News blog: Should business contribute more to the science budget?

Asking R&D-heavy companies to help plug gaps in the science budget has implicit appeal but, in reality, only increased public spending is likely to keep global firms in the UK, says Paul Jump

August 2, 2015

The UK research budget looks under serious pressure given the huge cuts the Department for Business, Innovation and Skills is expected to make in the coming spending review.

The fact that business secretary Sajid Javid has called in the consultancy McKinsey to carry out a cost-cutting review of the bodies is funds does not bode well.

Nor does the report released earlier this month by the Institute of Economic Affairs, a thinktank close to Javid, calling for the research excellence framework to be scrapped and claiming there is “a strong case for reducing the total amount of government subsidy for research and expecting universities to generate their own funds for research and scholarship or support it by reducing overhead costs.”

By international standards, public sources account for a particularly high proportion of UK research spending. Elsevier’s most recent review of UK research performance, International Comparative Performance of the UK Research Base – 2013, says that while 46 per cent of the UK’s total spend on R&D comes from the business sector, and 64 per cent in spent in that sector, this is lower than most of the eight comparator countries it looked at.

According to the report, commissioned by BIS, the UK’s “research intensity” – the proportion of GDP spent on R&D – is also relatively weak, and shrinking. The UK ranks sixth among the G8 countries, and its intensity is also below the EU and OECD averages. Meanwhile, the percentage of total funding spent in the higher education sector is high by international standards.

The benefits business derives from academic research is reflected in the impact case studies drawn up for the REF. According to the Dowling Review of Business and Research Collaboration, which was published earlier this month, 171 companies are mentioned in more than five case studies

Of course, companies do not need to be resident in the UK to benefit from UK research, but they do if they want to tap into directly the expertise of the academics responsible for it, and the Dowling report also makes clear that many have active collaborations with the academy.

The pharmaceutical industry seems particularly dependent on university research. As demonstrated by a graphic published in Times Higher Education, based on the Dowling report, the three companies cited most frequently in case studies – GSK, Pfizer and AstraZeneca – are all pharmaceutical companies, and the first two account for 22 per cent of all mentions of companies in case studies submitted to the life sciences panel.

Those three companies are also the most prolific collaborators with universities.

Those of a left-wing persuasion might see this as another unacceptable example of “corporate social welfare”: the public subsidy of the profits of already rich companies. And a moral case might be made for requiring companies to contribute more to the public research spend from which they evidently derive so much benefit.

Of course, assuming they are UK-based and do not go in for too much tax avoidance, they already contribute to the public pot via corporation tax. But might the level of corporation tax be raised slightly for R&D-heavy companies, with the extra sums raised channelled into the science budget? Might that be a reasonable way to respond to any cuts from existing public sources in the spending review?

With a certain amount of squinting, a rightwinger might even see such a measure as a way to realise the Institute of Economic Affairs’ aspiration for universities to generate more of their own research spending. Although the charge would be levied and collected by HM Revenue & Customs, it would be an implicit charge for services rendered by universities.

But whatever the inherent merits of such a scheme, there would be practical problems about exactly which companies should be liable for it. Just the big ones? Or just the ones at the top of Dame Ann’s list; as she notes, “the absence or under-representation of some well-known companies from the [list] suggests that while numerous businesses have enjoyed productive partnerships with the UK research base, there are many other companies that have not embraced this path so enthusiastically”.

And even if that issue could be equitably resolved, you would run up against the pragmatist’s standard objection to requiring rich people or rich corporations to contribute more to the public weal: namely, that such requests will simply be met by a stampede for the first class lounge at Heathrow.

Some counter that argument by asserting that people and certainly companies are not as internationally mobile as they like to assert given the costs of relocation and the cultural and scientific lure of the UK. You might also observe that if other countries require their technology sector to fund more of their own R&D effort, UK companies would derive no benefit from moving there.

But global companies are very good at identifying low-tax, high-expertise countries. And Dowling notes that a “significant proportion” of the 40 most cited companies in REF case studies are headquartered outside the UK. This illustrates “the significance of the UK’s research base for attracting inward investment” but it also shows that their presence is the UK reflects pragmatism more than sentiment, and could easily be rethought if circumstances changed.

This is why the public subsidy for carrying out R&D in the UK was extended in 2013 even to companies that do not pay any corporation tax in the UK. And David Nutt has warned in Times Higher Education that even more needs to be done to hold the hand of big pharma as it struggles to reconfigure its R&D efforts in the post-blockbuster drug era.

That warning was made in the wake of AstraZeneca’s 2013 announcement of the relocation of its R&D from Cheshire to Cambridge with the loss of about 600 research jobs. When Pfizer tried to take over AstraZeneca a few months later, there were widespread fears that even the Cambridge jobs would eventually go overseas. This was because, for all the benefit the giant US firm evidently got from being in the UK, it had already closed its own UK R&D facility in 2011, with the loss of around 1,500 jobs.

It is fair to say that it is precisely the potential for UK technology firms to contribute to economic growth and the fabled rebalancing of the economy away from finance that has preserved the science resource budget from cash-terms cuts in this age of austerity – and has even secured it a significant injection of new capital for every year until 2020-21.

That clearly needs to be preserved and enhanced in the coming spending review if that vision is not to crumble. No matter what McKinsey and Sir Paul Nurse’s review might conclude about the wisdom of dual support and maintaining seven separate research councils, George Osborne needs to keep his eye on that ball.

Corporate social welfare it may be, but this is what governments are up against in an era of global capitalism and, as industry subsidies go, research seems one of the more benign, especially when it is directed through universities and public research institutes.

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