Extra money achieves most in places that have received least, say Huanjia Ma and colleagues
One of the main ways that R&D policy is likely to feature in the election campaign is as a tool for reducing regional inequality. Currently London, the South East, and the East of England, collectively known as the Greater South East, receive more than half of all research spending. The UK’s patchy growth, and its depths of deprivation, owe much to the concentration of this and other forms of investment.
The Conservative government’s 2022 UK Levelling Up White Paper proposed a 40 per cent increase in public R&D investment outside the Greater South East by 2030. While Labour has not yet announced its regional R&D policy, it is expected to propose similar plans to redistribute public spending through devolved funding bodies.
It’s not yet clear how redistribution will be implemented. Some argue that investing in lagging regions results in lower benefits overall, and that more is achieved by focusing spending on places already rich in infrastructure and human capital. As mayor of London, Boris Johnson summed up this point of view in his remark that “a pound spent in Croydon is worth far more than a pound spent in Strathclyde”.
Our research suggests that this is not so. In a recent paper, we use economic modelling to show that redistributing R&D funding more equitably can reduce regional inequality, without sacrificing the overall benefits of additional investment.
We looked at three different ways to allocate the 40 per cent increase promised in the 2022 white paper. The first was an equal uplift, where every region outside the Greater South East received the same proportional increase, maintaining current distribution patterns. This scenario saw Yorkshire and the North West receive the biggest gains.
We also modelled a more redistributive approach, allocating more funds to regions that currently receive the least public R&D funding, giving the biggest boost to the Midlands. Finally, we matched additional public funds to business R&D spending, directing more to places with higher private investment, namely the West Midlands and the North West.
Socioeconomic impact
To see the effects of each policy, we used the Socio-Economic Impact Model for the UK, devised at the University of Birmingham. This uses data on flows of goods and services within and between regions to estimate the impacts of public spending on demand and employment in each sector.
We found that the overall national benefit in terms of output, employment and gross value added, a measure of economic productivity, was roughly equal for each scenario. However, directing funding to places with historically low R&D investment did the most to reduce regional inequalities. Redistribution raised regional GVA by an average of 0.33 per cent, compared with 0.27 per cent for the other two scenarios. The results for employment and output were similar.
This pattern comes about because regions outside the Greater South East are not well connected. Investment in well-off places creates local benefits, but weak interregional connections mean there are few spillovers to other places—an argument for improving links between regions.
These findings challenge the view that concentrating R&D spending maximises its economic benefits. Rather, focusing funds on one or a few regions would do little to level up the UK more generally.
Our research shows that R&D policy can be a powerful tool to address regional economic inequality. However, the potential impact of any policy measure depends on how it is implemented. So far, no party has laid out its plans for how it might use research policy to boost the UK’s underperforming regions and reduce inequality. We have three recommendations.
First, empower regions, giving local governments the power to advocate for R&D funding based on their particular competitive advantages.
Secondly, transparency is vital. Effective scrutiny, monitoring, and evaluation of spending depends on being clear about the reasoning behind policy choices.
Thirdly, be radical. Public R&D spending can have a significant local impact—and a radically redistributive approach would clearly have the biggest impact on closing regional economic gaps.
Unlocking potential
The UK faces a critical opportunity to address long-standing regional economic inequalities through strategic redistribution of R&D spending. Concentrating funds in the Greater South East has driven significant innovation, but a more balanced approach can unlock the potential of underfunded regions, making the economy more equitable and resilient. Ensuring parallel investments in human capital and institutional support will be key to realising these goals.
Huanjia Ma and Matt Lyons are at the City-Region Economic Development Institute, University of Birmingham. Raquel Ortega-Argilés is at the Alliance Manchester Business School.
This article also appeared in Research Fortnight