Britain’s R&D funding needs no innovation

Because of the long odds involved, countries rationally encourage pursuit of discovery. In Britain, the technology support agency Innovate UK distributes £500m in research and development grants to business each year.MoreON THIS TOPICPMI data boost manufacturing hopesFinancial lifeline on way for steel sectorSteel crisis deepens with 1,200 job lossesOil and gas lift UK industrial outputFT VIEWOne power too many for the security statePresident Xi’s historic gesture to TaiwanSisi autocracy is no way forward for EgyptThe Bank of Japan considers more easingSign up nowFirstFT is our new essential daily email briefing of the best stories from across the webWhile the model has worked well enough, it is now under review by the new Conservative government. The business secretary, Sajid Javid, would like the state to make a return for its help by making loans, not grants, to innovators. This has some superficial appeal. But Mr Javid should beware of making a switch that may harm innovation, for no obvious reward.It is easy to see why some argue for the state to charge for its support. Many profitable businesses have been built on intellectual property funded by public money. Much of the technology behind Apple’s iPhone, for example, originated in US government-sponsored research.Moreover, some grant recipients are themselves successful and profitable enterprises. Take Rolls-Royce, for instance. The aerospace giant spent on average £650m a year on R&D, training and investment between 2005 and 2014. Would it have really missed the £33m a year it received from Innovate UK in funding?The early-stage research that most grant money is spent on is very different from a typical investment. Not only are outcomes more uncertain, but the distinction between success and failure may be blurred, not least because turning an invention into a profitable product often takes years. The wonder material graphene, first isolated at the University of Manchester in 2004, may have been awarded a Nobel Prize and hailed as the new silicon. Nonetheless, its commercial applications are yet to be established.Research grants may be “free”, but the evidence suggests they unlock private investment beyond the requirement to match funding. In the case of start-ups, this funding also functions as both seed capital and a valuable signal to commercial investors.It is also unclear why a business would want to take out a loan on its early-stage research from the government. Large companies already have access to financing from their banks. Start-ups and small companies lack the collateral to do so anyway.The R&D sector drives what Britain aspires to be: a high-wage, high-skill economy with a competitive edge. If research grants are withdrawn, the large companies may simply move their R&D departments abroad. Small companies, currently receiving two-thirds of Innovate UK’s budget, would struggle to fund research.The big picture shows that the UK’s public spending on science is below that of any other G8 country. Despite that, it ranks among the leading countries in terms of innovation. That hardly justifies expenditure cuts.True, one of the biggest challenges for British R&D is to commercialise its discoveries, but offering research grants in the form of loans would not help. It would simply add to the risks researchers are already taking by dedicating their time to uncertain tasks. More business training for Britain’s researchers may be a good idea. Regarding the funding model, no great innovation is required.

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