 firms stopped all of their R&D activities during the lock-down period. More worrying perhaps is that around 65 per cent of firms reduced the scale of their R&D activities during the lock-down period and that around a third of firms plan to reduce their investment in R&D by more than half over the next three months.
This is not unexpected. Following the financial crisis of 2008-10 UK firms sharply reduced levels of R&D and innovation activity, levels which only recovered fully 4-6 years after the end of the crisis. Equally important was that falls in R&D and innovation after the financial crisis were very unevenly spread across sectors and regions. R&D and innovation in Northern regions of the UK and more traditional manufacturing sectors either never recovered or were slower to recover than those in other areas/sectors.
How levels of R&D and innovation activity in different sectors and areas have been affected by Covid-19 is not yet clear. We do know that weaker industries/regions are tending to be hardest hit by the current wave of redundancies. If the patterns of 2011-2015 are repeated, and R&D and innovation levels in the same industries/areas also fall this will also mean that these sectors and areas will have less capacity to recover as opportunities improve.
Falls in R&D and innovation in businesses also have other knock-on effects with around 1:3 Innovate UK grant holders suggesting that they had reduced their spend on collaboration with universities during lock-down. Few firms are planning to increase their level of spend on university collaboration, with around two-thirds planning no change and 1:6 planning to reduce spend by more than 50 per cent. The effects on the R&D capacity of universities may be significant, particularly if this trend continues for any significant period.
Government has recently reaffirmed its target of raising R&D spend in the UK to 2.4 per cent of GDP by 2027, a significant increase on its pre-crisis level of 1.7 per cent (2018). The impacts of the Covid crisis make this target all the more difficult to achieve. Re-thinking the value of a single national target for R&D spend may now make sense given the likelihood that the Covid crisis will have very different regional and sectoral impacts. If we are to take levelling up seriously, we need a more nuanced approach to R&D and innovation targets which recognise the distinct needs and capabilities of different UK regions and sectors.
Stephen Roper, Director, Enterprise Research Centre (ERC)
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Enterprise Research Centre, its Funders or Advisory Group