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Wales Needs to Improve its Research and Development Performance

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If we are to create an innovative competitive economy, then it has been rightly argued that businesses need to invest more in research and development (R&D) as this will lead to better products and services that markets will consume.

One of the key indicators for assessing the innovation that takes place within the UK is the measure of research and development spending by the private sector, otherwise known as BERD.

BERD for the whole of the UK in 2017 was £23.7 billion with the three most prosperous regions – London, South East of England and the East of England – accounting for 52 per cent of this expenditure.

In contrast, the BERD expenditure for Wales was £457 million, an increase of 3.9 per cent on the previous year. This compares to an increase in BERD expenditure in the UK of 4.9 per cent over the same period.

This means that Wales now accounts 3.4 per cent of the UK economy, it is responsible for only 1.9 per cent of the total business R&D undertaken. This is only 0.1 per cent higher than it was in 1999 and demonstrates that much remains to be done to transform the competitiveness of the Welsh economy.

In fact, if we examine the main target for R&D spending that is normally assumed by policymakers namely R&D spending as proportion of GVA (Gross Value Added), then we find that the proportion is only 0.7 per cent, considerably behind the UK (at 1.3 per cent).

And it is worth noting that the Welsh Government had set itself the target in 2002 of increasing business R&D expenditure to more than 1 per cent by 2010 i.e. nine years ago. In fact, to reach this target even now, expenditure by the private sector should have been only £165m higher.

Generating this additional amount of expenditure every year is certainly achievable but will need a more strategic approach than we have previously had to increasing the R&D capacity of our business sector and, more importantly, a clear and co-ordinated approach to linking the worlds of academia and industry, especially as over a quarter of a billion pounds is spent annually within the Welsh university sector (accounting for 3.3 per cent of the UK total).

However, what is most mystifying is the amount being spent by government departments on R&D in Wales (or rather not spent).

According to official statistics, £2.1 billion is spent every year by the UK and research councils on R&D yet, only £15 million of this is spent in Wales i.e. 0.7 per cent of the total.

Indeed, the proportion of funding that should be allocated by the UK Government to Wales according to its population (5 per cent) would have brought in an additional £108 million of R&D spending into the Welsh economy.

Unfortunately, over 58 per cent of UK R&D Government expenditure is within the richest regions demonstrating, yet again, a lack of any regional policy towards distributing wealth creating opportunities across the nation.

Certainly, both UK and Welsh Governments need to re-examine this and make a far stronger case for more of this Research and Development to be spent in Wales and given that we currently have an industrial policy which purports to do this, then there must be a greater fairness in the future allocation of public funding for research which, in turn, can help boost the overall R&D performance in the poorest UK regions such as Wales.