R&D grants found to significantly boost growth and create jobs

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Research led by Prof Stephen Roper, from the Warwick Business School and director of the Enterprise Research Centre, has found that over a 13-year period, R&D grants spurred growth worth £43 billion to the British economy – more than five times the £8 billion invested – and created around 150,000 jobs

The analysis backs the government’s policy of subsidising promising industrial research and suggests that the "picking of winners” policy might work at a national level.

The analysis, according to Prof Roper, is the first of its type to be undertaken in such depth and shows that grants to support R&D have a positive impact on creating jobs and fuelling growth in hi-tech, high value-added sectors.

Scientific and technological innovation is seen by the Government as a key plank of its new industrial strategy but, until now, understanding the effects of grants – largely distributed by research councils such as Innovate UK and the Engineering and Physical Sciences Research Council (EPSRC) and totalling some £1.7 billion per year – has been patchy.

The new research, which studied £8 billion worth of grants to nearly 15,000 firms from 2004 to 2016, shows the effects can be transformative. According to the study, on average, these firms employed 23% more people after six years compared with firms that did not receive grants and turnover grew by 28% and productivity by 6% over the same period.

The biggest growth in both employment and turnover occurred among manufacturing firms.

There are worries that a top-down approach to funding industrial research could lead to more resources for developing obvious, well established ideas at the expense of more innovative ones.

However, according to Prof Roper, the study suggests that the policy of picking winners could work if it is properly targeted.

"We get significantly larger growth effects in manufacturing than in services and among smaller firms than larger firms, so rather than backing national champions we should be looking to the next generation of national champions - small, promising, up-and-coming businesses that have the potential to scale up. It is those we should be supporting,” according to Prof Roper.

The UK government announced an expansion to industrial R&D funding last year as part of the government's industrial strategy, which included an extra £4.7bn for the science budget over the next four years.

A large proportion of the extra money will be for grants to invite collaborative projects between hi-tech firms and academic researchers. This will be partly funnelled through the industrial strategy challenge fund, which aims to support key growth sectors including medicines, robotics and artificial intelligence (AI), clean energy and driverless vehicles.