As various research studies have shown, economies that consistently invest in innovation reap the rewards in higher productivity, better jobs, and stronger exports.
For the º£½ÇÊÓƵ, innovation matters more than ever and after more than a decade of sluggish productivity, we cannot afford to stand still as competitors improve their economies.
The recent figures on research and development (R&D) expenditure released by the Office for National Statistics show that the picture at the º£½ÇÊÓƵ level is mixed ,but broadly positive. Total expenditure on R&D performed in the º£½ÇÊÓƵ reached £72.6bn in 2023, an increase of £3bn compared with 2022 and £14.3bn more than in 2018, which is the first year for which comparable figures are available.
Business continues to dominate R&D activities undertaking £50bn (or 69% of the total) whilst higher education delivered out £17.1bn (24%) and the government sector (including º£½ÇÊÓƵ Research and Innovation) £4.3bn (6%). Private non-profit organisations spent £1.1bn or 2% of the total. There was also a healthy pipeline of innovation across sectors with business expenditure increasing by £1.4bn, higher education by £900m, and government by £700m.
Yet if the º£½ÇÊÓƵ overall is moving in the right direction, the regional story tells us just how unevenly this investment is distributed. The so-called ‘golden triangle’ of London, south east England and the east of England together account for more than half of all R&D in the º£½ÇÊÓƵ with London alone seeing a year-on-year increase of over £2bn.
However, other parts of the country went backwards with north West England, south west England and Wales all declining in total R&D expenditure. And whilst this regional imbalance is not new, it is becoming more entrenched with areas that already have strong research ecosystems increasing their advantage while others are struggling to catch up.
For Wales, the figures are especially concerning with the R&D expenditure of £1.47bn accounting for just 2% of the º£½ÇÊÓƵ total despite the nation representing nearly 5% of the º£½ÇÊÓƵ population. Even more worrying, it was down by £45m compared to the previous year.
Whilst universities remain strong performers and are responsible for nearly 40% of all Welsh R&D compared to 24% across the º£½ÇÊÓƵ, much of this value will leak out of Wales to other regions with deeper absorptive capacity if businesses are unable to take academic research forward and scale it.
Indeed, the biggest issue was a 6% decline in business expenditure which, as it is the most important form of R&D, is critical given that it is not only directly linked to new products, patents and processes but also anchoring supply chains and high-value employment.
This over dependence on higher education could be problematic given that the deep financial challenges facing Welsh universities could also have serious consequences for research in the years ahead. If institutions continue to cut back on staff, facilities or research capacity, then one of the few pillars sustaining R&D activity in Wales will be weakened. That would not only damage innovation but also have a significant knock-on effect for the wider economy which is why a coherent, long-term higher education strategy for Wales is essential for both the sector itself and the future competitiveness of the nation.
So what else should be done to ensure that Wales does not continue to slip backwards relative to other parts of the º£½ÇÊÓƵ?
First, Wales must become a far more attractive place for firms to undertake R&D which means creating a supportive environment for investment and reducing barriers that slow down companies that want to build labs, test new ideas, or collaborate with universities. Planning rules, business rates and infrastructure all matter here, and the Welsh Government should develop new levers that it could use more effectively to boost innovation.
Wales also needs to double the scale of collaboration between businesses and universities and whilst the Welsh higher education sector does have genuine strengths, linkages with industry are simply not strong enough. Interventions such as targeted innovation vouchers, fast-track funding for joint projects, and dedicated support for spin-offs could all help bridge the gap and this is exactly where the £30m of Local Innovation Partnerships funding recently given to the Cardiff Capital Region by the º£½ÇÊÓƵ Government should be focused.
Finally, public procurement could be used more smartly and if the NHS in Wales, local authorities or our utilities committed even a small proportion of their budgets to innovative Welsh businesses, that could provide the crucial first customer that helps companies grow. Finance, too, must play its part with a greater appreciation by public bodies such as the Development Bank of Wales that innovative firms require more support than they have given in the past if they are to succeed.
Above all, Wales need a clear target to focus minds and there should be an ambition to double its share of º£½ÇÊÓƵ business R&D from 2% today to 4% within ten years, with the aim of lifting total expenditure above £2bn before the end of the decade.
I believe that Wales has the talent and the opportunity to become a leader in innovation but unless there is a clear strategy to rebuild confidence, attract investment and strengthen the research base, there is a strong risk that another generation will be condemned to economic under performance which, frankly, isn’t good enough after over a quarter of a century of devolution.
With a Senedd election in nine months’ time, the question is whether any of our political parties will commit to changing this spiral of decline. If they don’t, the gap in innovation with the rest of the º£½ÇÊÓƵ will only widen, locking the nation into lower growth, fewer high-value jobs and a weaker economic future.
