The UK is navigating a world defined by rapid technological change, shifting geopolitical dynamics and the urgent need to create sustainable and equitable economic growth. The UK government’s Industrial Strategy (the Strategy), published last week, is a central part of its response to these challenges.
The Strategy rightly identifies research and development (R&D) as a critical lever to boost productivity and growth, and to secure the UK’s place in a world where scientific and technological leadership is essential to global influence.
But there are also significant challenges to overcome if the UK is to compete globally and translate its R&D strengths into economic value and growth. The Strategy’s interventions will help to achieve these goals, but should be accompanied by strategic funding in discovery science, ongoing support for connecting regional R&D clusters into a national innovation ecosystem and increased collaboration abroad.
R&D as national priority
The UK has a strong science base. Despite representing just 0.8 per cent of the global population, the UK contributes 12 per cent of the world’s most highly cited research papers. This productivity is anchored in its universities, with four UK universities in the world’s top 10. The UK can also boast the third most valuable tech ecosystem in the world, valued at $1.2 trillion, behind only the US and China.
The Strategy recognizes the strength of the UK’s R&D ecosystem – the network of interconnected academic, private sector and public organizations engaged in curiosity-driven and applied research. It sets out a series of welcome interventions to leverage this strength and identifies eight priority sectors where the UK seeks to translate research into growth: advanced manufacturing, creative industries, clean energy industries, digital and technologies, professional and business services, life sciences, financial services, and defence.
The Strategy is underpinned by the government’s Spending Review commitment to increase R&D investment to £22.6 billion annually by 2029–30. While this increase is welcome, the UK still lags behind international competitors. The UK currently invests around 3 per cent of GDP in R&D – the 11th highest percentage in the world, but significantly behind the biggest spenders, Israel (5.6 per cent) and South Korea (4.9 per cent). The US spends 3.5 per cent, while China spends 2.4 per cent but increased its R&D spending by an average of 10 per cent each year in the last decade.
In terms of actual spend, the US and China remain far ahead of any competitors and dominate key areas, including AI. The UK’s R&D translates into broadly as many patents and start-ups per millions of research funding spent as the US, but the challenge is to support these to scale into businesses that remain in the UK and contribute to significant economic growth. The Strategy’s interventions and the previously announced Pension Schemes Bill and Mansion House Accord (aimed at unlocking pension fund capital to boost investment in high-growth companies) are designed to address these commercialization and scale up gaps.
For the UK to compete, it should not only invest more, but needs to invest smarter. The real challenge is how to support an R&D ecosystem that attracts and connects people, ideas, and capital to generate productive, scalable impact.
Building an innovation engine
A core reason for the UK’s R&D strength lies in its dual support funding model. The main funding streams are project-based funding via UK Research and Innovation (UKRI), and the strategic quality-related research (QR) funding. QR funding is flexible, stable, and based on long-term assessments of research excellence. It empowers researchers to take risks, develop breakthrough ideas, and invest in new facilities without being limited by short-term grant cycles.
QR funding underpins the UK’s leadership in areas like biosciences, quantum, and green technology. It also produces genuine discoveries. These discoveries become technologies and products, which become businesses, and businesses are the engine of growth. It’s no coincidence that many of the UK’s standout scientific discoveries that have led to new technological applications can trace their roots to QR-funded activity, including innovations such as graphene to new tests and treatments for bowel disease and cancer.
Yet QR funding has suffered a 16 per cent real-terms cut since 2010. Restoring and increasing QR funding from within the overall R&D spending envelope should be a priority to maintain the UK’s competitive edge. While R&D spending must contend with budgetary constraints, QR offers valuable possibilities to advance world-leading research and enable new discoveries.
Clusters, connectivity and commercialization
Alongside funding, the UK should also embrace its emerging ‘clusters’ with universities at their core. These include AI in London biotech along the Oxford–Cambridge Growth Corridor, quantum computing in Glasgow, and advanced materials in Manchester and the northwest.
These clusters are natural launchpads for high-growth industries and would benefit from increased connectivity; the Strategy is right to recognise their potential to increase innovation, expand access to talent and strengthen supply chains. The UK must seize the opportunity to put in place the physical and digital infrastructure and funding mechanisms to connect these clusters on a national level.