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Charles Levy
Senior Economist
Charles  Levy

A Spending Round for innovation and growth

Authors: Charles Levy Charles Levy

26 June 2013

Today’s announcements offer welcome protection for science and innovation. Ahead of the review, the Big Innovation Centre called on the Chancellor to use it as an opportunity to prioritise investment in science, engineering and technology, to extend funding for collaborative research partnerships between universities and businesses, to invest in the next generation of super-fast broadband, and to expand the resources available for industrial policy within the Department for Business Innovation and Skills (BIS) and the Technology Strategy Board (TSB). There appear to have been major concessions towards almost all of these areas:

  • Funding for science and research has been reasonably well protected. Current spending on research has been protected in cash terms (although because of inflation, by 2015 this freeze will have represented a real terms cut of 14% cut compared to 2010). Capital funding for research will increase, albeit from the low base set in the 2010 Spending Review

  • The extension of the Research Partnership Investment Fund, backed by £160m per year for two years is also to be welcomed. We believe this is an effective way to deliver deep collaboration between universities and businesses and called for a similar £300m extension in our submission;

  • We urged the government to look beyond academic science and research when supporting innovation. The provision of an additional £185m for the TSB in 2015/16 is close to the 50% increase for which we made the case;

  • The budget for the self-styled ‘growth department’ (BIS) appears to have been spared the worst of the cuts. Its administration budget has been cut by approximately half the average for all departments. Its total programme and administration budget has been cut by 1.3%, compared to 2.7% for all non-ring-fenced areas.

However, in terms of growth and innovation, there are still two areas of concern:

  • A central recommendation of the Heseltine Review was to introduce a Single Local Growth Fund to allow LEPs to direct funding in their areas. We have supported this as one of a number of important ways to help support the development of Local Enterprise Partnerships as bodies capable of leading the economic development of their areas. However, the government appear to be soft-pedalling here. While more details will emerge shortly, at £2bn each year, the fund looks significantly smaller than the £10bn per year proposed by the review. A fund of only £2bn could see the 39 Local Enterprise Partnerships focus a large part of their resources on a relatively small prize;

  • To fund much of this investment, it appears that BIS have had to make £400m savings in their education and training budgets. It would be a major problem if these changes put off students from entering further and higher education courses;

So far, this has been a good Spending Round for innovation and growth. But there are many areas where we are still waiting for clarification. The Chancellor’s speech included some very impressive numbers on capital projects. However, full details of these will only follow tomorrow. Our calculations suggest that the numbers presented above imply cuts across other areas of current BIS spending of close to £400m in 2015/16. We have no detail on how these savings will be made, so the jury is still out on this Spending Round.