Increased science funding would help reduce the deficit

British universities are in trouble. Lord Browne today proposes a huge cut in the Hefce budget, while the govt. plans to cut funding for scientific research.

British universities are in trouble. Lord Browne today proposes a huge cut in the Hefce budget while last weekend, scientists, researchers, students and others gathered outside the Treasury to protest at the government’s plans to cut public sector funding for scientific research. They rightly point out that investment in this area is a key to future long-term prosperity and that even ‘temporary’ cuts are likely to have lasting damage to research capacity. They rightly point out that investment in this area is a key to future long-term prosperity and that even ‘temporary’ cuts are likely to have lasting damage to research capacity.

The argument in favour of scientific research rests not just on its role as general public good. Investment in scientific research has direct, positive consequences not just for the economy but also for public finances. This week Research Councils UK is due to launch a report showing that the multiplier effects for research and development funding is 1:10, that is every £1 billion spent on research increases GDP by £10bn, an enormous pay-off.

This is achieved through increased employment, attracting new investment, increasing efficiency, boosting sales, exports and intellectual property revenues, etc. This assessment of the large ‘multiplier’ attached to scientific research is supported by a host of organisations, including business groups as well as academics.

But all this activity also has an impact on government finances, with every £1bn increase in activity producing £750 million improvement in government finances (comprised of £500m in tax revenues, £250m in lower welfare outlays as people are brought into work and poverty reduced).

Therefore increased R&D spending will help to lower the deficit:

£1bn X 10 X 0.75 = £7.5bn

This is a net improvement to govt. finances of £6.5bn (after the initial £1bn outlay is deducted).

The same process works in reverse. Cutting government spending by £1bn in this area will reduce GDP by £10bn and so widen the deficit by £6.5bn over the medium-term. The business secretary Vince Cable says, correctly, that investment is an input, not a measure of output. But the self-serving mantra, ‘we could do more with less’ is accompanied by no plan to actually do so. And the data above poses the question, why would you want to? Since increased investment in science provides a boost to the economy and thereby narrows the deficit, surely anyone concerned with either economic well-being or deficit-reduction would want to increase science investment significantly?

As usual, George Osborne and David Cameron provide the explanation for the apparent contradictions of their Coalition partner’s policies, boldly stating that it is the explicit intention to clear the public sector out of the way, in order for the private sector to increase its own returns. But, as this Guardian survey of business opinion makes clear, the private sector has no intention of increasing its own science investment without the determining support of the public sector.

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