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The Progressive Policy Think Tank

The R&D investment challenge: Moving towards a more research-intensive economy

Innovation is the process by which businesses improve how they do things – whether that be how they produce goods or services, what they choose to produce and how they organise their workforce. More innovative firms are likely to be more productive, better to work for, enable us to become more internationally competitive and could enable us to solve big societal problems such as climate change and an ageing society.

Dedicating resources to research and development is key to enabling innovation and the UK economy sits well below the OECD average, 1.7 per cent of GDP is spent on R&D in the UK compared to an average of 2.4 per cent across the OECD. Both the Conservative government and the opposition have set out targets to increase R&D spend as a proportion of UK GDP – up to 2.4 per cent by 2027 and 3 per cent by 2030 respectively.

This briefing note outlines how much public investment may be needed to reach these ambitions. Evidence suggests that public R&D has the potential to ‘crowd-in’ additional private R&D spending, particularly if that spending is ‘mission-based’. We factor in this crowding-in assumption to our modelling, assuming an additional £1 crowds in £1.60 over the decade that follows.